Who Are Stakeholders Stakeholder Theory - Essay Example

1. Using the appropriate analytical framework identify and assess the power and interests of the stakeholder groups for the of Central Lancashire (UCLAN) -1250words http://www.uclanstrategy.co.uk 2. Using an appropriate framework for discourse analysis, explain how the strategic documents might work to influence the key stakeholders in the strategy process - 1250words TABLE OF CONTENTS 1.1 Introduction 1.2 Stakeholder Theory 1.3 Stakeholders Expectations power Influence on the UCLAN 1.4 Conclusion. 2.0 Introduction 2.1 The Strategic Process 1.1 Introduction Stakeholders are individuals, groups or societies who depend on the organisation to fulfil their need and of which the organisation depends on to survive (Johnson & Scholes 2007). However, the notion of stakeholders was viewed differently by Pesqueux and Damak-Ayadi (2005). "Shareholders;" "Internal stakeholders (employees; labour unions.);" "Operational partners (customer; suppliers.banks.) and|" "the social community (state authorities;..and civil society)." From this definition we see that shareholders are both internal and external members of the organisation community. Milton Friedman's (1912) stipulated that the only social responsibility of corporations is to provide a profit for its owners stands in direct contrast to those who claim that a corporation's responsibilities extend to non-stockholder interests as well. Such a broad conception would include suppliers, customers, stockholders, employees, the media, political action groups, communities, and governments. A more narrow view of stakeholder would include employees, suppliers, customers, financial institutions, and local communities where the corporation does its business. But in either case, the claims on corporate conscience are considerably greater than the imperatives of maximizing financial return to stockholders. Today, a handful of researchers have gone as far as arguing that, the reasons for corporate restructuring or change are either competitive pressures, changing outside environments which in most cases is made up of mostly the stakeholders (Anderson et al. 2001). In the changing company environment, researchers have even gone as commending stakeholder approach as a key factor of organisational survival and success. Therefore, our caution to organisation management is that, they should skillfully consider how to treat particular groups of stakeholders and how to communicate with them responsively, being aware of the consequences of an omission or mistreatment. Having said this, this paper seeks to identify and analyse the issue of power and interests of stakeholder groups for the University of Central Lancashire (UCLAN). In the section that follows, using the stakeholder theory and framework I will analyse the interest and power of the various stakeholders on the activities of the University of Central Lancashire. Stakeholder Theory Friedman (1963) as sited in Anderson et al. (2005) argues that a corporation is socially responsible only to its shareholders. In this regard, other corporate constituencies (stakeholders) can easily be overlooked. However, stakeholder theory strongly suggests that overlooking these other stakeholders is unwise and ethically unjustified. To this extent, stakeholder theory participates in a broader debate about business and ethics (Algas et al. 2006, Donaldson & Preston 1995) Descriptively, some research on stakeholder theory assumes that managers who wish to maximize their firm's potential will take broader stakeholder interests into account. This gives rise to a number of studies on how managers, firms, and stakeholders do in fact interact (Friedman 1970, Steiner & Steiner 1997).Stakeholder theory has been articulated in a number of ways, but in each of these ways stakeholders represent a broader constituency for corporate responsibility than stockholders (Friedman 1970, Steiner & Steiner 1997). In sharp contrast, according to stakeholder theory, managers should make decisions so as to take account of the interests of all stakeholders in a firm (including not only financial claimants, but also employees, customers, communities, governmental officials, and under some interpretations the environment, terrorists, and blackmailers) (Steiner & Steiner 1997, Johnson & Scholes 2005). Another important issue may be the expectations of the stakeholders. The management of UCLAN is likely to carry out its activities in line with the expectations of powerful stakeholders. Powerful Stakeholders include those stakeholders who control resources which are scarce and essential to the success of the organisation. Management of Lancashire central university would therefore take on activities that are in line with the expectations of powerful stakeholders and provide disclosure of these activities by means of a social responsibility report (Johnson & Scholes 2005, Steiner & Steiner 1997). Figure 1 below shows the major stakeholders that have an interest in the organisation (UCLAN). As can be seen in the figure, the major stakeholders have different requirements from the organisation. For example the management of UCAN exhibit its power and interest in the UCAN organisation through its interest in compensation, prestige and power; employees as stakeholders of UCAN are concerned with job satisfaction, compensation and safety in the case of high activities; accident. Minority groups are interested in fair employment and no discrimination, for example, this group would love to see that UCAN does not discriminate between British and non British, Caucasians and Asian Minorities or between Caucasians and Blacks when it comes to employment, they are against racial discrimination by companies when it comes to selection of candidates to fill a place in the company. The community as a stakeholder of UCAN will exhibit its own power and interest as the community loves a company that takes into consideration the community first when it comes to employment, as well as an organisation that takes measures to preserve the environment and the earth's natural resources that are necessary for maintaining the ecosystem; Creditors as stakeholders of UCAN are interested in