Students are to explore concept and application of stake holders and corporations in an in-depth way.Write a 3-page paper on the impact of stakeholder on corporations. Use at least 2 articles as a reference. APA style. Provide a key concept, analysis, and your conclusion.
Impact of Stakeholder on Corporations
Stakeholders play a critical role in corporate governance. Sound corporate governance involves an effort by a corporation’s management to maximize shareholder value and ensure that the interests of various parties are taken into account. This is key in ensuring that a corporation benefits the larger society but not the management alone. The stakeholders in corporations include diverse groups of people, each having unique interests to the corporation. The stakeholders in a corporation include shareholders, creditors, customers, suppliers, employees, management, trade unions, and the local community. The stakeholders play a critical role in monitoring a corporation’s affairs and ensuring sound corporate governance. This paper is an evaluation of the impact of stakeholders on corporations.
One of the key impacts of stakeholders on corporations is in influencing the corporations’ reputation. Stakeholders have a direct impact to a corporation’s reputation among the public (Migle & Stravinskiene, 2015). This is mainly because corporations depend on stakeholders to achieve their objectives. For instance, a corporation will depend on its employees to provide goods or services to the customers. In doing this, employees project the image of the corporation to the customers through direct interactions. Corporations should seek to develop and maintain good relationships with the stakeholders. Failure to do this might lead to a reputational risk. Trust between the corporation and stakeholders form the foundation for future success of the corporation. Stakeholders can influence a corporation’s reputation through various ways such as boycotts (customers), restricting resources (suppliers), and strikes (employees). According to Migle and Stravinskiene (2015), the key stakeholder groups that have significant influence in corporate reputation are employees, customers, shareholders, and media. The media can influence public opinion about the corporation.
Another impact of stakeholders on corporations regards performance. Stakeholders are critical in influencing the financial performance of the corporation (Migle & Stravinskiene, 2015). Various stakeholders contribute to the financial performance of the corporation in unique ways. Employees are in charge of running the daily affairs of the company with the goal of achieving set goals. Where an organization sets the right work culture, employees are likely to feel motivated to work hard and contribute to solving problems. This will benefit the customers leading to product loyalty. In some corporations, employees are investors to the company by owning shares. Such employees will work with the goal of maximizing the organization value rather than focusing on their employment relationship with the corporation. Shareholders also help in improving the financial performance of the corporation through various ways including monitoring and providing capital for investment (Rezaee, 2008). This is important in improving the financial performance of the corporation.
Stakeholders play a critical role in monitoring corporations. This monitoring function has the impact of ensuring that corporations implement sound corporate governance practices, for instance, maximizing shareholder value and taking into consideration the interests of other stakeholder groups such as employees (Rezaee, 2008). Large institutional shareholders are particularly concerned with the running of affairs at corporations that they have some interest. Institutional investors are active in monitoring how the management conducts its affairs. To be precise, institutional investors monitor the management from engaging in corrupt practices. Institutional investors can exercise their power by advocating for better management to the Board of Directors. The Board of Directors can then demand for the replacement of current management in order to improve productivity and transparency in the corporation.
Stakeholders impact corporate social responsibility efforts of a corporation. Local communities expect corporations to go beyond their official business mandate and take responsibilities for things outside the business scope such as improving the welfare of the local community members or improving the environment. Beginning in the 1960s, there was a fundamental shift in the way consumers viewed businesses, driven by lobbying from environmental protection groups and civil rights groups. Consumers became increasingly demanding of large corporations to take responsibility of the society, people, and the environment. This view is still strong among consumers in the current period. While consumer societal expectations may seem trivial in influencing corporations’ actions, evidence available suggests that this has significant impact of the behavior of corporations. According to Akisik and Gal (2017), customers prefer buying from firms that seem to support corporate social responsibility initiatives such as giving back to community, compliance with laws and regulations, and care for the environment.
Stakeholders can influence the production practices of a corporation thus leading to increased operational efficiency (Akisik & Gal, 2017). When corporations report of improved business practices, stakeholders are likely to take such in positive light and develop a stronger relationship with the corporation. Such actions are likely to help in achieving long-term sustainability in the use of resources. According to Akisin and Gal (2017), firms that prove to have achieved higher efficiency as well as sustainability levels can gain legitimacy with various stakeholder groups. For instance, consumers are likely to purchase from firms that have high sustainability levels in the utilization of resources. As such, firms have strong motivation to develop legitimacy by adopting efficiency and sustainability in operations.
In summary, stakeholders play a critical role in ensuring sound corporate governance. Stakeholders have a significant impact on a firm’s reputation. Certain stakeholders such as employees portray the image of a corporation to the public. Stakeholders influence the performance of a corporation. Primary stakeholders influence directly the performance of the corporation through the decisions they make on a daily basis. Stakeholders provide monitoring, which influences the transparency and accountability of organizations. Stakeholders also influence the corporate social responsibility efforts of corporations. Lastly, stakeholders influence the production practices of corporations, leading to improved efficiency and sustainability in the utilization of resources.
Akisik, O., & Gal, G. (2017). The impact of corporate social responsibility and internal controls on stakeholders’ view of the firm and financial performance. Sustainability Accounting, Management and Policy Journal, 8(3), 246-280. doi:10.1108/SAMPJ-06-2015-0044
Migle, M., & Stravinskiene, J. (2015). The importance of stakeholders for corporate reputation. Engineering Economics, 26(1): 75-83.
Rezaee, Z. (2008). Corporate governance and ethics. John Wiley & Sons.