Stakeholder Theory of the Modern Corporation - Essay Example

The paper shows that not only stockholders should complete control over a firm, while investors, employees, and suppliers also take part and risks in the creation of the business’s success. Stakeholder theory is based on the doctrine of Fair Contracts, Feminist Standpoint Theory, and ecological principles. R. Edward Freeman shares his observations concerning business ethics, pointing out to the facts that: “organizations without a history of mutually accepted shared values tend to come apart during stress”, while “people in touch with core values can deal with change, ambiguity, stress, and tough times”.

He also suggests that “people tend to avoid the ambiguous yet that is what tends to be the most rewarding” and that “individuals need organizational support to act morally” (Freeman 1984). Freeman, Wicks, Parmar (2004) state that capitalism should be understood as “creating value for stakeholders” (p.366). At that “the goal of creating value for stakeholders is decidedly pro-shareholders”, while a manager creates shareholder value through creating quality products and services for customers, offering excellent jobs for employees, building favorable relationships with suppliers and competitors, and being a good citizen in the community.

Finally, under such conditions, an organization is not likely to have problems with governments. Creating stakeholder value managers are able to assume potential entrepreneurial risks. First of all, considering all the possible interests and stakeholders you avoid potential conflicts. Further, it is possible to cooperate with suppliers and customers to jointly test new products and services. Working in the name of increased profitability for the shareholders managers can easily implement practices that harm nonshareholder stakeholders.

When the financial and amoral view of business prevails, an organization is likely to end with ethics disasters like those of Enron, WorldCom, and many others. Finally, keeping to ethical standards offered by the stakeholder theory, an organization avoids state punishment and fines, which have been enhanced in the USA and European countries. The rights of stakeholders are defended by legislative acts, such as the Fair Labor Practices Act, the National Labor Relations Board, and so on, with the recent Sarbanes-Oxley Act entailing the most serious consequences for the violators (pp.366-67). Robert Phillips (2004) suggests that business organizations should be considered as “entities unto themselves, capable of bearing legal obligations” and thus capable of bearing moral obligations either.

Stakeholder communication is not simply beneficial for the organization, but it is “a matter of moral obligation.” “Individuals and groups who contribute to the organization should be permitted some say in how that organization is managed”, concludes Phillips (2004). Today the reputation of the firm is its major value. People tend to pay much attention to the ethical standards of corporations. The lightest shade of mistrust may cause huge losses for the organization. Unfortunately, the notion of business ethics continues remaining an oxymoron.

Yet it has become a matter of survival. Everything in this world is interconnected. When managers think of nothing but money, they condemn the whole world to a life of low quality. Considering stakeholders, business is of benefit for everybody and provides grounds for its successful functioning.