Management Assignment: Stakeholder Vs. Shareholder Theory
Question
Task:
You are expected to write a book report on management assignment on selected book.
“Automating the News: How Algorithms Are Rewriting the Media by Nicholas Diakopoulos, 2019.” or “Schmidt, E. & Cohen, J. (2013). The New Digital Age: Reshaping the Future of People, Nations and Business. London, UK: John Murray.”
You are expected to write a report on the following:
- Background of the book: author, publisher, date, and a brief summary.
- Recall 10 key points that the author talked about in the book.
- Discuss/defend whether you agree/disagree with each point and explain why or why not.
Answer
It is evident herein management assignment that companies need to run their own businesses to achieve higher values for the community and society in total. Every company has interested parties and shareholders, each of whom has a different vested interest in the company (Smith, 2003). Businesses need to lead their corporations to strive for a higher level of value for sustenance. In a corporation, there are stakeholders and shareholders, each one having different investment in the company (Smith, 2003). While shareholders are always regarded as stakeholders in a corporation, stakeholders have an interest in the performance of the company apart from stock appreciation or performance. Shareholders own a part of the public company by way of shares. This implies that stakeholders have a greater vested need in the success of the company over a longer time period. Shareholders can be individuals, company or institutions owning at least one share of the company, hence with the interests in financial profitability of the company. While shareholders are always seen as interested parties in the company, stakeholders are interested in the company's activities and not in the valuation or performance of shares. Shareholders own part of a listed company through shares. This means that stakeholders must be successful over a longer period of time. Shareholders may be individuals, companies or institutions that are at least part of the business and therefore share the financial profitability of the company. The failure of shareholder theory reveals scandals involving several companies. Because managers primarily require their employees to maximize profits, the successful theory of stakeholders aims to balance the financial interests of shareholders, even if it reduces shareholder performance to other stakeholders, including customers, employees, and local communities (Business Roundtable, 2019). These two theories should be seen as saying that what they actually say is not what they imply. Although stakeholders and shareholders are "regulatory theories about corporate social responsibility," they assess the role of companies. These theories include theories about corporate ethics, such as business leaders and executives who make decisions based on "better" theory. Shareholder theory provides shareholders with seed capital for corporate managers who design corporate funds as shareholders allow.
In 1963, the Stanford Institute invented these stakeholders to describe groups that existed for the organization's sustenance. Don Tapscott wants these organizations to be real and to take into account the interests of stakeholders, including the company as a whole. The organization called for a more complex multilateral approach with a "multilateral decision-making model" (Mahoney, 2012). Stakeholders are an integral part of the organization because they are made up of people who can influence the organization. Companies around the world are developing ambitious business projects where value is the driving force behind shareholders, companies, customers, and the entire team. The organization needs to reassess stakeholders so that the team can ultimately provide and use services. The stakeholders of the organization are also employees, customers and the environment and receive a fair share of the benefits. Resilient companies serve not only "shareholders" or "profit seekers" to meet the needs of this changing and complex world. Stakeholders are an essential component of the organization as they are made up of everyone that an organisation can impact. Businesses globally are creating ambitious business projects where value becomes the driving goal for its shareholder, society, clients, and the entire team. Organisations need to redefine stakeholders such that groups can ultimately serve and benefit from it. Stakeholders of an organisation include its employees, customers, society and environment as well who deserves a fair share of profits. An example of stakeholders focusing on more business examples, and as Unilever points out, the organization aims to create a sustainable way of life. The company is committed to a sustainable future as a brand and offers services that make people feel comfortable, look good and do more with their lives. Maximizing shareholder value is not part of the company's goals, but companies strive to give more importance to employees around the world, even if their customers can use their products every day. Dean Foods, America's leading food and beverage company, is pushing for higher targets. The Company is committed to maximizing the long-term value of its shareholders while complying with laws that govern the highest ethical standards.
Until the 20th century, companies focused on creating economic value for shareholders, leading to criticism of more capitalist business models. Recently, however, there has been a significant change in the way CEOs monitor the value of stakeholders. Large employers around the world invest in their employees and communities for long-term success (Harrison& Wicks, 2013). Stakeholder theorists have identified scandals at Global Crossroads, Enron, ImClone, Tyco International and WorldCom. Credit Suisse First Boston has also questioned the incentive system because of concerns about the independence of accountants who control financial accounts, and Merrill Lynch supports the pillars of the shareholder advantage. Friedman argues that the economy has only one social responsibility: to use its resources and increase profits to compete openly and freely without fraud or fraud. At the heart of stakeholder theory is the manager's obligation to shareholders and the individuals or entities of the company to voluntarily or unintentionally contribute to wealth creation activities and opportunities (Pontefract, 2016). The issue of stakeholders has generated considerable controversy, and it should be noted that managers are representatives of all stakeholders and have a responsibility to ensure that any interested party does not violate moral rights by balancing the legitimate interests of decision-makers. The main goal is to coordinate the company's ability to maximize profits and support its long-term problems. "While stakeholder theory requires that the interests of all stakeholders be included even when the company's profitability decreases, shareholder theory is not directed at shareholders." Unfortunately, because this happens in shareholder theory, there are misunderstandings that drive managers to make the same profits, even from managers who increase profits by not imitating or legal means. One of the main criticisms of shareholder theory is maximizing short-term profits, even through the company's services. Shareholder theory often allocates company funds to charitable projects or ethical investments of temporary employees. Stakeholder theory is one of the best theories and is often misunderstood. Stakeholder theory does not require the company to focus on profitability, although it does focus on business continuity. Therefore, the interests of stakeholders can be considered as one of the most important interests in a company's long-term offering.
References
Business Roundtable. (2019). Business Roundtable Redefines the Purpose of a Corporation to Promote 'An Economy That Serves All Americans'. Business Roundtable. Retrieved from [https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans]
Harrison, J. S., & Wicks, A. C. (2013). Stakeholder theory, value, and firm performance. Business ethics quarterly, 97-124.
Mahoney, J. T. (2012). Towards a stakeholder theory of strategic management. Towards a New Theory of the Firm. Barcelona: IESE Research Unit, forthcoming, 110.
Pontefract, D. (2016). Should Companies Serve Only Their Shareholders Or Their Stakeholders More Broadly?. Forbes. Retrieved from [https://www.forbes.com/sites/danpontefract/2016/05/09/shareholders-or-stakeholders/?sh=5867e18013d2
Smith, H.J. (2003). The Shareholders vs Stakeholders Debate. MIT Slogan Management Review. Retrieved from [https://sloanreview.mit.edu/article/the-shareholders-vs-stakeholders-debate/]
