Stakeholder Value Perspective

Stakeholder Value Perspective is a management concept that regards maximization of the interests of its all stakeholders (customers, employees, shareholders, and the community) as its highest objective. Its objective is to maximize this value by following policies that (1) minimize cost and waste while improving the quality of its products, (2) enhance the skills and satisfaction of its employees, and (3) contribute to the development of the community from which it draws its resources and sustenance. Compare with shareholder value approach.

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 called 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 possessing 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.

Business frameworks like Stakeholder Value Perspective are invaluable to evaluating and analyzing various business problems. You can download business frameworks developed by management consultants and other business professionals at Flevy here.

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