Stakeholder theory as an organisational management theory supports good corporate governance Essay Example for Free

Stakeholder scheme as an organisational management theory supports good corporate authorities EssayStakeholder system as an organisational management innovation supports good incorporated Governance seats.Discuss whether stakeholder theory assists in determining good corporate governance models for a company.The recent increase in aw atomic number 18ness surrounding corporeal Governance partly arose from what was considered to be some of the darkest days in blood during the early 2000s when numerous multi national corporations unexpectedly collapsed. battalion the world over were greatly effected by these events, which brought into question the role of good vocation put in immediatelys society. Freemans (1984) seminal work strategic Management A Stakeholder Approach describes Stakeholder Theory as a structure that supports stiff embodied Governance by mode of protecting and looking after non just its sh arholders, just today all stakeholders that ache a vested bear on in the company. Central to the discipline of Corporate Governance is the ethical behaviour of corporations (Crane, 2004), Stakeholder Theory is the most powerful and popular theory to emerge thus far that addresses the role of ethics in business (Stark, 1994).This try builds on the idea that ethics, business, sustainability, business and the surround are no immenseer separate (Freeman et al., 2010) in todays global business world. Critics of Stakeholder theory claim that the shareholders ability to gain supreme profits are compromised, however recent research has shown that by creating value in a answerable manner whilst taking all constituents into account pretendually leads to a much(prenominal) profitable company, whilst encouraging long term outcomes (Donaldson, 1995). Critics also claim that stakeholders interests are so varied its impossible to give partake fairness to all. Whilst it is impossible to make every stakeholders interest equal, three divulge ar eas are assessed to ensure the attributes and relevence of each stakeholder within the companys ethical codes power, legitimacy and urgency (Wickham, 2009).The term Stakeholder Theory whilst in use from the 1960s was further developed by Edward Freeman in the 1980s and has vastly bragging(a) in popularity in recent eld. Stakeholders may include but are not limited to employees,creditors, consumers, suppliers, whilst also incorporating the extrinsic interest of Governments, competitors, the community, environment and society at large (Buchholtz, 2012). Refer to figure 1.Fig 1. A firm and its stakeholders (Polonsky Michael, 1995).The Australian Stock Exchange Corporate Governance Council guidelines (Australian, 2007) identifys eight key priciples relating to the rules, relationships, systems and processes within and by which authority is exercised and controlled in corporations. By applying the eight principles to monitor and assess risk, optimise consummation, nominate value an d go forth accountability. Stakeholder Theory addresses these principles by concentrating on the moral responsibilities of business organisations in terms of the background signal of fiduciary obligations towards their stakeholders. Researchers from Bolognas University set out to determine whether stakeholder management actions could bring strength to immanent legitimacy, thereby creating better working conditions that lead to improved company competitiveness, developed by company employees (Longo, 2008).They began by conducting two surveys on the employees of a leading Italian agricultural company who had been implementing Stakeholder Theory for many years and had received numerous awards in recognition for their processes. They were asked a multitude of questions surrounding their roles in the work speckle, their feelings toward their colleagues, employers and their work environment in detail. The researchers were then able to define quantitative measures of the system of res ources to determine the role of stakeholder policies in the exploitation of the intangible resources (Longo, 2008). Those intangible resources being, the capacity to motivate employees (Donaldson, 1995), the capacity to attract and keep professional and qualified staff office in the work market (Turban, 1997), the ability to develop internal and external company relationships (Post, 2002).The turn outs indicated that the companys social policies had a signifi stinkpott influence particularly when it came to trust, job satisfaction, networking and communication, ability to work in a group and let out turnover propensity (Longo, 2008). Since 1983 Herman Miller the furniture manufacturing company has incorporated an employee as stakeholder program, employees carefully monitor and cognize how theirroles contribute to the profitability. Employees review the numbers, particularly their EVA surgerys, an indication of their contributions to the long-term