It is well acknowledged that a company should be managed to meet the needs of shareholders, as after all the shareholders are the provider of capital and hence, it is necessary to pay attention to how to earn the necessary returns for the capital provided by the shareholders. In such a perspective, the main objective of a manager or a business is about to maximise wealth for the shareholders (Simmons & Lovegrove, 2005; Freeman, 1984; Tipuric & Lovrincevic, 2011).

However, the shareholder oriented approach in managing a business is increasingly being critiqued. This is because more and more scholars believe that a socially responsible business is one that balances a multiplicity of interests (of the different stakeholders), rather than one that purely attempt to maximise profits (Carroll, 1999; Sachs, Maurer, Rühli & Hoffmann, 2006).

For that, there are more and more voices to call for a stakeholder perspective, whereby the idea is that a business needs to protect and promote the rights of the various corporate stakeholders, of which their existence is necessary for the survival and performance of the business, and that include: stockholders, employees, customers, suppliers, the local community, and managers themselves (Freeman, 1984).

Indeed, scholars such as Luu (2012) further argue that a modern business should exercise its corporate social responsibility (i.e., CSR) through concerning about the stakeholders of a business ethically or in a responsible manner, while not neglecting the needs to cater for the economic as well as environmental welfare or responsibility of a business towards the community. This is essential not only to enhance the standard of living of the society, but also critical for the sustainable growth and development of the business and the economy (Simmons & Lovegrove, 2005; Sachs, Maurer, Rühli & Hoffmann, 2006; Robertson & Nicholson, 1996). The stakeholder approach is also often regarded as more holistic or comprehensive, as it concerns multiple stakeholders and perspective – whereby the shareholder oriented approach to manage a firm is more narrowly focused (Mishra & Suar, 2010; Etang, 1995; Tipuric & Lovrincevic, 2011).

Based on the perspective of stakeholder management, a business will have many different stakeholders (aside from shareholder) to be attended to, and those include the following: customers, government, financiers, owners, community, competitors, employees, service providers, management, suppliers, landlords or event activists. This is depicted in Figure 1 below.

Figure 1: Stakeholders of a Business

Source: Whysall (2005)

It is well acknowledged that it is also possible to classify the many stakeholders into different groups. For example, there can be primary versus secondary group of stakeholder. For example, as discussed by Mishra & Suar (2010), those primary stakeholders are those employees, customers, investors, suppliers, government, and community of which a business may have a formal, official, or contractual relationship; while those secondary stakeholders such as media and special interest groups are those that do not have any contractual obligation with a particular business. Yet, it is also possible to differentiate the stakeholders into: internal versus external stakeholders. Obviously internal stakeholders include the employees, while the external stakeholders are stakeholder such as the government and the community (Mishra & Suar, 2010).

The need for stakeholder management can be easily understood. Indeed, one of the rationales for stakeholder management is because that the different stakeholders are simply different – but they can affect the outcomes or eventual performance of a company (which in turn, affect the interests or profitability pertaining to the shareholders) (Tangpong, Li & Johns, 2010). To explain about this, the different stakeholders have different expectations and interests, and such differences demand the management of a company to acknowledge about the need to have different strategies to deal with these different stakeholders effectively; aside from needing to cater for the diverse interests of these stakeholders – during the conduct of a business (Mishra & Suar, 2010; Etang, 1995; Sachs, Maurer, Rühli & Hoffmann, 2006).

For example, as discussed in Kumar & Subramanian (1998), the different stakeholders (that are more influential and significant), for the case of a modern hospital, can have different expectations, as shown in Figure 2 below. It can be observed that the different stakeholders indeed have different interest, and hence the different claims on the business of the hospital.

Figure 2: Different Expectations and Claims

Source: Kumar & Subramanian (1998)

To explain, the claims from the many different stakeholders, as well as the responsibilities (or duties) of managers towards these different stakeholders will be outlined below.

Government. The government does have direct claims on businesses, such as through the taxes upon businesses, and to monitor the acts of businesses, so to safeguard the interests of the society. Generally speaking, it is a crucial duty for businesses to act in compliance to the legislation and regulations set by the government (Carney, Gedajlovic & Sur, 2011). Indeed, to pay attentions to the needs of government is critical of a business may face the risks of being terminated by the authorities.

Customers. Customers make the purchase from a business, and therefore they deserve the following: quality, safety, convenience, assurance, and any other sort of assistances or services provided by a business. The customers have direct claims on the business, as through their purchasing voting power, they can affect the outcomes of a company. In other words, to fulfil the needs and wants of customers is crucial responsibilities of a business, of which will also affect the performance of a firm (Minoja, 2012).

Employees. Employees work for a firm, and therefore the firm has the responsibilities to take care of the welfare of the employees. Aside from having the direct claims, such as salary and having a reasonably good workplace, the employees also actually deserve other claims from a particular company, such as: job safety, job security, training and development as well as assistances provided by the management. For the management, to treat the employees fairly would not only be necessary for legal compliance purposes, but also for better engaging the employees to work hard in helping the company to achieve its intended business mission and vision (Van & Greenwood, 2011).

