Stakeholders Theory: Managing for Stakeholders

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A good business entity depends on the important and crucial decisions its management makes so as to achieve the sole purpose of the business, which is making profits. When making these decisions, the business has to consider whether to involve other parties in decision-making other than the shareholders of the business. The act of consulting various parties before making vital business decisions is what Rendtorff (6) refers to as managing stakeholders. Stakeholder management entails making business decisions that take the views of all the stakeholders that are involved in the business. A good business decision should not be made to please only the shareholders. Although the motive of shareholders is to reap maximum benefit from their investment, the management should ensure that the desire to maximize profits does not hinder the interest of other stakeholders.

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When making the decision other parties should be involved, depending on which business decision is being made. Decisions that entail the nature of the market that the companies should venture into or those that entail the prices to be charged. Shareholders also may have less input when operations decisions such as the effectiveness of the marketing strategy. A good example is when a business wants to make decisions whether to venture into a new business or market or not whereby it’s not just enough to involve just the shareholders as they may not give a clear picture on the stand. When business is making non-standard and non-routine decisions that are, decisions that are independent of any previous decision then it is important to consider other parties too when making those kinds of decisions as compared to making strategic.

There are many ways in which a business can use to involve other parties when there are many ways in which a business can use to involve other parties when making its decision for example, through market research. In market research, the business cannot just decide to involve only the shareholders as this is a practical exercise that should involve the actual consumer or prospective customer which may be anyone and including the shareholders. Responses from the customer should be another way in which a business can include the customer to make decisions for businesses. This may be achieved by roadshows, questionnaires, price discounts, and personal interviews. These responses from customers are vital tools that should be used to gauge the performance of the firm among the clients. When a business goes for advertising and promotion, there is always an outcome of such an exercise. These outcomes may either be positive or negative. Whichever the case the business may use these outcomes in the process of making decisions that are vital in the overall performance of the business.

This paper examines how different thinkers have answered the question concerning managing for stakeholders as opposed to managing for shareholders. The paper has analyzed the views of Friedman and those of porter and Kramer on what they say about the subject, whether they agree with each other and whether there are many differences in the arguments that they present. The paper also examines my personal views concerning the question raised; moral theories that have been advanced by the scholars, an analysis of why I feel that some alternatives are better than others, and finally the moral theory that answers the question best.

To begin with, it is worth noting that the two writers agree that managing for stakeholders as opposed to managing for shareholders is a beneficial approach to both the business and the society. They both agree that the main interest that is advanced by the shareholders is to maximize the value of the investment. Shareholders’ main interest is to maximize profits so that they can recoup the amount of money that they invested in their business. This, therefore, makes these shareholders forget that they need to interact with other stakeholders in the process of doing business. They are of the view that shareholders are capitalistic in nature and that capitalism is not concerned about social responsibility, but that it is a self-seeking tenet that drives self-interest in the management of the business.

Friedman (12) argues that capitalism and business has no heart for social responsibility. The two are more interested with profit maximization which makes them alienate humanity from the business. This makes business fail to operate within the allowed framework as they pursue their profit interest. Friedman asserts that the main purpose of any business is to make profit, but within the set rules and regulations of doing business (Friedman 11). He is of the view that companies need to maximize their profits, an act that makes these companies to become great. Friedman therefore believed that when managers managed for stakeholders, they were better placed to make profits as they have operated within the frameworks of success.

On the other hand Porter and Kramer cited in Rendtorff (96) view drifts slightly from that advanced by Friedman. Porter and Kramer bring the idea of cooperate social responsibility as one of the important issues that that managers have to handle. They argue that businesses are ethically responsible to the citizenry. Business have a special role in ensuring that the well-being of the society is enhanced by using some of its income towards programs that are designed to ensure sustainability as well as the general welfare of the society. This approach would ensure that the business derives maximum benefit from its customers as they feel part and parcel of the business. Managing for stakeholders therefore has been seen by Porter and Kramer as the best approach to improve the image of the company to the clients.

