However, be emulated. Word Count: 1,121 Moreover, Freeman maintains

However,
Stakeholder Theory is not without criticism, with many claiming that Freeman’s
definition of a stakeholder is vague; inviting a wide range of individuals and
groups with multiple objectives, hence hindering its execution (Laplume et al,
2008; Miles, 2015). Whereas, Shareholder Theory is deemed to be unambiguous and
explicit in its purpose; to maximise shareholder returns for shareholders (Tse,
2011). Conversely, Freeman expresses that stakeholders are unique to every
firm, and they need to identify and differentiate those that are crucial for
their value creation process, and what first may appear as conflicting views of
stakeholders, managers should find aligning core interests under closer
inspection (2009). Stakeholder theory is not about managing these relationships
individually in isolation, they must all be considered concurrently and
integrated into a corporation’s goals to achieve a sustainable competitive advantage
that cannot be emulated. 

Word Count:
1,121

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

 

Moreover, Freeman maintains Friedman would too be an
exponent of Stakeholder Theory as in fast-moving and hypercompetitive markets
of today, to generate returns for shareholders companies must incorporate all
stakeholders in business strategies and activities (Freeman, 2009). In
addition, firms that pursue a stakeholder strategy can experience benefits,
particularly customers who are willing to pay higher prices, suppliers that are
willing to cooperate, and proud employees dedicated to working harder (Choi
& Wang, 2009). In effect, this increases revenues, and productivity which
decreases unit labour cost overall and
brings higher earnings for investors. This demonstrates that following a
stakeholder approach benefits all stakeholders including shareholders. 

Freeman’s
Stakeholder Theory is very much linked to both Corporate Social Responsibility
(CSR) and business ethics. CSR can be defined as “the responsibility of
enterprises for their impact on society”, and by following a stakeholder
approach a company can become socially responsible as it includes stakeholders,
their interests and concerns in the decision process (European Commission,
2011). Whereas, organisations that pursue aims based on the Shareholder Theory
often lack moral and ethical reflection as their only social responsibility is
towards investors (Friedman, 1970). Those aims manifested involve paying the
minimum for wages and training, limiting staff benefits and outsourcing
production to low wage economies to reduce costs. When companies like Nike and
Apple decided to outsource to Asia, they were indifferent to the working
conditions in those factories, the lax worker rights, and environmental laws
etc., that ultimately lead to worker suicides and the development of
sweatshops. Due to the criticism they faced, it forced the firms to acknowledge
and resolve the effects of their actions. The pressure from society over the
treatment of the people making their products (whether directly employed or
contracted out) incentivised the organisation to act and appear responsible as
it was in their self-interest, to maintain investor returns (Maignan &
Ralston, cited in Campbell, 2007). It shows a company cannot focus solely on
shareholders as many are forced to pay attention to stakeholder demands to
survive.

Word Count:
1,518

 

An organisation can
begin to act socially responsible with their nearest stakeholders that are most
influenced by a company’s performance and strategies yet are also able to transform,
shape and alter it themselves (Freeman, 2004). Employees are an integral part
of an organisation and can be viewed as the
dominant stakeholder, especially for firms that rely on front-line staff
for their reputation and hence revenue. It is not surprising that many company
founders like Richard Branson and J. Willard Marriott have based their
corporate philosophy around taking care of employees foremost, in the belief
that they will look after customers and the business (Branson, 2014; Marriott).
In fact, research shows firms that value employees through their HR practices
were at least 20% more likely to stay afloat on the stock exchange (Welbourne
& Andrews, 1996). HR systems that value employees enable a strong
relationship between an organisation and
its employees to develop, alongside a psychological contract that is based on
trust, equity, and both sides delivering on their promises (Guest, cited in
Linde, 2015). Employees exert effort in exchange for respectful employers that
motivate staff, ensure tasks are challenging and varied, and provide training to further improve capabilities. Also,
it is important for an organisation to
foster affective commitment where
employees become invested in a firm through its culture and principles which
impact the organisational objectives
because it represents their own personal credo and therefore, they are unlikely to leave (Woods & West,
2014). This ultimately reduces the need to recruit frequently which can be
costly, especially if an organisation
spends time and money on training etc., for a competitor to poach employees
without investing in people themselves. Therefore, HR practices that allow a
firm to effectively recruit and retain exceptional employees can act as a
source of sustainable competitive advantage, one that rivals cannot imitate or
substitute, unlike new products and
services. These practices can be achieved through the Stakeholder Theory as it
promotes the firm to see stakeholders as people, which enables a firm to value
its employees and treat them as human ‘assets’ not human ‘resources’ (Freeman,
2009).

Word Count:
1,930

 

In conclusion, a corporation would not exist without
shareholders as it requires the provision of capital to carry out daily
activities, and yet a company would not survive without employees making the
goods/services, and serving customers, customers buying the products, and
suppliers supplying the materials. Thus, stakeholder interests can be judged to
be equally legitimate as shareholder’s interests, as altogether they form the basis of a functioning organisation, where
their interests become interrelated and linked to the firm’s success. The
extent to which employees are the dominant stakeholder is debatable as although
through HRM they can be a source of competitive advantage, by viewing them as
supreme it symbolises Shareholder
Theory’s blindness to others. Whilst employees are important and can be considered as a starting point for the
stakeholder approach, all relevant stakeholders should be incorporated, and
their interests analysed to be able to grasp the different ways they impact the
business. A potential a compromise between the perspectives could involve a
business choosing to follow any approach, provided it is open and honest about how it plans to spend investor money
(Cadbury, cited in Henry, 2011). It then becomes the shareholder’s decision
whether to invest in the company or not. Overall, with the formation of new
businesses based on CSR principles, and existing multi-national corporations
now adopting social and ethical strategies, it is evident the Stakeholder
Approach will only continue to prevail, with many perspectives arising on how
it should be interpreted, implemented and utilised to be a source of competitive
advantage for a firm.