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Stakeholders are individuals or groups that an organization owes or is dependent upon for its success. Stakeholder theory identifies who benefits and who sacrifices to give that benefit. Companies must provide benefits to all the stakeholders within a company to be considered ethical. Unfortunately, company managers must choose between stakeholders, whose interests do no always coincide.
Stockholders are owners of the company. Stockholders invest money into a company and expect the highest return possible. Stockholders want managers to do everything possible to maximize returns, and that means cutting costs and raising revenue. Stockholders are generally averse to any measure that raises costs, unless it also increases the profit margin. Stockholders want all profits to be passed on to them, but the company itself may want to save those profits for any downturns.
Suppliers and Customers
Holding on to supplier payments as long as possible damages relationships with those suppliers, but it may add interest to the money in the bank, therefore increasing company profits and stockholder returns. Suppliers expect loyalty. Companies may choose cheaper products or parts from suppliers that may not be the same quality, but will be lower cost. Customers do not want inferior products, but they are price sensitive and want savings passed on to them.
Employees and Society
Giving pay raises or paying severance pay reduces the profits of the firm, therefore reducing the stockholders’ returns on their investment. Employees expect raises and bonuses when the company is profitable. Outsourcing labor to other countries affects both employees and society negatively, especially if the other country encourages child labor or poor wages. Outsourcing also causes distrust, decreased movation and low morale in employees.
Corporations must analyze any areas of ethical conflict and build a compromise by listening to each group express its concerns and ideas. Companies should strive to consistently improve communication between themselves and their individual stakeholder groups. Managers need to create a sales management control strategy for all dealings with other companies. Executives must institute policies that promote transparency among all the company’s stakeholders. Company managers should develop and maintain an ethical corporate culture through setting ethical corporate policies and procedures.
- "Resolving Ethical Dilemas"; Bernard Lo; 2009
- "Public Relations Journal"; An Examination of Applied Ethics and Stakeholder Management on Top Corporate Websites; Sharon Arrowood Bowen, Ph.D.; 2010
- The Open University: Creating an Ethical Organisation
- "Journal of Strategic Marketing"; An Enterprise-Wide Strategic Stakeholder Approach to Sales Ethics; Linda Ferrell and O.C. Ferrell; August 2009
Rebekah Smith is a writer and editor from Montana and the owner of several businesses. Smith has consulted and worked with businesses in the fields of commercial greenhouses, ecommerce, technology and home improvement. She holds a Master of Business Administration and is working on a Ph.D. in business.