companies that can pay interest and principal upon maturity of debt obligations. Shareholders are interested in dividends and capital gains; customers need quality products and services as well as increased customer value and customer satisfaction; customers such as students will want excess profit to be used to reduce tuition fees. The power of the shareholders, being the main provider of the firm's scarce resource, may be measured by examining the degree of ownership concentration. Prior studies (Christopher and Hassan, 1996; Craswell and Taylor, 1992) suggested that the wider the shareholder dispersion, the greater the likelihood that firms disclose more information. It also appeals to intuition that firms with widely dispersed ownership are more likely to incorporate good environmental performance in their strategic planning in order to attract investors. Suppliers as stakeholders are interested to know need creditors day, regular payments and continuity of business (going concern), for example, no supplier will like to supply a company that is unable to settle its accounts payable or that is likely not going to continue business. The power of the government as a stakeholder is manifested in its enforcement mechanisms. Watts and Zimmerman (1978) argue that corporations use socially responsible activities to reduce the risk of governmental intrusions that may affect firm value. Hence, government can be viewed as a powerful stakeholder which the management needs to satisfy. It is conceivable that companies belonging to highly sensitive industries will face more stringent government regulation as these firms are the ones more likely to damage the environment through the use of hazardous substances and/or discharge hazardous wastes and effluents. The government on the other hand will exhibit it interest and power through its collection of taxes, government subventions to the university, support in major research and developments and grants to outstanding students. Figure 1. Major Stakeholders of an organisation. Source: adapted from: Brignall and Ballantine (1996). From the foregoing we see that while the annual report of UCAN can satisfy the needs of creditors, suppliers, shareholders, government, and management it is difficult to satisfy the information needs of the other stakeholders such as the community, minority groups and customers; the latter category is that which requires a corporate social responsibility report. This therefore goes a long way to explain why organisations prepare a corporate social responsibility report from the annual report. Freeman (1984, p. 1) proposes that "current approaches to understanding the business environment fail to take account of a wide range of groups who can affect or are affected by the corporation, its stakeholders." He further argues that in order to manage effectively in "turbulent times" which typifies the dynamic nature of the business environment of today, the stakeholder theory offers a way to address the ever changing demands brought about by different groups having legitimate stakes of varying degrees from the firm. Conclusion The issue of multiple objectives associated with stakeholder theory remains a mystery. Research should be shifted therefore to solve the problems that arise from the multiple objectives that accompany traditional stakeholder theory. Donaldson &Preston (1995) postulate that, because the advocates of stakeholder theory refuse to specify how to make the necessary tradeoffs among these competing interests they leave managers with a theory that makes it impossible for them to make purposeful decisions. With no way to keep score, stakeholder theory makes managers unaccountable for their actions. It seems clear that such a theory can be attractive to the self interest of managers and directors. 2.0 Introduction The basic rationale of the stakeholder theory is that the firm's success is dependent upon the successful management of all the relationships that a firm has with its stakeholders. This term according to existing literature was originally introduced by Stanford Research Institute (SRI) to refer to "those groups without whose support the organization would cease to exist" (Freeman, 1984, p.33). According to Freeman (1984) this notion when viewed as such, the conventional view that the success of the firm is dependent solely upon maximizing shareholders' wealth is not sufficient because the entity is perceived to be a nexus of explicit and implicit contracts (Jensen and Meckling, 1976) between the firm and its various stakeholders. Furthermore, in contrast with the institutional theory where norms are imposed to the firms, the stakeholder theory assumes that firms have the ability to influence not just society in general but its various stakeholders in particular. Here is the centre of this question. Planning for the future is an important strategic decision for any organization if it has to cope with the pressure of competition and expansion. Strategic choices mean finding alternatives and solution to the problems faced by the business unit. It has thus become necessary for the company to adopt a strategy that fits well with its mission and goals. With its goals and objectives ranging from creating long term relationship with all interest groups and stakeholders, 3Strategic processes Stakeholder involvement and participation in the strategic process has long been debated and documented. It is very important in the organisation of success. In every organisation, there are processes to be followed in case strategy is to be successful. It can be formal or informal depending on the type of organisation. With the fast changing global world in terms of business, gaining the interest of employees in the strategic process is usually through motivation. Motivation is very important to performance and any organisation that neglects it will have real problems with its employees (Johnson & Scholes 2005). Employees need to get opportunity for career advancement, work in an interesting project, with interesting career challenges clearly defined. According to Johnson & Scholes (2005), managing and developing long term relationships with suppliers and customers and the other stakeholders