The Importance of Operating Under the Stakeholder Approach

The stakeholder approach is similar to the Hippocratic Oath taken by medical doctors when they graduate from medical school and the attorney’s oath taken by lawyers when they complete law school. The stakeholder approach occurs when business school students take an oath to “pay equal attention to shareholders, co-workers, customers and the society in which we operate.” Critics such as Skapinker believe that this trend is shining light to the definition of management and if managers should promise to “above all, not knowingly to do harm.”  Critics such as Michael Skapinker, an associate editor at the Financial Times, believe that this trend is shining light to the definition of management and if managers should promise to “above all, not knowingly to do harm.” 

Defining Management

Peter F. Drucker states that management is a discipline and a practice where its main purpose is to “produce effective results.” In a more complex definition, Gary Hamel believes that management is a strategic decision where employees from all levels can become CEO. A business is comprised of different departments that work together to effectively run their business. Just like marketing, without management, a business will experience many difficult obstacles. Management makes all the decisions for the company, and oftentimes, these decisions involve taking risks and creating bulletproof strategies. Due to the competitive environment, organizations need to build a strong foundation on how to run their business.

Case Study

The stakeholder first approach has caused many problems in the past, such as the case of AMP where they charged customers fees for services they never received. By prioritizing the stakeholders, they broke laws and lied to the Australian Securities and Investments Commission twenty times about their business practices. This stakeholder approach has become an issue because instead of equal treatment for stakeholders, employees, and clients, these companies who practice this approach prioritize profitability for just the stakeholders and the business itself.

Great management can oftentimes provide excellent results. The Hershey Company has maintained their positioning in the chocolate and confectionary items field because they focus on providing customer satisfaction. Customer satisfaction will yield customer and brand loyalty, resulting in higher revenues and profitability. Prioritizing customers should always be the main goal of any organization. Although stakeholders have invested in your business, they are not the people that will continue to help you company grow in terms of brand positioning, customer retention, and customer satisfaction.

Using the Stakeholder Approach

By providing equal treatment for stakeholders, employees, and customers, a business can thrive on employee morale, customer satisfaction, and high profitability. Practicing the stakeholder first approach raises more opportunities for the business to be misguided and make decisions that can be immoral such as breaking laws and lying to their customers. As stated above, customer satisfaction will define a company’s future such as how steady the business will grow and if there are higher probabilities for increasing profits and revenues.

There is no measurement tool that can be used to compare if management is treating every group equally, but it is simple to identify if they are treating all groups that are benefiting or helping their organization well. The stakeholder approach can often lead to unsatisfied groups within the company, so it is important to manage and control any and all opportunities given to certain parties.