Introduction
Corporate governance is a system where companies are directed and controlled with boards of directors accountable for the governance of the company while the shareholders are responsible to appoint the directors and the auditors and to satisfy themselves that an appropriate structure is in place. From this definition, we can see that corporate governance is concerned with the fundamental issue of separation between the management (by the directors) and the ownership (by the shareholders) of a company. Therefore, the role of the board of directors and the position of the shareholders are important.
Discussion on Stakeholder Theory
In its most classic formulation, companies are formed for the maximisation of shareholders interest (shareholder theory). The shareholder theory was originally proposed by Milton Friedman and it is based on the premise that managements are hired as the agent of the shareholders to run the company for their benefit, and thus they are legally and morally obligated to serve their interests.
Stakeholder theory, on the other hand, states that a company owes a responsibility to a wider group of stakeholders, other than just shareholders. Stakeholders first meant ‘those groups without whose support the organization would cease to exist’ such as shareholders, employees, customers, suppliers and so on. With continuous evolution, a stakeholder is, pursuant to Professor R. Edward Freeman, ‘any group or individual who can affect or is affected by the achievement of the organization’s objective’. Widely defined, stakeholders are ‘groups or individuals who benefit from or are harmed by, and whose rights are violated or respected by, corporate actions’.
The paramount idea is that a company’s su...
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... should be operates. The importance of this theory is the tendency for the company to get more investment, the preservation of the interests and rights of the stakeholders, preventing improper strategies since more related factors would be analyzed and provides managers with a way to research the inter-dependencies between customers' needs to sustain competitive success. However, there are some defects to be considered. For example, the elementary questions in the stakeholder theory such as the definition and scope of stakeholders remain unanswered. Apart from that, this theory is also normatively untenable and functionally problematic. Besides that, there are also issues on balancing and directors’ unaccountability. After all, stakeholder theory would be a good theory to be applied and could benefit all provided that all the issues arise should be countered well.
Stakeholders are individuals and constituencies that contribute, either voluntarily or involuntarily, to its wealth-creating capacity and activities, and who are therefore its potential beneficiaries and/or risk bearers1. There are several different types of stakeholders associated with a corporation, and those stakeholders can have different views and opinions on what corporation's goals should be and how they should be running. I have interviewed three different stakeholders of Staples Inc., an employee, a customer and a stock holder, to find their relationship between them and the firm. Then, I will use this information to suggest how the firm should proceed and continue to have a better and more beneficial relationship with its stakeholders.
Stakeholder is anyone with an interest in a business; stakeholders are individual, groups or businesses. They are affected by the activity of the business. There are two types on stakeholders who are internal and external. Internal stakeholder involves employees, managers/directors and shareholders/owners. External stakeholder involves suppliers, customers, government, trade unions, pressure groups and local and national communities.
According to Carroll (2009), stakeholders are any individual or a group who are associated with an organization and has mutual influences. He also claims that the stakeholders can influence or be influenced by any actions, decisions, policies, and goals of the organization. Clarkson (1995) defines primary stakeholders as a group or an individual who has high level of independencies and play a essential role in the survival of the organization whereas secondary stakeholders also have interactivity with the organization; however, they are not participated in transactions and without them, the organization still can survive. From this classification, we can easily identify a range of different stakeholders as primary or secondary in terms of their
This paper will have a detailed discussion on the shareholder theory of Milton Friedman and the stakeholder theory of Edward Freeman. Friedman argued that “neo-classical economic theory suggests that the purpose of the organisations is to make profits in their accountability to themselves and their shareholders and that only by doing so can business contribute to wealth for itself and society at large”. On the other hand, the theory of stakeholder suggests that the managers of an organisation do not only have the duty towards the firm’s shareholders; rather towards the individuals and constituencies who contribute to the company’s wealth, capacity and activities. These individuals or constituencies can be the shareholders, employees, customers, local community and the suppliers (Freeman 1984 pp. 409–421).
Regarding to organizational stakeholders, there are three main groups of stakeholders: customers, employees and investors. The company attempts to link stakeholders’ needs and expectations to the company’s goals. For customers, the company must treat them fairly and honestly. For employees, the company needs to treat them fairly, make them a part of the company and respect their needs. For investor, managers should comply with the accounting procedure, do not manip...
