Stakeholder Value Perspective

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Emphasizing responsibility over profitability. Explanation of Stakeholder Value Perspective.


  

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Introduction

Over the last 200 years, the influence of business corporations on our society has grown quickly and tremendously. No wonder that the corporate purpose they should serve is discussed by many people with different backgrounds, including:

  • Academics in the fields of economics, law, political science and sociology,
  • Business ethics and philosophic scientists,
  • Political parties, labor unions, various communities, environmentalists, and
  • Media and the general public.

In countries with a market economy it is generally agreed that companies should pursue economic profitability. However many people would likewise agree that organizations also have certain social responsibilities. Profitability and responsibility can and should be combined in an ideal world, however it is clear that they are at least partially contradictory.

On the one hand, businesses must make profits for surviving. Specifically, corporations must provide a higher return on their equity capital than would be realized by the shareholders if they deposited their money on a risk-free bank account. The profits that are made create trust from investors and are usually reflected in higher share-prices, which make it easier for the company to realize its goals. The profits are not only a result, but also a source of corporate competitive health and wealth.

On the other hand, companies are networks of parties and people working together towards a shared goal and not merely 'economic machines'. Employees nowadays represent a major part of the value of any company (intellectual capital). To motivate people to work hard for the interests of the company, a level of trust must be built with them. Likewise it is important for trust to develop between the organization and its external environment (customers, suppliers, government, and interest groups). Such trust can only grow from the perceived secure feeling, that the interests of all individuals and stakeholders are taken into account.
 

The Stakeholder Value Perspective

The Stakeholder Value Perspective (also: Stakeholder Values Perspective) emphasizes responsibility over profitability and sees organizations primarily as coalitions which must serve all parties involved.

 

Stakeholder Value advocates believe that the success of an organization should be measured by the satisfaction among all stakeholders. And they see stakeholder management both as an end/purpose and as a means. They believe that social responsibility is an organizational matter. Also they claim that society is best served by organizations pursuing joint interests and economic symbiosis.

 

A company is not an instrument of its shareholders. But it is a coalition between various resource suppliers, with the intention of increasing their common wealth. Advocates of this perspective refuse to give shareholders a higher moral claim on the organization than providers of other resources.

 

Recognizing the moral claims of stakeholders other than the shareholders introduces other values than financial value in the spectrum of what needs to be pursued by the organization. Stakeholder management is not merely instrumental to create shareholder value, but normative. By posessing strongly motivated employees, and by nurturing high levels of trust with all parties surrounding the organization, the pursuing of the joint interests of all stakeholders is not only more fair, but it will also maximize the health of the society.

 

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Recent User Comments
 - Netherlands The CEO Role "How can CEOs under fierce pressure from capital markets avoid the trap of focusing solely on satisfying the shareholders? In the HBR of July-August 2008, Eisenstat, Beer, Foote, Fredberg and Norrgren of TruePoint present some useful guidance on how “High-Commitment High-Performance (HCHP) Leaders” are able to resolve the tension between people and performance:
1. They feel personally responsible to act as stewards of their firms’ future.
2. They earn the legitimacy to hold the strategic and moral center by a. Earning the trust of their organizations through open communication b. Being deeply engaged with their people c. Establish a focused agenda for change d. Building collective leadership capabilities
3. They develop an emotionally resonant shared purpose with a three-part promise: The company will a. Help build a better world and b. Help deliver a performance employees can be proud of c. Provide an environment in which they can grow."		    0
Editor - Netherlands Stakeholder Capitalism "Professor Freeman has recently published a formidable article about this subject in the Journal of Business Ethics (2007-74:303-314). In his article called "Stakeholder Capitalism", Freeman analyzes 5 contemporary narratives that are behind current thinking on capitalism and that each have one party that is dominating the others: 1. Marx and Engels - Labor Capitalism. 2. Keynes - Government Capitalism. 3. Friedman - Investor Capitalism 4. Berle and Means - Managerial Capitalism and 5. Schumpeter, Kirzner and Baumol - Entrepreneurial Capitalism. According to Freeman, all 5 narratives are based on 3 assumptions, which he argues are wrong: market participants have a naïve form of self-interest, morality is seperate from economic prosperity, and competition for limited resources (value as a zero-sum game ) is the dominant mode of prosperity. These 3 assumptions create 4 problems with competition, business ethics, the dominant stakeholder group, and our liberal democracy. Freeman goes on to sugest a new form of capitalism, which he calls STAKEHOLDER CAPITALISM."    0
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Compare with the Stakeholder Value Perspective:  Shareholder Value Perspective  |  Value Based Management  |  Strategic Intent  |  Ashridge Mission Model  |  Core Competence  |  Clarkson Principles  |  Intrinsic Stakeholder Commitment  |  Stakeholder Analysis  |  Stakeholder Mapping  |  Strategic Stakeholder Management  |  Moral Purpose  |  Seven Surprises  |  Spiral Dynamics

