Pros And Cons Of Stakeholder Theory

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Argument 1 Prior to the stakeholder theory, companies were following shareholder theory, in which suggested that company focus should be on maximizing profit for shareholders and decisions are based in benefiting the shareholders. In 2001 and 2002, The American corporate world was rocked by scandals from companies such as Encron, AOL, Worldcom and others due to manipulation of the company accounts in order to provide more profit for their shareholders. Such scandals provided the justification for companies to use stakeholder theory (Smith, 2003). Stakeholder theory advocates that all the stakeholders, in which include employees, suppliers, customers, local community, key government agencies and management should be involved in the decision…show more content…
In Stakeholder theory, the employees are viewed as individuals with specialized skills, which provide value to the company. According to Berens (2012), the relationship between the company and employees is very important. By involving the employees in decision making process such as long term planning and short term planning provide an in depth contribution as they are working in the company, they have unparallel knowledge of the inner company workings thus have insight in to what will or won't work in the company. Example employees are the one creating a brand, respect and reputation for the company. They spend countless hours with customers thus they know and understand what they want. Thus predictably becomes easy for employees. Employees are dependent on the success of the company for their livelihood thus ensuring the company success. Employees expect the companies to pay attention to their demands thus involving them ensures the demands of the company are met and success of the company. According to Gerard (2010), Cosco Wholesale Company in United States of America provides the best for their employees including high wages. Cosco Wholesale Company considers the employee needs thus having high employee retention. Employees are given opportunities to provide feedback to the management. Such good practices at Cosco are making the company…show more content…
Customers provide revenue for the company thus making them have a stake on the company products and services they provide. According to Berens (2012), the stakeholder theory suggests that the company must consider the customer needs. Loyal customers provide a crucial and relevant insight of what a company or firms needs to do in order to satisfy the customer needs. It's through loyal customers that enable companies to retain and sustain competitive advantage. Thus very crucial to establish a relationship with the customers so as they can contribute their views and suggestions. According to Ciotti (2014), Amazon builds its company culture around providing the best service to its customers. These is through training its employees on proper services and understanding what the customer wants. According to Ciotti (2014), another company focuses on customer is Ritz-Carlton in which they focus on providing the best service to customers by predicting the problem and providing a solution. They practice resetting a customer internal clock which means when a customer has being waiting for a long time maybe for their food there are given complimentary

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