Stakeholder Management and Competitive Advantage - Essay Example

firms need to strengthen their capacity of a resource advantage to fit the competitive strategy. In order to achieve maximum performance, it is important that firms reconcile both the dark and bright sides of stakeholder management.

In recent times, stakeholder management has become a very prominent contribution to business ethics. The origin of stakeholder management dates back to the publication of strategic management: A Stakeholder Approach by R. Edward Freemen in 1984 (Jensen, 2002, p. 250). Since then, stakeholder management has become the most recognized feature in ethical management. The central theme in stakeholder management is that managers ought to consider the decision of all stakeholders when making decisions. It outlines the obligation to serve the interests of all stakeholders. The advantage is that the modern firm aiming to gain profit can serve the interests of all stakeholders and everyone benefits from its activities. In such a case, it complements corporate governance which promotes fairness in serving the interests of stakeholders.

Stakeholder management has a dark side to its assumption of serving the interests of stakeholders. It does not consider the fact that the actions of managers in serving the interests of stockholders can benefit all stakeholders. In this case, the assumption that management exists to serve the interests of all stakeholders is a fallacy (Bowie, 2004, p. 88). It is possible that managers can interact with the market and derive benefits for the firm without taking into consideration the interests of all stakeholders. The bottom line is that there is always a conflict of interest between stakeholder management and stockholders because there lacks an appropriate approach to ensuring that each stakeholder benefits from the process of wealth creation.

The literature material on stakeholder management leads us to ask ourselves two critical questions. First, how best can we protect the interest of each stakeholder? Second, what specific interests of each stakeholder ought to be served based on the assumption that there is joint production? There are two answers to the questions including protecting stakeholder interests and securing fairness for stakeholders (Boatright, 2004, p. 20).

In answering the question of how best we can protect the interests of each stakeholder, we should consider an experiment. Supposing all the firms in the market practiced stakeholder management, each of the interest groups would share control of the firm. Managers would consider their fiduciary duty to act in the interests of all stakeholders and the firm will be operating with the objective of maximizing profits. Additionally, all the interest groups should be free to leave such a system of governance and select an appropriate means through which they can protect their interests. This means that stakeholders will no longer rely on management to protect their interests (Boatright, 2002b, p. 15). Instead, the interest groups should seek legal protection in form of contracts. Stakeholders should not consider the manager’s fiduciary duty as a privilege because it is an imperfect substitute for the protection of group interests. Legal rules and contracts are enforceable and this assures that the terms of an agreement are protected to the latter. The government should ensure that there is better protection of stakeholder interests.

The second question on how to determine the specific interests of stakeholders that need to be addressed is merely a moral question that requires a moral interpretation. However, the answer to the question is ensuring fairness. It is evident that the prevailing system of stakeholder management is favoring shareholders. This implies that more of the benefits derived from business operations should be distributed to other interest groups including employees, the community, and customers. This should purely be a moral issue regardless of whether it is will introduce some form of market inefficiencies. Critics complain that even though stakeholder management is efficient, it promotes unfairness by allocating most of its benefits to shareholders at the expense of the remaining interest groups. They advocate for the concept of equity-efficiency trade-off (Boatright, 2002a, p. 1840). Read More