Introduction
The following is an argumentative essay on stakeholder management and it
discusses whether the corporations that practice stakeholder management have
more sustainability compared to the organisations that do not practice stakeholder
management. This discussion exemplifies the theoretical perspectives underlying
stakeholder management in the corporation. It also looks into how an organisation
balances the stakeholder’s interest with the shareholders’ interests, as those are two
different entities, which have conflicting interests. It also examines the role of
stakeholder management. It also looks into the existing literature studies on
stakeholder management to prove that the stakeholder management leads to
sustainability of the corporation.
Stakeholder management
To start with, it is imperative to determine who is a stakeholder of an organisation.
The stakeholder is any individual who has an interest in a particular organisation.
Clarkson, 1995 defines a stakeholder as an entity whose contribution to the
organisation is influential to the organisation such that the organisation cannot
survive without that entity. The stakeholders can therefore be the owners, the
government, trade unions, the political groupings, customers, suppliers, the
communities, and the public. This is because they play an important part to the
survival of the organisation. The stakeholders’ theoretical perspectives show that the
organisation is like an organism, which has different body parts, and it cannot
function fully without one of its organ. The stakeholders are similar to the organs in
an organisation. They are crucial to the sustainability of the organisation (Clarkson,
1995).
Stakeholders influence on corporation’s sustainability
To determine the extent of influence that a particular stakeholder has, there is a
criteria that is used and it involves the following aspects. The first aspect is on how
the stakeholder influences the financial performance of the organisation. For
instance, the customers and suppliers are key stakeholders to a corporation as they
directly influence the profits that the organisation will have. The second aspect is the
stakeholders influence on the productivity and operations, such as the employees
who have direct influence on the productivity of the organisation (Evans & Freeman
1988). Other stakeholders who are in the external environment involve their
competitors, government, and the public whose perception of the organisation can
affect the organisation positively or negatively. These stakeholders have influence on
the corporation’s sustainability for a number of reasons (Morgan 2004).
The first reason is that the stakeholders determine whether the organisation will
achieve its strategic objectives or not. For instance, an organisation may have a
strategy to expand its operations outside the country. This may require additional
funds from the stakeholders especially the shareholders. The firm must also look for
ways of increasing the number of customers in order to have more sales, hence
more revenues to enable them to move out to other countries. If the shareholders do
not contribute to such an endeavour, it will very hard for the organisation to achieve
its strategic objectives (Morgan 2004).
Other than achieving the strategic objectives, the stakeholders are imperative for the
sustainability of the organisation. In instances where one of the stakeholders has
been negligent in their participation, it has led to the collapse of the organisation. For
instance, in the case of Enron one the major companies that collapsed due to fraud
and earnings management. It was because of shareholders being negligent, thereby
failing to scrutinise carefully the organisation actual financial accounts and
performance. The government as a stakeholder was also negligent in auditing the
company’s books of accounts. This led to the collapse of the company resulting in
losses worth billions of dollars for the organisation (Freeman 1984).
The stakeholders are also important to the sustainability of the corporation due to
their ability to influence the internal environment of the organisation positively or
negatively. The employees for instance are imperative for the sustainability of the
corporation. Any company cannot ignore its employees if it hopes to move to the
next level. This is because the employees determine the productivity of the
organisation, when they are highly motivated the company experiences low rates of
absenteeism and employee turnover, which in turn leads to productivity and to the
increase of the organisations profits. Highly motivated employees are highly
productive and they stay in the organisation in the long term. They are therefore
imperative to the future sustainability of the organisation (Evans 1994).
The other important stakeholder who contributes to the sustainability of the
organisation is the supplier, this because they determine the profit margins that the
company will have. They also determine whether the company will have an edge
over their competitors or not. The relationship with the suppliers is imperative as if
the relationship is sustainable the supplier can supply goods on credit as the
organisation channels the money to expansion programs or product development
which will give the organisation an edge over the competitors (Morgan, 2004).
Sustainability is also determined by the how well the organisation relates with the
customers. A good relationship with the clients determines the sustainability of that
organisation. Providing quality services, as well as providing services that are
sustainable is imperative to the development of the organisation (Han 2004). Quality
services create loyalty. One of such organisations that has capitalised on customer
service and experience is Tesco retail stores in the UK. This retail chain store has
benefited from good customer service as well as through their customer loyalty
program, which rewards loyal customers with additional benefits. This makes the
store to be one of the most profitable retail stores in the United Kingdom and in
Europe.
