Over the last decade, with the rapid development of business management, the Shareholders who are the effective owners of the company invest money into the business and want as much profit as possible as a return for their investment. Shareholders will engage manager to help them to run the business and make various decisions in different aspects in order to maximize potential wealth. There seems to be no doubt that a manager has a legal responsibility to shareholders. However, if the manager only considers the interests of shareholders, will the business be successful for a long time? Therefore, the theory of stakeholder enters the public consciousness.
This essay aims to explain in addition to the shareholder, why it is also necessary for a manager to demonstrate responsibility to the various stakeholders. An integrated and clear definition of stakeholder will be introduced in the first paragraph. The content will show that stakeholders play different significant roles to help the firm to reach the long-run benefits in the second paragraph. Last but not the least, the third part of this thesis will utilize a negative example to reveal the bad influence if a manager only shoulder the responsibility to shareholder.
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Stakeholders are all person or group which have various interests or concern upon the company and be involved in the daily routine of it, meanwhile they will also be affected by the economic, moral action processed by the firm. Customers, employees, business associates, the community and the natural environment are the representative members of stakeholders. For instance, Primark, a textile manufacture and clothing distribution industry in the UK divided its stakeholders into the form of external and internal.
Employees are the internal stakeholder and suppliers, customers, trade unions, civil society groups, and the communities are the external stakeholder of the Primark.(Primark, 2011) An significant point that could not be ignored is that a special group which is also be included in the stakeholder is shareholder, the reason why shareholders are also the obbligato parts of stakeholder is that they have a financial interest in what the company performed and the profit business earned will directly impact the interest of shareholders.
Thus the relationship between shareholder and stakeholder is comprehensibly revealed. According to the content introduced above, there are different kinds of stakeholder in the business. Whether they have the same effect to the business? Obviously not. It is necessary to analyse that each stakeholder will have diverse attention about the business activities and their power of influencing the company are in disparate level. Refer to Mitchell et al (1997, p854), the stakeholders can be identified as the following attributes: the power of influence the firm, the legitimacy of the stakeholder’s relationship with the firm and the urgency of the stakeholder’s claim on the firm.
So when balancing the relationship between various stakeholders, managers need to expand their managerial comprehending and pay attention to which stakeholder will have priority and intend to impose himself upon the firm in the realistic current organization’s environment.
Stakeholders have a strong communication with the interests of the company and the extent of the stakeholder’s satisfaction has a tight link between company’s success. It is necessary to consider the needs and objectives what stakeholders want. Improving the satisfaction of the stakeholders can help business obtain a competitive advantage and long-term benefits. It can also attract investors to invest in the enterprise, build corporate reputation as well as media coverage. In addition, to compared with the consumers in the past, the customers are increasingly care about how the firms trade their stakeholders nowadays wider than generating economic wealth. Consequently, placing the awareness of working with different stakeholders at the heart of business values for mangers is crucial.
A strong evidence can support this view that is that the Michelin which was known as the world’s number one tyre manufacturer offers its employees some fantastic politics (The times 100).Firstly, providing the employees a good pay, better working conditions and further training in career path in order to encourage them to work harder. Secondly, sharing stocks to the employee to contact staff interests and the interests of the company together. In that case, the employees are not only working for company but also working for themselves.
Moreover Michelin thinks that the health problem of the employees is the core value of the business, hence they offer their staff a high quality of medical care so that to stimulate the working enthusiasm of staffs. Employees as a vital part of stakeholders in Michelin help it to be the tyre industry leader in the world. This is why stakeholders needed to pay a great attention by manager.
A clear definition of stakeholder was given above, based on the definition, it is easy to see that the shareholder is also a part of stakeholders, the manager’s duty is to create as much profit as possible in a short period of time (David, 2005). However if the manager ignored the role of other stakeholders, only respond to the shareholders requirement and focus on the pursuit of the short-term benefits, in the usual sense, it will damage the long-run profit and the enterprise will be obsoleted by the society.
With the reference of Lynch (1997), he refers that there is a strong link between the firms and different groups of stakeholders. If any one group has a negative impact on the business, any other associated stakeholders will also has a passive influence. To be more specific, if the employees do not satisfied about the salary and the work condition, this group of stakeholders will leave, after that, the shareholders will sell their stocks, then the bank will stop providing credit to the enterprise and do not lend loan or overdraft, in the meantime customers will search for other goods or service. This can be certificated by the example of Monsanto(Richard et al. 2010).
Over the past decade, the Monsanto produced many harmful pesticides, contaminated a large area of land and when it transformed from a chemical firm into a biotechnology company, the seeds which were produced by Monsanto also did harm to some vital organs of the human. In that case, European consumers refused to use its genetically modified seeds and rebelled against a perceived imposition. According to this fact, the reason why Monsanto trapped into such a dilemma is that the manager only focused on the transitory benefit to pleased shareholders instead of satisfying various stakeholders groups.
The aim of this thesis is to interpret that managers must fully take stakeholder into account besides shareholders when run the organization. After a critical assessment, the view that a manager’s responsibility should be to the shareholders alone is one-side. The reason for this is that the
behaviors of stakeholders have an enormous direct impact on the company’s success, if a manager ignores the needs and objectives of the stakeholders and only consider the short-term profit which is put forward by the shareholders, it may damage the long-term benefit of the firms. Based on the stakeholder theory, in some situation, to focus on the groups of stakeholders is much more significant than implement command of shareholders. Accompany with the advancement of the world economy, as a manager in the new age, the key to develop a successful business is to balance the relationship between shareholders and stakeholders well.
David, B (2005). Management An Introduction. 3rd ed. Edinburg: Prentice Hall. p144-147.
David, F (2005). Managing in a Strategic Business Context. London: Chartered Institute of Personnel and Development. p260-264
Lynch, T. (1997) Corporate strategy. London: Pitman.
Mitchell, R., Agle, B. And Wood, D. (1997) Towards a theory of stakeholder identification and salience: defining the principle of who and what really counts. Academy of Management Review. Vol. 22, No. 4, pp853-886.
Richard, D.,Martyn, K. and Natalia. V. (2010). Management. 8th ed. Andover : South-Western/Cengage Learning.
The Times 100. (n.d) Respecting stakeholder values Available from World Wide Web Accessed:1March,2013,from http://businesscasestudies.co.uk/michelin/respecting-stakeholder-values/introduction.html#axzz2MpqnZmF4（).
The Times 100. (n.d) Engaging with stakeholders Available from World Wide Web.Accessed:1March,2013,from http://businesscasestudies.co.uk/primark/engaging-with-stakeholders/what-is-a