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The following is an argumentative essay on stakeholders’ management and whether the corporations that practice stakeholders’ management are more sustainable compared to the organisations that do not practice this type of management.
The discussion is about the theoretical perspectives underlying stakeholders’ management in the corporation. It also looks into how an organisation balances the stakeholders’ interest with the shareholders’ interests, as they are two different entities with conflicting interests.
It examines the role of stakeholders’ management. In addition, it looks into the existing literature studies on management to prove that the stakeholders’ management leads to sustainability of the corporation.
It is imperative to determine who is a stakeholder in an organisation. A stakeholder is any individual with interest in a particular organisation. A stakeholder is an entity whose contribution to the organisation is influential such that the organisation cannot survive without it (Clarkson 1995).
The stakeholders can therefore be the owners, the government, the trade unions, the political groupings, customers, suppliers, the communities as well as the public. This is because they play an important role in the survival of the organisation.
The stakeholders’ theoretical perspectives show that the organisation is like an organism, which has different body parts and cannot function fully without one of its organ. The stakeholders are similar to the organs in an organisation and are crucial to the sustainability of the organisation (Clarkson 1995).
Stakeholders influence on corporation’s sustainability
To determine the extent of influence that a particular stakeholder has, there is a criterion that is used that involves the following aspects. The first aspect is on how the stakeholder influences the financial performance of the organisation.
For instance, the customers and suppliers are key stakeholders of a corporation as they directly influence the profit that the organisation will make. The second aspect is the stakeholders’ influence on the productivity and operations such as the employees who have direct influence on the productivity of the organisation (Evans & Freeman 1988).
Other stakeholders who are in the external environment involve the competitors, the government, and the public whose perception on the organisation can affect it positively or negatively. These stakeholders have influence on the corporation’s sustainability for a number of reasons (Morgan 2004).
The first reason is that the stakeholders determine whether the organisation will achieve its strategic objectives or not. For instance, an organisation may have a strategy to expand its operations outside the country. This may require additional funds from the stakeholders especially the shareholders.
The firm must also look for ways of increasing the number of customers in order to have more sales, hence increased revenues to expand to other countries. If the shareholders do not contribute to such an endeavour, it would be very hard for the organisation to achieve its strategic objectives (Morgan 2004).
Other than achieving the strategic objectives, the stakeholders are imperative for the sustainability of the organisation. In instances where one of the stakeholders has been negligent, it has led to the collapse of the organisation.
An example is the case of Enron one the major companies that collapsed due to fraud and earnings’ management. It was because shareholders were negligent thereby failing to scrutinise carefully the organisation’s actual financial accounts and performance.
The government as a stakeholder was also negligent in auditing the company’s books of accounts. This led to collapse of the company leading to losses worth billions of dollars for the organisation (Freeman 1984).
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The stakeholders are also important in the sustainability of the corporation due to their ability to influence the internal environment positively or negatively. The employees for instance are significant for the sustainability of the corporation.
Any company cannot ignore its employees if it has to grow. This is because the employees determine the productivity of the organisation. When they are highly motivated the company experiences low rates of absenteeism and employee turnover, which leads increased productivity and huge profits.
The motivated employees are productive and stay in the organisation in the long term. They are therefore imperative to the future sustainability of the organisation (Evans 1994).
The other important stakeholders who contribute to the sustainability of the organisation are the suppliers as they determine the profit margin of the company. They also determine whether the company will have an edge over the competitors or not.
The relationship between the suppliers and the organisation is imperative because when it is sustainable the suppliers can supply goods on credit so that payment can be made at a specified future date.
While receiving goods on credit the organisation channels the money to expansion programs or product development, which gives the organisation an edge over the competitors (Morgan, 2004).
Sustainability is also determined by how well the organisation relates with the customers. A good relationship with the clients determines the sustainability of the organisation. Providing sustainable services is imperative to the development of the organisation as it creates loyalty (Han 2004).
One of such organisations that has capitalised on customer service and experience is Tesco retail stores in the UK.
These retail chain stores have benefited from good customer service as well as through the customer loyalty programs, which reward loyal customers with additional benefits. This makes the stores to be the most profitable retail stores in the United Kingdom and Europe.
Apart from the customers, the other stakeholders who contribute to the sustainability of the organisation are the public. The perception, which the public has towards an organisation, is a key determinant to its sustainability.
In the 1980’s Pepsi had to close its operations in the United States of America after there were reports that some of their soft drinks qualities were compromised because they had needles inside.
The information created negative publicity for the company and its sales decreased to the extent that the company had to close its operations in the United States. Managing the media and the publicity activities that intend to brand the company in positive light is important to the sustainability of the organisation (Freeman 1984).
The stakeholders are also important to the sustainability of the organisation as some of them contribute to the formulation of policies and regulations that may affect the organisation positively or negatively.