value of the company. We are part of the company, we think and act for whats best for the company, and we share in the fortunes of the business, like owners. We also work hard to understand our opportunities for long-term profitability and growth (Miller, 2010).Effective corporate governance structures encourage companies to create value, through entrepreneurialism, innovation, development and exploration, and provide accountability and control systems commensurate with the risks involved (Australian, 2007). According to a study conducted by the University of Northern Iowa, effective stakeholder management results in ingenuous financial reporting (Mattingly, 2009). By ensuring that decision making processes are transparent and the organisation is accountable to all its stakeholders, the effect on financial performance is a direct result of stakeholders having an active role in organisation governance.Additionally, organisations that exhibit stronger commitments to both institutional and technical stakeholders are more conservative in their accounting practices, a direct function of responsive corporate governance (Mattingly, 2009). As part of UPSs 2011 Sustainability Report, Chairman and CEO Scott Davis spoke of the companys financial reporting, We are disclosing more information than ever before this process spotlights which issues are at the nexus of UPSs own business issues with those of external stakeholders, which inspection and repairs guide us in the future toward creating more sustainable, longer lasting relationships (UPS, 2011). assembly linees are lend to society more than ever before, how they contribute and make decisions raises significant ethical issues, business ethics can be said to begin where the law ends (Crane, 2004). Additionally, companies are having to look toward creating not only sustainable organistations but environmentally sound and socially accountable establishments (Wolfe, 2007). The controversial economist Milton Friedman once said, the only social obl igation of business is to maximise profits (Friedman, 1962) . This way of thinking is inline with traditional Agency Theory, where the managers only obligation is to shareholders(Crane, 2004). However, there is inconsistency with this argument, from a levelheaded perspective and an economic perspective. Firstly, it is simply nave to say that the only group who has a legitimate interest in the corporation is the shareholder. There are a multitude of groups that hold a legitimate stake in the corporation through legal binding contracts that stipulate certain rights and claims on the corporation (Crane, 2004).For example there is legislation in place that protects workers rights in relation to pay and conditions, therefore from an ethical point of view the corporation has an obligation to their employees (Freeman, 2008). Secondly, there are external ramifications when a corporation ceases to consider the broader implications of it stakeholders, for example if a corporation closes down one(a) of its factories in a small community and lays off the employees, the effect on the community is widespread, from the local business owner who loses customers, universe services being cut, in turn the whole community is effected (Freeman, 2008).Recognising that the stakeholders interests have intrinsic value (normative approach), it makes not only ethical sense, but economical sense that the company takes responsibility to meet the stakeholders needs (Argandona, 2007). At Fuji Xerox responsibility and responsiveness to stakeholders is a key number one wood to ensure long term to sustainability. Managing Director at Fuji Xerox Nick Kugenthiran says We manage our sustainability performance across seven areas of accountability Business profitability Longevity, Corporate Governance compliance, Satisfying Customers, Providing a responsible solution, engaging employees, influencing sustainability outcomes and minimizing environmental impact (Fuji.Xerox, 2011). A transparent d isclosure to their stakeholders is evident in their sustainability reporting, and ethics and ace are key corporate values.Their strong commitment to corporate citizenship demands exemplary legal compliance at a minimum. We are working to integrate sustainability more explicitly into our governance and planning frameworks, and see an hazard to improve our approach to risk management (Fuji.Xerox, 2011). More and more businesses are recognising and working toward a model that incorporates corporate social responsibilities, which encourages a positive impact through its activities on the environment, consumers, employees,communities, stakeholders and all other members of the public sphere. Refer to figure 2Fig 2. Carrolls four-part model of corporate social responsibility (Crane, 2004).The critics of Stakeholder Theory argue correctly that you cannot give all stakeholders equal interest in the business, however the process of Stakeholder depth psychology is applied as a means of syste matically gathering