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Friedman’s argument can best match the assertions alluded by Hume when he writes his theory based on what motivates action. Friedman has argued that when shareholders are lest on their own they have a tendency to exploit the consumers as their main aim is to reap maximum benefit. These are the views that Hume writes about when he argues that an action’s level of moral acceptance should be judged by what the motive behind the action was. If the motive was to help the majority as opposed to the minority, the action is seen as good while the contrary is the opposite. The theory therefore has the utilitarianism tendencies that judge the moral position of an action based on the correctness or otherwise of an action. An action is said to be good if its results produce positive feelings to the majority of the shareholders.

On the other hand the views of Porter and Kramer are best explained by Kunt’s theory of moral philosophy. Kunt’s theory is more focused on what ought to be done without necessarily looking at the possible consequences that may follow. The theory also is quick to add that many actions may be passed as morally good. However, before they are passed as morally good, one need to examine what exactly are the consequences of these actions. Handing over management to shareholders whose only main interest is to generate profits as opposed to benefiting the clients may pass as a good action, but it remains a morally bad action.

My personal opinion concerning the question is that management should always consider all the stakeholders as opposed to consulting the shareholders only. This is because this is the only way that such business can manage to have decisions that are guided by reason and values for all stakeholders rather than being driven by the selfish interest of the shareholders. Managing for stakeholders is beneficial than managing for shareholders as the stakeholders are more focused towards overall stability of the business environment as opposed to the selfish drive that one may experience when decisions are left to be handled by the shareholders. Managing for stakeholders therefore will ensure that any unscrupulous shareholders do not unfairly exploit the customer in their quest for profit maximization.

The best moral theory that matches my own reasoning towards supporting this answer is utilitarianism. Utilitarianisms theory asserts that an action is judged based on the general benefits that it derives to the populations. A nation that derives more positive benefits to many people is more morally acceptable than that action that derives more negative results. Actions also should be geared towards generating the happiness of the masses as opposed to actions that are geared towards generating the happiness of the minority. When managers leave out the inputs of stakeholders such as the suppliers, the customers, government agencies and the general society, they fail to acknowledge that what should be given preeminence is the final existence of a common good that is experienced by all parties. This can be achieved only when all the stakeholders are given active roles in the process of decision making. With this knowledge therefore, any manager should ensure that vital company decisions are made towards guaranteeing the happiness of the majority, without forgetting the fact that what they run are businesses entities whose main reason for existence is to make profits. They must therefore ensure that their enterprises remains profitable but ensure that they do not trip to earning super-normal profits at the expense of the customers. This way, all the involved stakeholders, the shareholders included will reap the benefits of sound management as the company gains positive appeal among people.

In conclusion, it is evident that both Friedman and Porter and Kramer agree that managing for stakeholders is a more beneficial approach as opposed to managing for stakeholders. They are, therefore, important supporters of the stakeholder’s theory that advocates for the inputs of the majority of the involved parties in the process of decision making. It also evident that business managers should introduce ethical considerations to ensure that the common good of the involved parties are taken care of as opposed to having processes that are to the benefit of the minority which in most cases are the shareholders, but to generate policies whose benefits are geared towards ensuring that all the involved parties reaps benefit from the venture. Business should therefore be given a utilitarian approach to ensure that they are perfectly managed.

Work Cited

Freeman Edward, Harrison Jeffrey, and Wicks Andrew, (2010). Stakeholders Theory:The State of the Art.Cambridge University Press, 2010. London. Print.

Rendtorff, Jacob. Responsibility, Ethics and Legitimacy of Corporations. Business School Copenhagen. Copenhagen. 2009. Print.

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BusinessEssay. (2022, November 28). Stakeholders Theory: Managing for Stakeholders. Retrieved from https://business-essay.com/stakeholders-theory-managing-for-stakeholders/

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BusinessEssay. (2022, November 28). Stakeholders Theory: Managing for Stakeholders. https://business-essay.com/stakeholders-theory-managing-for-stakeholders/

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BusinessEssay. (2022) 'Stakeholders Theory: Managing for Stakeholders'. 28 November.

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BusinessEssay. 2022. "Stakeholders Theory: Managing for Stakeholders." November 28, 2022. https://business-essay.com/stakeholders-theory-managing-for-stakeholders/.

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BusinessEssay. "Stakeholders Theory: Managing for Stakeholders." November 28, 2022. https://business-essay.com/stakeholders-theory-managing-for-stakeholders/.