Stakeholder Theory and Performance Essay

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Stakeholder management is a concept applied to many types of organizations, where strategic decision-making takes into account the interests of multiple different stakeholders (Thompson, 2016). Advocates of the stakeholder perspective have argued that the stakeholder approach is a better way to evaluate a business' success, as opposed to strictly considering financial results (Perrini & Tencati, 2006). The concept of the balanced scorecard hypothesizes that businesses that look after the interests of all stakeholders will perform well on measures affecting all, including the financial measures.

There are differing opinions on this, however. The stakeholder approach advocates for multiple different measures for business, and this is diametrically opposed to the normal means of evaluation, which are strictly financial in nature. It is not actually possible to reconcile these, but both contain financial measures. Many companies seek to portray themselves as giving due attention to non-financial interests, but this is not always the case. Sometimes they mostly pay lip service, and are still focused primarily on the interests of the shareholders. The classic argument for doing this is that the shareholders have put up their capital for the business' benefit, and therefore are entitled to earn a return on that (Friedman, 1970).

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This view is at odds with the stakeholder approach, which appreciates the role that employees play, but also the environment and customers, and governments that rely on business for a tax base and to create jobs. The evidence is thus unclear as to which approach is better, but many instances where business seek to maximize profit are clearly instances where other stakeholders are rejected -- offshoring, outsourcing, polluting and tax dodging all among the common activities that do not fit with the stakeholder model.

There are definitely some issues inherent in the stakeholder approach. First, there are no consistent measures of success. Each company can adopt its own, but in general it is harder to compare businesses, and businesses are inherently competitive. With financial success, the SEC and IRS mandate specific measures and those are the ones against which businesses can be compared on common metrics. The stakeholder approach, however, has merit intellectually. Business today profits, but usually there are costs associated with that, such as gutting the nation of good jobs, or destroying the environment. Most businesses today would not be profitable if all of these costs were actually included on their income statement; it is only by.....

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