Stakeholders' role in ethical decision making process

By: Leontes Dorzilme

Introduction

The stakeholders both in nonprofit or for-profit organizations are playing a key role in a formal or non formal interaction with management. The company is the reflection of the stakeholders’ values, goals, and needs in a certain way. They are implied in many levels in the organizational life and are classified either as primary or secondary stakeholders depending on their direct implication in the operations of the company. From the shareholder primacy management approach to the stakeholder primacy, the difference lay down in the way the constituencies of any organization are allowed in the decision making process. This may appear simple. However, according to the classical researches that will be revised in this paper, management may have difficulties in finding the right dosage to balance stakeholders’ needs, interests and concerns.

 Management of stakeholder interests, opinions, and concerns in nonprofit organizations

Nonprofit organization are defined by Lewis, Hamel, & Richardson (2001) as group of individuals who associate to perform public tasks delegated to them by the state; provide services for which there is a demand that state and for-profit organizations will not fulfill; or influence policy in the state, the for-profit sector, or other nonprofits (GCU, 2012). They concentrate their activities mostly in areas where services are not offered by for-profit organizations. They typically provide education, health, immigration, and charitable services. The nonprofit can be of three types based on Lewis et al. (2001) cited by Grand Canyon University (2012): philanthropic, mutual benefit, and advocacy organizations.

Depending on the type of the nonprofit organization, the stakeholders may be totally different with expectations as diverse as the constituencies themselves. Stakeholder relationships for the collaborative initiative are very complex in nature, involving multiple stakeholders with diverse interests, goals, and concerns. Nonetheless, noted Savage, et al. (2010) “many case studies chronicle successful collaborative cross-sectoral efforts to wrestle with tough community problems such as mortgage redlining (Gray 1989), AIDS prevention (Maguire et al., 2001), land-use conflicts (Susskind et al., 1999), economic redevelopment (Sharfman et al., 1991), and poverty reduction (Brown and Ashman, 1996) among others.”

All this internal or external stakeholders are implied in exchanges with the nonprofits on many levels. People from the community sometimes work for the organization for a lesser wage. To compensate, the nonprofit management may provide better dental or health care or other social benefits. This particular relationship with internal stakeholder may not necessary exist in for-profit organizations. The nonprofit organizations can create also “sizeable consortia” to bond their strength and social recognition to negotiate discounts on legal services, health insurance, and other services for their members. Conversely, for-profit might use the employee discount. Savage, G. et al. (2010) suggest that for either for-profit or not-for-profit managers or executives, managing a social partnership is daunting. One reason is that the executive’s achievement focus shifts from firm profit or mission accomplishment to balancing that specific goal with the successful tackling of a social problem.

Management of  stakeholder interests, opinions, and concerns in for-profit organizations.

Boatright (2006) states that advocates of stakeholder management get one point right: the modern for-profit corporation should serve the interests of all stakeholder groups.  That is, the new approach in for-profit management tends to focus of stakeholders primacy instead of the old approach privileging the shareholder primacy. However, the key problem, according to Boatright (2006) is the method that management will apply to satisfy stakeholders’ needs.  Stakeholder’s management assumes that decision making is the main means by which the benefits of corporate wealth creation are distributed among stakeholders. His point is crucial in for-profit organization because of the impact shareholders, customers, suppliers, and communities may exert on the organizations' productivity. When the concerns of stakeholders are neglected, the organization may face lack of trust that may considerably disrupt productivity.

The key role of management in for-profit is to keep an eye on the organizational vision and goals while integrating the stakeholders’ needs, concerns, and opinion in flexible strategic plan that will guide the moves towards the satisfaction of those needs. A very important aspect to consider is the fact that even though the shareholders that were considered in the past as being mainly interested in profit are now being more concerned about social matters. That is, an organization’s management that is not proactive or collaborative may face shareholder activism. Lawrence and Weber (2011) state that the activism of institutional shareholders has often improved company performance.

The other level of effective management when it comes to for-profit organization is to develop a collaborative relationship that allows concerns and opinions to be shared. In a meeting with stakeholders for example, management can take notes of the principal stakeholders’ needs, prioritize those needs, and integrate them into a well design operating plans to achieve stakeholder buy-in. This complex task is called stakeholder analysis and can help to collect necessary data that will used to craft strategic plan. Boutelle (2004) asserts that stakeholder analysis serves a dual purpose. The data collected may be helpful in creating solutions that stay in the business context. It is also a crucial to forecast main concerns of the stakeholders.

The differences between for-profit and nonprofit stakeholders management

For-profit may have to cope with activist shareholders. Such a movement does not exist in the nonprofit arena. Activist shareholders develop sometimes also social responsibility investment. This movement has proven that shareholders are not only interested in financial gain, but also in the protection of the global common.   Only during the year 2007, $2.7 trillion in the United States was invested in mutual funds or pensions using social responsibility as an investment criterion (Lawrence &Weber, 2011). This refers to the use of stock ownership as a strategy for promoting social objectives.

