According to Freeman (2009), the actual or practical working nature of businesses can be best explained by stakeholder theory. Individuals and groups such as banks, shareholders, financiers, communities, employees, suppliers, and customers should receive value for their money in order to guarantee the success of any type of business.
The stakeholder theory also states that it is not permissible to view the stakes of the aforementioned individuals and institutions in isolation. In other words, their interests should be considered together. In addition, moving the interests of financiers, employees, communities, suppliers, and customers along the same path is the main duty of entrepreneurs or managers.
Freeman reiterates that the above groups are key determinants in the success of business organizations. He gives an example of a business unit that has lost market share owing to a declining number of customers. The customers may have rejected to buy the products of a particular business enterprise leading to its drastic fall.
Another case might be a business that has loose contacts or poor coordination with suppliers. Freeman is of the opinion that suppliers who merely deliver goods without added value might be a major liability to a business enterprise. He claims that creativity and innovation should be among the key strengths of suppliers apart from just delivering orders. Hence, suppliers who fail to add value to their services can jeopardize the growth of a business unit.
Employers, as stakeholders, are also instrumental in the growth of a business organization (Freeman, 2009). They should utilize their best skills and efforts to deliver value at their respective workplaces. Commitment and dedication are the key features of successful employees. Freeman feels that employees can input their creativity and energy in making sure that businesses do not decline or shrink in performance.
A community has also been pointed out by Freeman as a crucial stakeholder in the growth of a business entity. As such, a business organization should be responsive to the needs of a community. It is the latter that anchors the operations of a business. Therefore, a business unit should consider undertaking activities that benefit a community.
A good example is corporate social responsibility. It is prudent for businesses to adhere to communal laws and regulations and equally ensure sustainability in the course of operations. Freeman (2009) strongly believes that businesses that do not consider the community as a vital stakeholder are bound to fail. In fact, the author notes that businesses should be ‘good citizens’ towards the communities they serve.
Therefore, each of the entities described above is fundamental in the success of business organizations according to Stakeholder theory. Freeman (2009) is also emphatic that it is highly likely for a business unit to miss out on the positive attributes of capitalism if financiers remain the main focus of operations.
In spite of Freeman’s theory on stakeholders, there is no single business organization that can flourish without the input of shareholders. This does not refute the fact that stakeholders are instrumental in business growth (Wall & Greiling, 2011). Shareholders are the pillars of organizations because they, directly and indirectly, take part in the operations of business enterprises. Organizational leadership can only be put in place by shareholders.
As much as stakeholders propel business growth, shareholders provide much-needed control, governance, and finances for business organizations. Investor communication expenses are also facilitated by shareholders. Even at a time when a business organization is declining in performance, the management can only peg its hope on the shareholders (Wall & Greiling, 2011). Hence, we may conclude that businesses can run (though dismally) in the absence of stakeholders but can completely stagnate when shareholders withdraw their services.
References
Freeman, E. D. (2009). Stakeholder Theory. Web.
Wall, F., & Greiling, D. (2011). Accounting information for managerial decision-making in shareholder management versus stakeholder management. Review of Managerial Science, 5(2-3), 91-135.