and analyzing qualitative information to determine whose interests should be taken into account. When developing and/or implementing a policy or program, the qualities being assessed are Power, Legitimacy and Urgency, these qualities help distinguish and assign priority to the appropriate stakeholders for any given project (Winkler, 2009). Refer to Figure 3. This order best recommends how management can give due regard to the interests of those groups. In other words, it attempts to address the principle of Who or What Really Counts (Freeman, 1984).Figure 3. Salience Stakeholder Model (Hseih, 2009).In Conclusion Stakeholder Theory assists in organization good Corporate Governance by addressing the ethics of managing an organisation. The companies corporate strategies consider the interests of their stakeholders, groups and indivduals who can affect, or is abnormal by, the achievement of the organisations purpose (Freeman, 1984). Furthermore, businesses are now under more pressure to expire sustainable, transparent, ethical, environmentally responsible organisations and the most effective orgainsational management approach is Stakeholder Theory.By utilising the Stakeholder Analysis process, organisations are able to determine which stakeholders interest are a priority. Like many theorys, Stakeholder theory is not without its flaws, additional research needs to be conducted along with further criticism in order for the theory to evolve and advance the way organisations carry out Business. By creating an holistic framework for which companys govern and protect not only its shareholders, but the wider constituents of the organisation, namely the stakeholders (Mallin, 2004),business and society are now forever intrinsically connected, and with Stakeholder Theory continuing to take a larger role, businesses will be better off, ultimately society too.REFERENCESARGANDONA, A., AYUSO S. 2007. Responsible Corporate Governance Towards a Stakeholde r Board of Directors. Post Doctural Research Fellow. professor of Economics, University of Navarra. AUSTRALIAN, S., EXCHANGE (ASX) CORPORATE GOVERNANCE COUNCIL. 2007. Coporate Governance Principles and Recommendations Online. Available http//www.asxgroup.com.au/media/PDFs/cg_principles_recommendations_with_2010_amendments.pdf. BUCHHOLTZ, A., K. AND CARROLL, A, B. 2012. Corporate Governance and Social Responsibility Ethics, Sustainability and Stakeholder Management, Australia, Cengage Learning. CRANE, A., MATTEN, D. 2004. Business Ethics, United States, Oxford University Press. DONALDSON, T., LEE, E. PRESTON 1995. The Stakeholder Theory of the Corporation Concepts, Evidence, and Implications The Academy of Management Review, 20, 65-91. FREEMAN, E., R HARRIS, J. 2008. The Impossibility of the Seperation Thesis. Business Ethics Quarterly, 18, 541-548. FREEMAN, R. E. 1984. Strategic Management A Stakeholder Approach, Pitman Boston. FREEMAN, R. E., HARRISON, J. S., WICKS, A. C., PARMA R, B. L. DE COLLE, S. 2010. Stakeholder Theory The State of the Art. Cambridge Cambridge University Press. FRIEDMAN, M. 1962. Capitalism and freedom, p.x1FUJI.XEROX. 2011. Sustainability Report Online. Available http//www.fxasustainability.com.au/2011/index.php. HSEIH, M. 2009. Human centric knowledge seeking strategies stakeholder perspective. Journal of Knowledge Management, 13, 115-133. LONGO, M., MURA, M. 2008. Stakeholder management and human resources development and implementation of a performance measurement system. Corporate Governance, 8, 191-213. MALLIN, C., A. 2004. Corporate Governance, United States, Oxford University Press. MATTINGLY, J., E., HARRAST, S., OLSEN, L. 2009. Governance implications of the effects of stakeholder management on financial reporting. Corporate Governance, 9, 271-282. MILLER, H. 2010. Herman Miller A better worldreport Online. POLONSKY MICHAEL, J. 1995. A stakeholder theory approach to designing merchandising strategy. Journal of Business a nd Industrial Marketing, 10, pp29-46. POST, J. E., PRESTON, L.E., SACHS, S. 2002. Redefining the Corporation Stakeholder Management and Organisational Wealth. STARK, A. 1994. Whats the matter with business ethics? Harvard Business Review, pg 38-48. TURBAN, D. B., GREENING, D.W. 1997. Corporate social performance and organisational attrativeness to prospective employees.The Academy of Management Journal, 40, 658-72. UPS. 2011. Logistics at the Core Corporate Sustainability Report 2011 Online. capital of Georgia Georgia. Available http//www.responsibility.ups.com/community/Static Files/sustainability/2011_UPS_CSR_Report.pdf. WICKHAM, M., WONG, T. 2009. Stakeholder Management Capability Exploring the Strategic Management of Dissenting Stakeholder Groups. University of Tasmania. WINKLER, I. 2009. Stakeholder Salienc in Corporate Codes of Ethics Online. Available http//ejbo.jyu.fi/pdf/ejbo_vol14_no1_pages_4-13.pdf Accessed 1 14. WOLFE, B., D., SHETH N, J., SISODIA, S R. 2007. Firms of Edearment How world class companies profit from passion and purspose.