while creating as much value as possible for the company requires developing effective and workable strategies in resources areas as information, people, technology and Finance. Today, employees as stakeholder in the strategic process are one of a key success factors (Roberts 1992). According to Johnson & Scholes (2005), during the strategic process, employees should be motivated through greater responsibility. Each employee should be trained constantly with those lacking in skills easily identified and send for training. Though, there are some staff in the organisation resisting change, the managing director always do the best to keep everybody awake. In years of good sales margin and profit, the bonus and profit sharing system should be applied.. By Planning, the human resource needs of the organisation through, training, development trends, and employees as stakeholders are integrated into the strategic process. Shareholders: These are the key allies of the firm without whom the organisation will cease to operate in effect to exist. In stakeholder theory, during the strategic process the interest of the shareholders becomes very vital, as their vision, and objective must be incorporated in the strategic process. The necessary resources such as finance are provided by them. The relationship with shareholders during the strategic process is based on creating mutual confidence. The company need to gain their trust and reduced uncertainty as much as possible. During the strategic process, (Dentchev& Heene 2004) echo that a special attention must be paid to communicating new objectives to employees. The intended enhancement can never be successful if employees do not identify with managers views and opinions during the strategic process. Likewise during the strategic process suppliers interest and power are often taken into consideration. This is because changing the creditor's day, creditor's turnover is very important to suppliers. Their power and interest must be incorporated. Suppliers are considered as primary stakeholders as they provide part of the firm's resources. During the strategic process, customers as part of the stakeholders theory are being represented through the new policies on quality, cost. Customers are interested to have a fair value for their money in terms of product and service qualities and price. Part of this profit often reinvested in terms of price discount in the strategic process. With other suppliers like the Bankers, they are interested to know if the company is capable of paying and servicing their debt, and in situation of high profit margin, and presently high profit reserves, the debt level of the company should be reduced. During the strategic process, both formal and informal network should be adopted for communicating the change process. The information flow during the strategic process should be very lively and the importance of two way communication should be stressed. Information With the pace of competition and globalisation managing information has become necessary at all levels of the organization. Media and politicians have a possibility to influence opinions of a wide range of people. Here it should be noted that on making firm related decisions, stakeholders take into account only information available and relevant to them. Local community in the strategic process are interested to know how socially responsible the organisation activities are in respect to the society. Technology Building long-term relationship and remaining competitive, requires being active in implementing and maintaining new technologies. Organisations can use corporate social responsibility (CSR) to improve on their performance. Customers have become more concern about CSR and as such tend to promote the products of companies that have improved CSR structures. Employees too would love to work in a company with well-developed corporate social responsibility structures. A study by Bansal and Roth (2000) analysing 53 firms in the United Kingdom and Japan reveal that there are three motives for engaging in CSR: competitiveness, legitimation, and ecological responsibility. Therefore a company that has a good CSR policy is likely to be more competitive than one that has a poor CSR policy. In addition, such a company will quickly gain legitimation which will go a long way to increase acceptance of its products by the community and thus increase its sales performance as well as overall profitability. A study by Cooper and Owen (2007) conclude that disclosure of information can only have a limited effect because the likelihood of it leading to action depends on the ability of others to use information in forums in which they have a voice. Also, another study by Knox and Maklan (2004) Corporate Social responsibility reporting still has a low impact on business decision making and they make recommendations for change by applying a validated framework linking Corporate Social responsibility reporting. 2.2 Conclusion From the foregoing discussion, one can conclude that major stakeholders of an organisation have increased their concern on how the activities of the organisation affect the social and environmental setting in which they operate. As a result there has been an increase in the requirements from companies. These issues pose significant challenges for companies as far as their competitive position and long-term performance is concerned. Consequently, it is necessary for companies to design CSR policies that would enable customers and other major stakeholders to perceive them as genuine companies. Such an approach will go a long way to improve the competitive position and long-term performance of the company. Companies must also increase the information that they disclose in their corporate social responsibility reports as this increases the company's chances of being perceived as a transparent company and thus its chances of performing well in the community References. Anderson, C. D., Schulman, M. D. and Wood, P. J. (2001), "Globalisation and uncertainty: The Restructuring of Southern Textiles", Social Problems, Vol. 48, No.4, pp. 478-498 Brignall S., Ballantine J. (1994). 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