Stakeholder Theory Essay

Stakeholder theory is one of the normative theories of business ethics, along with stockholder and social contract theories. This theory helps managers to evaluate interested parties of a business and its responsibilities to these parties, specify the nature of the business’s interaction with those parties. Stakeholder theory offers managers framework for decision-making allowing executives to evaluate possible consequences of these decisions so as to provide an assessment tool for future decisions.

Stakeholder theory provides an important tool for identifying the, the the business has to those interested parties, the interactions between the business and its stakeholders, etc. More practically, stakeholder theory can serve as an important management tool, assisting managers to consider the consequences of their decisions before making them and their actions before taking them.

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Stakeholder theory depicts a model of the business process where “all persons or groups with legitimate interests participating in an enterprise do so to obtain benefits, and there is no prima facie priority of one set of interests and benefits over another” (Weiss). Stakeholder theory has acquired the position of a paradigm of management studies and is now an indispensable part of the business ethics theory.

Normative theories constitute the «intermediate level principles to mediate between the highly abstract principles of philosophical ethics and the concrete ethical dilemmas that arise in the business environment” and assist in making the conclusions of business ethicists understandable to a business practitioner (Hasnas).

2. Possible impact of stakeholder theory on corporate social responsibility
Stakeholder theory has several implications for corporate social responsibility. It posits that the corporation does not have to promote the interests of only one party, the owner of the company. Instead, it has to balance the interests of many parties, not excluding the interests of the community in which it functions. In this case, the company needs to take a different perspective on, for example, environmental protection issues, and lay-offs of redundant workforce.

Under the stakeholder theory, the enterprise is an «entity through which numerous and diverse participants accomplish multiple, and not always congruent, purposes”. Consequently, the enterprise has to cater to the interests of all parties that can be benefited or harmed by its activities. Thus, the corporation has to consider virtually all persons or groups in its decisions, as theoretically the circle of parties that can be affected by the managerial decisions can be infinite.

Stakeholder theory argues that actions of business are subject to moral and legal limitations as any business is formed within society, and owes its existence to this society. Thus, business is therefore “morally obligated to serve the public interest” (Weiss).

If stakeholder theory is taken as a normative theory, which is vital for business ethics, it is consistent with the claim that managers need to consider all stakeholders in their decisions and evaluate the future impact of their decision from this viewpoint, even if such decision-making results in a different course of action than the one that would have maximised the return in investment for shareholders (Hasmas).

3. Stakeholder theory and values-driven management
Stakeholder theory helps managers to lay the foundation for values-driven leadership that is based on showing empathy for people, listening to them and sharing their vision. A leader who is open to balancing the interests of many stakeholders rather than be a watchdog of the owner’s interests will be more able to base one’s strategy on the values that form the basis of the organization.

Being able to rely on values is consistent with view on the organization as an entity that has to follow a strategy that takes multiple consequences and effects on different persons into account.

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