Question

Think of a company where “doing the right thing” and acting in the interests of broader stakeholders (rather than just stockholders alone) have produced a stronger competitive advantage. Why was this the case?

Answer 1

A 'Stakeholder' is a member who supports the organization he is a part of. There are two types of stakeholders - Primary and Secondary. Primary Stakeholders or Internal Stakeholders are those who interact and deal with the business directly, like stockholders, suppliers, customers, employees, investors, owners, and creditors. Secondary Stakeholders or External Stakeholders are those who deal and interact with the business indirectly, like the government, general public, media, competitors, communities, business support groups, etc.

The inclusion of the interests of external stakeholders with the interests of internal stakeholders can be collectively called as 'Broad Stakeholders'. When a corporation considers the interests of the broad stakeholders too, the company has a competitive advantage. This is because though they are undermined and overlooked at times, the external stakeholders do play a crucial role in the organization. Considering their interests as well will only prove good for the corporation in the long run.

"Doing the right thing" could include taking decisions that have a good and well-lasting effect on the society and that could contribute towards making a change. For example, the Walt Disney Company has taken a decision to disassociate itself from fast-food and junk-food endorsing brands by not allowing its cartoon characters to endorse those brands. It has taken this step to cure child overweight and obesity problems. This has made it lose ad revenue and many important brand deals. But the company has made a statement that doing the right thing matters more to it than the losses it has to face due to this decision. This could build a good brand strategy amongst the public and other stakeholders as they would like to be associated with such a brand.

The benefits obtained to the company by acting in the interests of broader stakeholders, rather than just stockholders alone are that the employees of such a company have higher levels of productivity and higher employee satisfaction than the company that doesn't. It also ensures improved retention of top talent. Due to this, the customers too are happy with the end product and they are more likely to refer the company's brand to other potential customers. This could bring in a lot of revenue. Seeing the growth of the business, investors are likely to see a potential in the business and invest more. Financers are ready to credit more money to further expand the business.

The company gains a well-reputed image in the eyes of the general public. The media and the government act in compliance with the company. Business support groups and activists also act in favour of the company as they will be happy to be associated with such a company. This overall increases the mental health of the workforce. This, in turn, will elevate the socio-economic status of the local community. All the above-listed benefits occur because of one small move of the company to include the interests of its broader stakeholders, rather than just the interests of its stockholders alone. This will contribute towards a healthy, competitive ecosystem where the other companies could also thrive and could bring benefits to their own stakeholders for the greater good.

Therefore, we can conclude from this, that a company's decision to "do the right thing" and act in the interests of its broader stakeholders will only prove beneficial for the company and have a stronger competitive advantage over the others in the market.