The idea behind stakeholder theory is that it’s all about making the stakeholder which is the group that has a stake in the company , better off. In this model, corporate responsibility involves anyone who has direct ties to the company. For example, as an employee you are responsible to do things such as “...follow the instructions of management most of the time, to speak favorably about the company, and to be responsible citizens in the local communities in which the company operates.” In return for this form of loyalty and their labor, the company is expected to do things such as be there for them during hard times and other standard employee benefits such as wages and security. The whole idea behind corporate responsibility in this theory is that who you have a responsibility to becomes wider if you focus on the stakeholders. This could work if it wasn’t for the fact that even if you get something out of being invested, sometimes that isn’t enough. For example, if you work for a company and you catch your CEO doing some shady stuff. As an employee, you’re invested in whether or not this company continues to thrive under the current CEO. But your loyalty isn’t deserved if the company is engaging in morally questionable behavior. This idea of corporate responsibility fails when applied to real life scenarios in companies that might engage in misconduct or unethical practices.
The concept of stakeholder capitalism has been misconstrued over the years because of misunderstandings about the “moral foundations” and fundamentals of stakeholder capitalism. The common ideal of capitalism is that business is an essential part of society rather than a separate entity. The primal question is if the responsibility of the business is to that to the stakeholders or shareholders. However, the goal of the company is actually to be profitable while maintaining a balance between shareholders and stockholders. The reading further goes on to illustrate the four principles of stakeholder capitalism: stakeholder co-operation, complexity, continuous creation, and emergent competition. The model behind stakeholder capitalism is that it aids the business in becoming an institution with morals and values; it goes beyond just earning profit. The central argument is that business and ethics must coincide with each other for a business to fully progress.
Evan, W. M., & Freeman, R. E. (1988). A stakeholder theory of the modern corporation: Kantian
There is an ongoing dispute about what the purpose of a typical corporation should be. In one view, Milton Friedman proposes the argument of the Shareholder Theory – that managers primarily have a duty to maximize shareholder returns as long as their actions remain within the rules of competitive business, abide by the law, and are of ethical custom. Conversely, Edward Freeman argues another viewpoint, the Stakeholder Theory, which implies that a manager’s duty is to balance the shareholders’ financial interests in conjunction with the interests of other stakeholders such as employees, customers, and the local community. In other words, Freeman expresses that the purpose of a corporation is to serve the broader societal interests beyond economic
What do you understand by the phrase “stakeholder analysis”? Attempt a stakeholder analysis of an organisation that you are closely associated with.
Stakeholders’ analysis is the analysis which tells that how the company is dealing with the people which are directly or indirectly related with the company’s operations. These are called stakeholder and they include the employee, society, suppliers, buyers, shareholders, got and other tax related companies.
Stakeholders are those groups or individual in society that have a direct interest in the performance and activities of business. The main stakeholders are employees, shareholders, customers, suppliers, financiers and the local community. Stakeholders may not hold any formal authority over the organization, but theorists such as Professor Charles Handy believe that a firm’s best long-term interests are served by paying close attention to the needs of each of these stakeholders. The modern view is that a firm has responsibilities to all its stakeholders i.e. everyone with a legitimate interest in the company. These include shareholders, competitors, government, employees, directors, distributors, customers, sub-contractors, pressure groups and local community. Although a company’s directors owes a legal duty to the shareholders, they also have moral responsibilities to other stakeholder group’s objectives in their entirely. As a firm can’t meet all stakeholders’ objectives in their entirety, they have to compromise. A company should try to serve the needs of these groups or individuals, but whilst some needs are common, other needs conflict. By the development of this second runway, the public and stakeholders are affected in one or other way and it can be positive and negative.
According to Freeman (1984), he defined that stakeholder which is called as investor relation, is a group of people without whose support the organization would cease to occur and they are one of a group who are directly affect the survival and success of the organization. Based on Malaysia Code of Corporate Governance (MCCG), there is a communication between the company and the stakeholders to improve the understanding objectives and expectation. By communicating, stakeholders are able to make decision that have been informed about the business of the company, governance’s policies environment as well as the social responsibility. The best of practices in stakeholder are the boards have to ensure that there is always an effective, transparent
K, . N., ER, w., DAVID, K., PAUL, M., WALTER, O., & EVANS, A. (2012). Corporate governance theories and their application to boards of directors: A critical literature review . Prime Journal of Business Administration and Management (BAM), 2(12)(2251-1261), 782-787.
Stakeholders refer to individuals or groups of people that have an interest in a business. Management argues that as long as there is wealth for shareholders, then anything is done in a responsible manner and things should be done to promote the interest of other stakeholders.