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Others also rely on the company as well -- suppliers, partners and customers in particular. All of these stakeholders have a stake in the outcomes of the company, so therefore management should take their needs into account when making decisions.
Stakeholder theory has also been extended to more tangential stakeholders, such as local governments, local populations and the environment. Critical to this thinking is that any person, body or even locality that is affected by the actions of the firm should be given due thought when the company is making decisions. The environment is a good example of this, because the company operates in a given community and destroying the environment of that community does affect the company as well. The outcome of the extended stakeholder approach is that managers need to take a wider variety of concerns and outcomes into consideration in their decision-making processes.
It has also been argued by some that by taking a broader stakeholder perspective, the financial perspective benefits as well. Actions that produce...
For example, treating employees well will result in lower turnover and therefore better performance. The same can be said about customers. Damage to the environment has negative short-term financial consequences but also long-term consequences as the company must face a damaged world that is tougher to do business in.
Therefore, it has been postulated that the broader stakeholder approach to decision-making is superior to a strictly financial approach. Where the former takes into account the latter and has positive outcomes for it, the latter does not take into account the former and therefore the outcomes will not be as positive. Opponents of the stakeholder approach contend that any dilution of efforts to maximize profit is against the best interests of the shareholders and the agency role that management plays.
Works Cited:
Freeman, R., Wicks, a. & Parmar, B. (2004). Stakeholder theory and the corporate objective revealed. Organization Science. Vol. 15 (3) 364-69.
Works Cited:
Freeman, R., Wicks, a. & Parmar, B. (2004). Stakeholder theory and the corporate objective revealed. Organization Science. Vol. 15 (3) 364-69.
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