Stakeholders and their Importance in a Business
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Question
What stakeholders are there in a business and why are they important?
Answer
Stakeholders are defined as an individual or group who can affect, or be affected by business activities, either positively or negatively (Crane and Matten 2010; Freeman et al 2010). The identification of stakeholders and their relevance to the organisation’s context, through the use of stakeholder theory, can be problematic for managers due to changing contexts and issues of subjectivity (Donaldson and Preston 1995).
Stakeholders within a business include customers, competitors, employees, civil society, suppliers, shareholders and government (Crane and Matten 2010). The importance of these stakeholders can relate to the legitimacy of their claim on corporate activities and how these claims should be managed (Freeman et al 2010). This claim on corporate activities includes the legal responsibilities established by government regulations as well as the economic responsibilities of the business towards its employees, suppliers and civil society through the creation of economic success and tax revenues. Stakeholders are therefore important for an organisation due to the interdependency and the need for engagement between an organisation and society (O’Rourke 2011).
A business needs to evaluate its important stakeholders and this can include the nine principles of stakeholder management as follows: acknowledge, monitor, listen, communicate, recognise, adopt, work, avoid and acknowledge conflicts (Clarkson et al 1995 as cited by Maignan et al 2005). Stakeholder theories addressed the need for businesses to assess which stakeholders were most important to it using the ideas of power, legitimacy and urgency in an attempt to provide a better definition for the context of the corporation (Mitchell et al 1997). Key (1999) argues that stakeholder theory is only a starting point due the complexity of the situation it is trying to address, and strategic decisions and trade-offs may need to be undertaken within the context of the corporation.
References
Crane, A. and Matten, D. (2010) Business ethics: Managing Corporate Citizenship and Sustainability in the Age of Globalisation 3rd ed. Oxford: Oxford University Press
Donaldson, T. and Preston, L.E. (1995) The Stakeholder Theory of the Corporation: Concept, Evidence and Implications Academy of Management Review Vol. 20 (1) pp.65-91
Freeman, R.E, Harrison, J.S., Wicks, A.C., Parmer, B. and de Colle, S. (2010) Stakeholder Theory: The state of the Art 1st ed. Cambridge: Cambridge University Press
Key, S. (1999) ‘Toward a new theory of the firm: a critique of stakeholder “theory”’ Management Decision Vol. 37 (4) pp.317-328
Maignan, I., Ferrell, O.C. and Ferrell, L. (2005) ‘A stakeholder model for implementing social responsibility in marketing’ European Journal of Marketing Vol. 39 (9/10), pp.956-977
Mitchell, R.K., Agle, B.R. and Wood, D.J. (1997) ‘Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts’ Academy of Management Review Vol.22 (4) pp.853-886
O’Rourke, J. (2011) ‘Sustainability Matters’ Cost Management 2011 Vol.25 (5), pp.6-15
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