Question

These questions refer to the two views or theories of the firm that were presented and discussed throughout the course, the Stakeholder View and the Ownership View.

1. List and briefly explain each of the 3 reasons why the stakeholder theory is advocated as better for businesses to adopt.

Answer 1

1. Stakeholder theory encourages a practical, efficient, effective and ethical way to handle organisations in a extremely complicated and turbulent setting It is a practical theory because all companies have to handle stakeholders–it is another problem whether they are good at managing them.
It is effective because well-treated stakeholders tend to reciprocate with favorable attitudes and behaviors towards the organisation, such as sharing useful data (all interested parties), purchasing more goods or services (clients), offering tax breaks or other incentives

In a complicated and turbulent setting, it is helpful because companies that manage for stakeholders have better data on which to base their choices, and because they are appealing to other business members, they have a degree of strategic flexibility that is not accessible to rivals that do not manage for stakeholders.

2. All management choices have an ethical element, and the ethical arguments for stakeholder management are as crucial to the theory as the practical factors. An interesting and significant element of the theory of stakeholders is that its strategy is thorough. The theory of stakeholders promotes fairness, honesty and even generosity for all stakeholders

3. Other company disciplines tend to concentrate on one or a subset of stakeholder organizations: human resource theory focuses on staff, customer-focused marketing theory, financial theory focuses on shareholders and financiers, etc.
Stakeholder theory suggests that a kind of synergy is created by treating all stakeholders well. In other words, how a company treats its clients affects the attitudes and behaviors of its staff and how a company acts towards the groups in which it works affects the attitudes and behaviors of its providers and clients.

The theory of stakeholders is about generating more value at its heart. Managers, however, tend to have different views on who should share the value generated. Narrow value creation models suggest a tiny number of stakeholders, such as shareholders or clients, should be the focus.