Conversely, stakeholders’ interests exert a great influence over the non-profit company.  Jang and Feiock (2007) reported that “government funding accounts for 66 percent of the revenues of health-related nonprofits and 52 percent of revenues of social welfare organizations;” this confirms teh importance of public contribution for nonprofit funding. Consequently, they develop interorganization collaboration as a strategy to provide services in sectors where multi competencies are needed. This strategy reinforces the network and expertise of nonprofit organizations in order to look more attractive to public funding. To stay competitive, management needs to take into account the organizations, groups or individuals that might show interest in each project. Therefore, “stakeholders represent a source of uncertainty for nonprofit organizations, since NPOs typically require resources and legitimacy from their stakeholders, and these streams are not necessarily predictable or controllable” (Balser & McClusky, 2005).

Agle et al. (2008) advocate a superior stakeholder’s theory. They noted that the instrumental theory states when stakeholder sensitive management is better, stockholders should do better. In the same vein, Kuratko et al. (2007) recalled in his study previous findings saying that by maintaining relationships with multiple stakeholders, the organization is exposed to the needs of its constituencies leading to the potential of more proactive entrepreneurial behavior. This assertion is a common point between both nonprofit and for-profit stakeholders management. When it comes to stakeholder approach, the fine line is mainly about the way shareholders are managed.

Conclusion

The debate evoked by Mitchell et al. (1997) about the vagueness of the concept stakeholder which implies people that affect or may be affected by the organization’s activities remains. The rapid extension of social media and the globalization make of a stakeholder in China as important as people living in the corner of the company’s plant. To broadness of the concept may hinder management decision, if there is need to take into account all possible impact of each decision, noticed Yves (2009).

References:

Agle et al. (2008) Dialogue: Toward superior stakeholder theory. Business Ethics Quarterly, vol. 18(2), 153-190.  Retrieved from https://ehis.ebscohost.com.library.gcu.edu:2048/eds/pdfviewer/pdfviewer?vid=21&sid=885cfd2c-0463-4d9e-aef8-6a79c0a701c7@sessionmgr13&hid=7

Balser, D. & McClusky, J. (2005). Managing stakeholder relationship and nonprofit organization effectiveness. Nonprofit management & leadership, vol. 15(3), 295-315. Retrieved March 21, 2013, from https://ehis.ebscohost.com.library.gcu.edu:2048/eds/detail?vid=5&sid=eaec70a4-1245-44e1-a6b4-61473c437cd5@sessionmgr104&hid=2&bdata=JnNpdGU9ZWRzLWxpdmUmc2NvcGU9c2l0ZQ==#db=bth&AN=16345555

Boatright, J. R. (2006). What's wrong−and what's right− with stakeholder management. Journal of Private Enterprise, 21(2), 1-25. Retrieved from https://www.apee.org/pdf/BoatrightSpec.pdf.

Boutelle, J. (2004). Understanding stakeholders for design success. Retrieved from https://www.boxesandarrows.com/view/understanding_organizational_stakeholders_for_design_success.

Grand Canyon University. (2012). Stakeholders in for-profit corporations. Retrieved March 30, 2013, from https://lc.gcu.edu/learningPlatform/user/users.html?operation=loggedIn#/learningPlatform/loudBooks/loudbooks.html?currentTopicname=Stakeholders%20in%20For-Profit%20Corporations&viewPage=current&operation=innerPage&topicMaterialId=738dd5fd-c872-4a70-9ae2-d1573a798783&contentId=7262bb99-e646-434e-8ee7-d8702a99a566&

Jang, H. S. & Feiock, R. C. (2007). Public versus private funding of nonprofit organizations. Public Performance & Management Review, Vol 31(2), 174-190.

Kuratko, D., Hornsby, J. & Goldsby, M. (2007) The Relationship of Stakeholder Salience, Organizational Posture, and Entrepreneurial Intensity to Corporate Entrepreneurship. Journal of Leadership and Organizational Studies, 2007, Vol. 13(4), 56-72 https://ehis.ebscohost.com.library.gcu.edu:2048/eds/pdfviewer/pdfviewer?vid=4&sid=79639382-1d92-467d-9a98-791574c0833e@sessionmgr111&hid=102

Lawrence, A. & Weber, J. (2011). Business and society: Stakeholders, ethics, and public policy. (13th ed). New York, NY: McGraw Hill.

Yves, F. (2009). The stakeholder model redefined. Journal of Business Ethics, vol. 84(1), 113-135. Retrieved from DOI: 10.1007/s10551-008-9677-4.

Savage, G. et al. (2010). Stakeholder collaboration: Implications for stakeholder theory and Practice. Journal of Business Ethics, vol 96, 21–26. Retrieved from DOI 10.1007/s10551-011-0939-1