Apart from their customers, the other stakeholders who contribute to the
sustainability of an organisation are the public. The perception, which the members
of the public have towards an organisation, is a key determinant to its sustainability.
In the 1980’s Pepsi had to close its operations in the United States of America after
there were reports that some of its soft drinks quality were compromised and that
they had needles inside. This information created a negatively publicity for the
company and its sales dropped sharply to the extent that the company had to close
its operations in the United States. Managing the media and the publicity activities
that intend to brand the company in positive light is important to the sustainability of
the organisation (Freeman 1984).
The stakeholders are also important to the sustainability of the organisation as some
of the stakeholders contribute to the formulation of policies and regulations that may
affect the organisation positively or negatively. Such stakeholders who have
influence on the stakeholders are usually pressure groups and political groupings,
which have influence in the formulation of policies on a particular issue or industry
(Jensen 1976). For instance in the tobacco industry, the tobacco industries must
contend with pressure groups that influence the government to implement policies
that are against smoking in particular places. Such pressure groups may even
advocate for the tobacco banning. The cigarette manufacturing industries must
therefore win the political groupings that support the cigarette industry in order for
those organisations to have sustainability (Morgan 2004). Otherwise, without the
political support and goodwill the activities of the industry may not be sustainable.
The environmental pressure groups may block the establishment or a construction of
a building, or a business that they feel its activities would not be in the best interest
of the environment. The political stakeholders can also influence other aspects such
as licensing, taxation. In many instances, corporations lobby political and pressure
groups to advocate for reduction of taxes or for the subsidisation of a particular
commodity (Evans 1994).
Stakeholder management contributes to the sustainability of the organisation in that
it provides crucial information to the management of the organisation on how to act
on a particular issue. Stakeholder management is imperative, as it acts as a
mechanism of corporation’s information intelligence. It is having the concerns of
each stakeholder and having a mechanism on how to respond to their concerns. For
instance, the employees may be concerned with their salary increment. If the
organisation is not sensitive or does not have stakeholder management mechanism,
it is likely for the organisation to fail to have information on what the stakeholders
want. The management may find itself dealing with unrests, low employee morale
and high employee turnover (Puffery 1981). However, with appropriate stakeholder
management mechanism the management can prevent losses that may emanate
from industrial action. Information is vital to the development of relationship with the
various stakeholders. It means that the organisation’s leadership will have
information on what to do pertaining to each situation. Organisations that pay
attention to stakeholder management are likely to experience high levels of
sustainability compared to organisation that do not have a relational approach to
other stakeholders (Donaldson & Preston 1995).
Although stakeholder management is imperative in the sustainability of the
organisation, there are stakeholder conflicts that may be detrimental to the
organisation. For instance, in an organisation the shareholders may want a higher
return on their investments. This may make the management to increase its profit
margins by increasing the prices of its products and services. This may be
detrimental to the sustainability of the organisation as the customers may react
negatively by boycotting the products or using competitor’s products resulting into
reduced profits and minimising the future sustainability of the corporation (Ford
1980). Therefore, stakeholder management may not always lead to the sustainability
of the organisation. The aim of the stakeholder management should be to realize
the concerns and interest of the stakeholders and then try to balance those concerns
appropriately (Dwyer 2007).
Developing stakeholder relationships is not always easy and it may involve the
development of communication mechanisms that will incorporate all of the
stakeholders, informing the stakeholders on what is happening in the organisation is
imperative as it creates a sense of ownership among the stakeholders and it makes
them to act in the best interest of the company. Establishing departments in an
organisation to deal with issues of stakeholders is imperative in establishing such
relationships. The stakeholder management is key and imperative in the
development of the company’s long-term sustainability (Porter 1980).
Conclusion
The aim of stakeholder management is to create cohesion among the different
stakeholders who play a crucial part to the sustainability of the organisation.
Stakeholder management is critical to the development of organisation objectives. It
enables the corporation to balance different concerns and interest which if ignored
could affect the company negatively. Therefore, it is justifiable to conclude that
stakeholder management is important to the sustainability of corporations.
References
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