Suppliers. The suppliers are actually the business partners of a company, whereby through close and strategic collaboration with suppliers a firm will be able to enhance its competitive edge (Co & Barro, 2009). In other words, the suppliers will have these indirect claims on a company, such as: payment due to suppliers, long term collaboration, fulfilment of promises, and any other contractual claims signed between the suppliers with a company. As such, the company have the duty to also meeting the needs of the suppliers – either financially or non-financially. It is through close collaboration that both a company and the supplier can arrive at win-win arrangement.

Community. The community, or the society has claims on a business, as after all, how a business is operated will affect the other people in the society, often indirectly (although sometimes directly). For example, the community deserve to ensure that a business is conducting business practices ethically. One very critical claims is that a business should take care of the natural environment properly, as the society as a whole (not to mention also the next generations of society in the future) do need to have a clean and healthy living environment (Kivits, 2011). As such, a business must pay attention to the needs of the community, as the business is actually also part of the society, and therefore has the responsibility or stewardship to safeguard the interests of the entire society.

Shareholders. Last but not least, it is undeniable that management does have responsibility to the shareholders, such as to strengthen corporate governance and to earn a profit for the shareholders (Carney, Gedajlovic & Sur, 2011), as after all, the shareholders are the provider of capital (i.e., therefore have claims on the ownership and assets of a company).

Given that different stakeholders have different claims towards a business, it is important for managers to conduct stakeholder analysis in order to better manage a company. One important theory, on stakeholder analysis is to acknowledge the notion that: the different stakeholders may have different degree of ‘power’ and ‘influence’ towards a company. Of that, a theoretical framework, i.e., 2×2 matrix of power/ influence model is often used for stakeholder analysis. This framework is shown below (Figure 3).

Figure 3: 2×2 Matrix

Source: Kipley & Lewis (2008)

From the 2×2 matrix presented above, it is then possible to manage and engage the different stakeholders accordingly, in order to manage the relationships to these different stakeholders accordingly. As shown in Figure 4 below, more efforts should be cater for those ‘high influence’ and ‘high stake’ stakeholder.

Figure 4: How to Engage Stakeholders

Source: Kangas (2011)

Overall, it can be concluded that the stakeholder approach is indeed a more relevant perspective or paradigm in managing a business. That is not because that taking a stakeholder approach would more likely be holistic and ethical (Bonnafous & Porcher, 2010), but also due to the observation that companies that employed stakeholder approach in managing a business tend to suffer lower risks (Kangas, 2011), more strategically positioned (Sachs, Maurer, Rühli & Hoffmann, 2006), more likely to enjoy better performance (Tipuric & Lovrincevic, 2011), and perhaps more importantly, tend to be more sustainable in the long term (Windsor, 2010). Given that, it is then obvious that management shall adopt the stakeholder approach in managing a business, for business success into the future.

References

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Carney, M., Gedajlovic, E., & Sur, S. (2011). Corporate governance and stakeholder conflict. Journal of Management & Governance, 15(3), 483-507.

Carroll, A. B. (1999). Corporate social responsibility. Business and Society, 38(3), 268-295.

Co, H. C., & Barro, F. (2009). Stakeholder theory and dynamics in supply chain collaboration. International Journal of Operations & Production Management, 29(6), 591-611.

Etang, J. L. (1995). Ethical corporate social responsibility: A framework for man. Journal of Business Ethics, 14(2), 125.

Freeman, R. E. (1984). Strategic management. A stakeholder approach. Boston: Pitman.

Kangas, P. J. (2011). Stakeholder management 101. Quality Progress, 44(3), 72.

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Kipley, D., & Lewis, A. O. (2008). Examining the efficacy of the multi-rater analysis methodology as an alternative approach in determining stakeholder power, influence and resistance. Business Renaissance Quarterly, 3(4), 101-124.

Kivits, R. A. (2011). Three component stakeholder analysis. International Journal of Multiple Research Approaches, 5(3), 318-333.

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Simmons, J., & Lovegrove, I. (2005). Bridging the conceptual divide: Lessons from stakeholder analysis. Journal of Organizational Change Management, 18(5), 495-513.

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Tipuric, D., & Lovrincevic, M. (2011). Stakeholder orientation and firm performance: Value generating strategy or sophisticated entrenchment strategy? - Empirical evidence from Croatia. The Business Review, Cambridge, 17(2), 220-228.

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Whysall, P. (2005). Retailers’ press release activity: Market signals for stakeholder engagement? European Journal of Marketing, 39(9), 1118-1131, 1223.

Windsor, D. (2010). The role of dynamics in stakeholder thinking. Journal of Business Ethics, 96, 79-87.

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