Such stakeholders who have influence on the organisation are usually pressure groups and political groupings, which have influence in the formulation of policies on a particular issue (Jensen 1976).
For instance, tobacco industries must contend with pressure groups that influence the government to implement policies that are against smoking in particular places. Such pressure groups may even advocate for the tobacco banning.
The cigarette manufacturing industries must therefore win the political groupings that support the cigarette industry in order for those organisations to be sustainable (Morgan 2004). However, without the political support and goodwill the activities of the industry may not be sustainable.
The environmental pressure groups may block the establishment or construction of a building or business that they feel its activities would not be in the best interest of the environment.
The political stakeholders can also influence other aspects such as licensing and taxation. In many instances, corporations lobby political and pressure groups to advocate for reduction of taxes or subsidisation of a particular commodity (Evans 1994).
Stakeholders’ management contributes to the sustainability of the organisation in that it provides crucial information to the management on how to act on a particular issue. It acts as a mechanism of corporation’s information intelligence.
It involves having the concerns of each stakeholder and a mechanism on how to respond to their concerns. For instance, the employees may be concerned with the salary increment. However, if the organisation is not sensitive or does not have stakeholders’ management mechanism, it may lack information on what the stakeholders want.
The management may be dealing with unrests, low employee morale and high employee turnover (Puffery 1981). However, with appropriate stakeholders’ management mechanism it is possible to prevent losses that may emanate from industrial action.
Information is vital to the development of relationship with the various stakeholders. It means that the organisation’s leadership will have information on what to do pertaining to each situation.
Organisations that pay attention to stakeholders’ management are likely to experience high levels of sustainability compared to organisation that do not have a good relational approach to other stakeholders (Donaldson & Preston 1995).
Although stakeholders’ management is imperative in the sustainability of the organisation, there are stakeholders’ conflicts that may be detrimental to the organisation. For instance, in an organisation the shareholders may demand high return on their investments.
This may make the management to increase the profit margins by increasing the prices of the products and services. This may be detrimental to the sustainability of the organisation as the customers may react negatively by boycotting the products or using competitor’s products resulting into reduced profits and minimising the future sustainability of the corporation (Ford 1980).
Therefore, stakeholders’ management may not always lead to the sustainability of the organisation. Its aim should be to realise the concerns and interests of the stakeholders and balance them (Dwyer 2007).
Developing stakeholders’ relationships is not always easy and may involve development of communication mechanisms that will incorporate all the stakeholders.
It is also important to inform the stakeholders on what is happening in the organisation as this creates sense of ownership among the stakeholders and makes them to act in the best interest of the company.
Establishing departments in an organisation to deal with issues of stakeholders is also imperative in establishing a good rapport. The stakeholders’ management is key and imperative in the development of the company’s long-term sustainability (Porter 1980).
The aim of stakeholders’ management is to create cohesion among different stakeholders who play important role in the sustainability of the organisation. This is critical to the development of organisational objectives.
It enables the corporation to balance different concerns and interest, which if ignored could affect the company negatively. Therefore, it is justifiable to conclude that stakeholders’ management is important to the sustainability of corporations.
Clarkson, M 1995, ‘A stakeholder framework for analyzing and evaluating corporate social performance’, Academy of Management Review, vol. 2, pp.65-91.
Donaldson, T & Preston, L 1995, ‘The stakeholder theory of the modern corporation: concepts, evidence and implications’, Academy of Management Review, vol.2, pp.5-10.
Dwyer, R 2007, ‘Developing buyer-seller relationships’, Journal of Marketing, vol. 5, p.11-27.
Evans, J 1994, ‘The relationship marketing process: a conceptualization and application’, Industrial Marketing Management, vol. 3, pp.438-452.
Evans, W & Freeman, R 1988, A stakeholder theory of the modern corporation: Kantian capitalism, Prentice Hall, New Jersey.
Ford, D 1980, ‘The development of buyer-seller relationships in industrial markets’, European Journal of Marketing, vol. 4, pp.339-353.
Freeman, R 1984, Strategic management: a stakeholder approach, Basic Books, New York.
Han, S 2004, ‘Buyer-supplier relationships today’, Industrial Marketing Management, vol. 2, pp.331-338.
Jensen, M 1976, ‘Theory of the firm: managerial behaviour, agency costs, and ownership structure’, Journal of Financial Economics, vol. 3, pp.305-360.
Morgan, R 2004, ‘The commitment trust theory of relationship marketing’, Journal of Marketing, vol. 8, pp.20-38.
Porter, M 1980, Competitive strategy, Free Press, New York.
Puffery, J 1981, Power in organizations, Pitman Publishing, Massachusetts.
Stakeholder’s relationship chart