The Impact of Stakeholders on Corporations (Essay Sample)
The task was to present a paper on the impact of stakeholders on companies. The paper discussed how the different needs of corporate stakeholders such as shareholders, employees, investors, customers, creditors, and the public influence the operations, management, and the strategic direction of corporations. In light of the varied demands of different stakeholders, corporate managers need to create a balance between financial objectives and social responsibilities. This can be achieved through stakeholder engagement.source..
The Impact of Stakeholders on Corporations
The Impact of Stakeholders on Corporations
The stakeholders of a corporation include people and groups that have an interest in the company. Traditionally, shareholders have been viewed as the primary and sole stakeholders in a company. Corporate decisions, therefore, have been focused at optimizing value for shareholders (Carroll & Buchholtz, 2014). However, in the modern era of competition in a dynamic and global marketplace, other groups have become more involved in the affairs of companies. These include employees, creditors, customers, business partners, government, and the community. The stakeholders hold companies to a higher social, ethical and environmental standard (Post, Preston, & Sauter-Sachs). Corporate decision-makers are also accountable to the different stakeholder groups. This paper looks at the impact of stakeholders on corporations and how they affect the decision making processes of business organizations.
The different stakeholder groups have different interests and preferences that affect the decision-making process in varied ways. First, shareholders are investors of the company, and they expect a positive return. Having contributed to the capital of the company, shareholders perceive the organization as a profit-making entity, and this usually dictates that the company make profits (Post, Preston, & Sauter-Sachs, 2002). Shareholders goals are aligned with the financial objectives of profit and wealth maximization. However, although shareholders are the primary stakeholders in any organization, corporates have an economic obligation to balance the interests of shareholders with those of other stakeholder groups. Economic responsibility implies that corporates should value long-term financial sustainability over short-term profits. For example, companies that try to achieve their bottom line in the short-term may end polluting the environment as they try to save on waste disposal costs. Therefore, organizational decisions should be made with other stakeholders in mind, and not the shareholders only. Corporate decision-making should be focused on creating value in the longer term.
Employees comprise another stakeholder group that has an impact on corporations. The development of labor rights and the creation of trade unions have made employees more vocal on the running of corporations. Today, workers are aware of their rights of good working conditions, dignity and appropriate compensation (Carroll & Buchholtz, 2014). Corporate decision-making processes have therefore evolved to take into account the interests of employees. Today, corporates must comply with minimum wage regulations. Businesses recognize that human capital is as vital to the organization as financial capital and, therefore, they must also maximize the welfare of employees. Offering performance-based compensation and career development programs to employees involve a cost to the company (Carroll & Buchholtz, 2014). Therefore, managers must balance between satisfying the interests of shareholders and those of their employees.
Customers and creditors also affect the business and decision making processes of an organization. As consumers of a company’s products, customers expect the company to adhere to safety standards. They also expect the corporates to offer value-oriented solutions at reasonable prices. The taste and preferences of consumers are also very dynamic, and for the business to thrive, they must adapt to the changing consumer preferences (Post, Preston, & Sauter-Sachs, 2002). Therefore, customer interests also tamper with the financial interests of shareholders.
On the other hand, creditors expect integrity in their relationship with the company. Suppliers and banks expect the company to be responsible and pay outstanding amounts promptly. Creditor satisfaction also involves a cost to the organization. Another stakeholder is the government, which calls for corporates to comply with laws and regulations governing their conduct. Companies must not engage in illegal and unethical acts as they try to achieve their financial objectives. They must also adhere to environmental regulations, labor laws, and pay the taxes due (Carroll & Buchholtz, 2014). Business managers, therefore, have to take legal requirements into account in their decision-making.
Most significantly, corporations have in recent times been called upon to serve the interests of the public and the communities in which they operate. The relatively new concept of Corporate Social Responsibility (CSR) has emerged which calls for corporates to carry out their business operations in a socially and ethically responsible manner (Carroll & Buchholtz, 2014). Companies have a legal obligation to protect the environment and a social commitment to engage in philanthropic activities. Corporates in the industrial sector release toxic waste into the environment which has significantly contributed to the greenhouse effect and climate change. CSR dictates that companies employ waste disposal strategies that do not harm their eco-system. It also calls for business organizations to conserve resources, minimize the release of waste into the air, water and soil, and also use renewable sources of energy. Concurrently, companies have a moral duty to engage in proje
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