This essay deals with the importance and interests of different stakeholders and tries to identify how they affect the success of a business. Firstly, the essay will compare the shareholder and stakeholder theory and afterwards, the importance of employees, customers, creditors, suppliers and social stakeholders will be discussed. Further, this essay illustrates the drivers and changes of trust in a company.
It is often assumed that shareholders are the most important stakeholder group in any business. However, there are two main competing theories that argue how a company should be run: the shareholder approach and the stakeholder approach. On the one hand, the shareholder approach claims for profit maximisation of the shareholder as the only objective of business. On the other hand, the stakeholder approach suggests satisfying the interest of various stakeholders. In practice, shareholder models have dominated in the past. However, corporate scandals and the financial crisis have raised doubts about that model and led to a loss of trust.
Table of Contents
- 1 Introduction
- 2 Shareholder theory
- 3 Stakeholder theory
- 4 Important stakeholders
- 4.1 Employees
- 4.2 Customers
- 4.3 Creditors and suppliers
- 4.4 Societal stakeholders
- 5 Trust
- 6 Conclusion
Objectives and Key Themes
This essay aims to analyze the competing theories of shareholder and stakeholder approaches to business management, examining their implications for company success. It explores the importance and interests of various stakeholder groups and how these affect a business's performance. The essay also investigates the role of trust in the context of corporate success.
- Comparison of shareholder and stakeholder theories
- The importance of different stakeholder groups (employees, customers, creditors, suppliers, societal stakeholders)
- The impact of stakeholder interests on business success
- The role of trust in building and maintaining successful business relationships
- The concept of competitive advantage through stakeholder management
Chapter Summaries
1 Introduction: This introductory chapter sets the stage by presenting the central conflict between shareholder and stakeholder theories of business management. It highlights the dominance of shareholder models in the past and how corporate scandals and the financial crisis have challenged this approach, leading to a loss of trust. The essay's objectives are outlined, focusing on comparing the two theories and analyzing the roles of various stakeholder groups in affecting business success. The chapter lays the foundation for a comprehensive exploration of the importance of different stakeholders and the evolving role of trust in the modern business environment.
2 Shareholder theory: This chapter delves into the core tenets of shareholder theory, asserting that the primary objective of a business is profit maximization for the benefit of shareholders. It emphasizes the fiduciary responsibility of managers towards shareholders and cites Friedman's argument that a business's only responsibility is to increase profits within legal and ethical boundaries. The chapter also discusses the inherent risk borne by shareholders, particularly in terms of long-term capital investment and potential liability. The limitations of focusing solely on shareholder value are acknowledged through contrasting viewpoints, including Jack Welch's later shift from a shareholder-centric perspective to one encompassing employees, customers, and products. The discussion illustrates the potential drawbacks and contradictions within the shareholder approach.
3 Stakeholder theory: This chapter presents the stakeholder theory as a counterpoint to the shareholder model. It emphasizes the creation of value for all stakeholder groups and advocates for considering the alignment of their interests. Freeman's definition of stakeholders—anyone affected by or affecting an organization's objectives—is introduced, along with different ways to classify them. The chapter argues that focusing on the interests of all stakeholders leads to improved performance in the long run, potentially benefiting shareholders indirectly. Examples such as Jack Ma's prioritization of customers and employees over shareholders highlight the practical application of this theory. The connection between stakeholder management and competitive advantage is discussed, with reference to Porter's five forces model and the role of intangible resources.
4 Important stakeholders: This chapter expands upon the stakeholder theory by examining the specific roles and interests of key stakeholder groups. It begins with a discussion of employees, emphasizing their crucial role as a company's most important resource. The chapter highlights the importance of employee motivation, job satisfaction, and fair compensation in enhancing productivity and competitive advantage. It cites examples such as George's assertion that long-term shareholder value is best achieved through employee commitment and the significance of co-determination mechanisms like works councils. The chapter also illustrates how positive employee relations can aid in overcoming challenges, such as Opel's successful navigation of insolvency.
Keywords
Shareholder theory, stakeholder theory, stakeholder management, corporate social responsibility, profit maximization, competitive advantage, trust, employees, customers, creditors, suppliers, societal stakeholders, business ethics, corporate governance.
Frequently Asked Questions: A Comprehensive Language Preview
What is the main topic of this essay?
The essay analyzes the competing theories of shareholder and stakeholder approaches to business management, examining their implications for company success. It explores the importance and interests of various stakeholder groups and how these affect a business's performance, also investigating the role of trust in corporate success.
What are the key theories discussed?
The essay primarily focuses on shareholder theory (prioritizing profit maximization for shareholders) and stakeholder theory (considering the interests of all stakeholders affected by the business).
What are the main objectives of the essay?
The essay aims to compare shareholder and stakeholder theories, analyze the roles of different stakeholder groups (employees, customers, creditors, suppliers, societal stakeholders) in business success, and examine the impact of stakeholder interests and the role of trust in building successful business relationships. The concept of competitive advantage through stakeholder management is also explored.
Which stakeholder groups are discussed in detail?
The essay discusses the roles and interests of employees, customers, creditors, suppliers, and societal stakeholders. It emphasizes the importance of employee motivation and satisfaction, customer loyalty, and the responsibilities to creditors and suppliers, as well as the broader societal impact of business decisions.
What is the role of trust in the essay?
The essay highlights the importance of trust in building and maintaining successful business relationships. It explores how a lack of trust (as evidenced by corporate scandals) can damage a company's reputation and performance, while the building of trust through stakeholder management can lead to long-term success.
How does the essay summarize the shareholder theory?
The essay describes shareholder theory as prioritizing profit maximization for shareholders, emphasizing the fiduciary responsibility of managers to shareholders. It acknowledges limitations and contradictions within this approach, noting that a sole focus on shareholder value can have drawbacks.
How does the essay summarize the stakeholder theory?
The essay presents stakeholder theory as a counterpoint to shareholder theory, emphasizing the creation of value for all stakeholder groups and the alignment of their interests. It argues that focusing on all stakeholders leads to improved long-term performance, potentially benefiting shareholders indirectly.
What is the significance of employee relations in the essay?
The essay emphasizes the crucial role of employees as a company's most important resource. It highlights the importance of employee motivation, job satisfaction, and fair compensation in enhancing productivity and competitive advantage, illustrating how positive employee relations can aid in overcoming challenges.
What are some key examples used in the essay?
The essay uses examples such as Jack Welch's shift from a shareholder-centric perspective, Jack Ma's prioritization of customers and employees, and Opel's successful navigation of insolvency to illustrate different approaches to stakeholder management and their outcomes.
What are the key words associated with this essay?
Key words include shareholder theory, stakeholder theory, stakeholder management, corporate social responsibility, profit maximization, competitive advantage, trust, employees, customers, creditors, suppliers, societal stakeholders, business ethics, and corporate governance.
What is the structure of the essay?
The essay is structured with an introduction, chapters dedicated to shareholder and stakeholder theories, a chapter detailing important stakeholder groups, and a conclusion. It also includes a table of contents and chapter summaries.
- Quote paper
- Anonym (Author), 2019, The shareholder versus the stakeholder approach, Munich, GRIN Verlag, https://www.grin.com/document/498235
