"justify"> · Local businesses that cater to company employees (restaurants where workers have lunch, grocery stores where employee families shop, and similar)
· Other companies in the same line of work competing for market share
· Other companies that may find themselves subjected to new and potentially burdensome regulations because of contamination at that one Massachusetts plantfirst five on the list - shareholders, workers, customers, suppliers, and community - may be cited as the five cardinal stakeholders.outer limits of stakeholding are blurry. In an abstract sense, it s probably true that everyone in the world counts as a stakeholder of any serious factory insofar as we all breathe the same air and because the global economy is so tightly linked that decisions taken in a boardroom in a small town on the East Coast can end up costing someone in India her job and the effects keep rippling out from there. In practical terms, however, a strict stakeholder theory-one insistently bestowing the power to make ethical claims on anyone affected by a company s action-would be inoperable. There d be no end to simply figuring out whose rights needed to be accounted for. Realistically, the stakeholders surrounding a business should be defined as those tangibly affected by the company s action. The purpose of the firm, underneath this theory, is to maximize profit on a collective bottom line, with profit defined not as money but as human welfare. The collective bottom line is the summed effect of a company s actions on all stakeholders. In the case of W.R. Grace, for example, it s important to see that a stakeholder theory would not necessarily and immediately have acted to prohibit the dumping of toxins into the soil. Instead, the theory demands that all those who may be affected know what s being dumped, what the risks are to people and the environment, and what the costs are of taking the steps necessary to dispose of the chemical runoff more permanently and safely. s certain is that stakeholder theory obligates corporate directors to appeal to all sides and balance everyone s interests and welfare in the name of maximizing benefits across the spectrum of those whose lives are touched by the business.
Problems with Stakeholder Theory
Here comes the problem of stakeholder theory, because it runs directly counter to corporate governance. Since shareholders are owners of the firm, the firm should be operated to maximize their returns. Stakeholder theory transfers the corporation s focus from shareholders to the needs of stakeholders. By implementing unprofitable CSR programs, firms are denying their fiduciary responsibility to shareholders., Society has numerous problems that have existed for many years such as poverty and pollution. If these problems were as simple to solve as stakeholder theory advocates maintain, they would have been remedied long ago by profit-seeking firms focused on benefiting society. Many businesses have discovered, however, that the pursuit of society s welfare often leads to a reduction in profits. If managers pursued CSR activities that hampered profits they would likely be out of a job. The owners of a firm desire a return on their investment, and would likely fire a manager that purposely opposed this objective. Social problems are more complex than stakeholder theorists claim. Another critical argument voiced against stakeholder theory is the overregulation argument. This argument maintains that the pursuit of CSR would lead to more rigorous environmental and social regulations for businesses across the world. These regulations would then make it more difficult for undeveloped nations to keep pace with developed nations. The potential for overregulation strikes a huge loss to stakeholder theory.of the core problems of stakeholder theory is the presence of competing interests within and outside a firm. Supporters of stakeholder theory argue for a multi-fiduciary relationship between managers of a corporation and all of a firm s stakeholders. By definition a fiduciary relationship involves promoting the interests of one group above others; however, as most everyone recognizes, the interests of shareholders, customers, suppliers, employees, and communities in the management of a firm's assets are conflicting. Shareholders want the highest return possible through capital gains and/or dividends at the lowest possible risk. Customers desire quality products, low prices, and excellent service. Employees crave high wages, excellent working conditions, and a handsome benefits package. These competing demands from stakeholders make stakeholder theory untenable. It would be difficult to balance these desires in practice. Some stakeholders would be satisfied while others would be disgruntled.
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