 

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Copyright 2009 12manage - The Executive Fast Track. V10.4 - Last updated: 11/7/2009. All names tm by their owners.

  ● Ali asghar Mazinanian (Iran) Responsibility & profitability "The culture of the companies including the company policy makers must emphasize the establishment of criteria that result in both shareholders and customers benefits. Customers and employees are on one side of the weighing balance and shareholders' benefits on the other side of this balance.
Depending on the opportunities and threats of the societies or companies, this balance may not be leveled all of the time but never fluctuates highly. Customers should feel that they do not loose their money on buying companies' products and employees should feel that they are a part of the company, company's loss is their loss, company's profit is their own profits. Best wishes"
  ● Ashraf Gamal El-Din (Egypt) CEO Role "The CEO role should be to maximize shareholder value in the long term. The Chairman and the Board must always keep sure that the CEO is doing just that. Under some conditions, however, the CEO may be forced to balance between the long term value creation, and the short term objectives of some stakeholders, usually shareholders."
  ● Carlos (Spain) Profit & Responsibility "A company must be profitable not only in order to survive but also in order to create wealth that must go back to society. Not making profit means that the business is draining resources from the society and is eventually occupying a space that another firm could occupy more efficiently. So the first way to be responsible is to make profit in order to enrich the society.
On top of this, today you can not even imagine a corporation without social sensitivity which needs articulation in facts and not just words or PR actions. Here lies in my view the CEO responsibility with staff, stakeholders and the social body."
  ● Muhammad M. Seleem (Egypt) Stakeholder Theory "Stakeholder enrichment is a consequence of shareholder-value and not an exclusive corporate goal. According to Young & O'Byrne (2000), stakeholder satisfaction is justifiable as long as it maximizes shareholder-value."
  ● Steve Smith (England) Stakeholder Value Perspective "People who invest their money in companies do not do so for the "social responsibility issues" unless they have targetted a Green Company. They invest their money for good returns in the sector, industry and company selected based upon their knowledge but at best their gut feel due to the companies financial performance. The only time "social responsibility issues" become important is when a private sector company deals with a public sector agency. There are companies who solely deal with the public sector, this is where social responsibility does have an impact on the overall performance of a company and hence the CEO, because without it the public sector agency will not do business with them. In my experience local SMEs put the larger companies to shame because it forms a larger part of the SMEs time and funds to address the social responsibility issue."

  ● Editor (Netherlands) Stakeholder Capitalism (2) "(...) Stakeholder Capitalism is based on 3 values: I. Freedom for individuals to do what they want, including making voluntairy agreements, II. Rights protecting them in those agreements and the III. Creation by consent to cooperate and oblige themselves to others through those voluntary arrangements. Freeman ends his article by providing 6 Principles of Stakeholder Capitalism (to create, trade and sustain value): 1. Principle of Stakeholder Cooperation. 2. Principle of Stakeholder Engagement 3. Principle of Stakeholder Responsibility 4. Principle of Complexity (of human beings) 5. Principle of Continuous Creation 6. Principle of Emergent Competition (from a relatively free society so that stakeholder have options, rather than an assumption to captalism)."