Stakeholder theory

1. Stakeholder Theory vs. Shareholder Theory

The Stakeholder Theory is defined as having three dimensions. The first dimension is that the stakeholders must contribute valued resources to the firm. The second dimension is how the stakeholders use these resources and the risks involved that could affect the success or failure of the firm and the relationship with that firm if it is terminated.

The third dimension deals with the power that the stakeholders have within the firm. While one can be considered a stakeholder by possessing one of these dimensions, it is essential to possess all three dimensions to be considered a true definitive stakeholder. This theory differs from the shareholder theory in that a shareholders primary duty is to maximize returns and deal with no other aspects of the company.

Basically advocating profitability by any means necessary bringing in a very moral issue. Many believe the stakeholder theory seems to disregard the interests of the shareholders’, however this point is misinterpreted because by using the stakeholder theory to ensure long-term sustainability of that company in itself takes account of the interests of the shareholders. Stakeholders’ theory focuses on management decision-making whereas shareholder theory is more financially based decision-making.

2.Shell Case

a)The Shell’s stakeholders or the two holding companies are the Royal Dutch Petroleum Company of the Netherlands and the Shell Transport and Trading Company plc of the UK. The group is run by an executive body called the “Committee of Managing Directors” (CMD), whose members are the (executive) Managing Directors of the two parent companies. The original investor, and the largest single shareholder in Royal Dutch Shell, is the holding company owned by the Dutch Royal Family. b)Shell offended its stakeholders with two controversial moves.

The first being the planned sinking of the Brent Spar, an oil buoy in the North Sea by causing many boycotts and protests which eventually lead to Shell having to devise a new plan to get rid of the Brent Spar. The other controversy was the “failure to intervene sufficiently on behalf of the Ken Saro-Wiwa, a human rights activist, environmentalist, andthe leader of the Movement for the Survival of the Ogoni People” were murdered by the Nigerian military government despite outcry’s against the corrupt military. These two events not only offended the stakeholders but caused emotional devastation within the company.

c)Shell’s management became involved in the stakeholders’ initiative by forming the sustainable development strategy, which consisted of 3 parts. The annual Shell report, the Sustainable Development Management Framework (SDMF), and the Key Performance Indicators. With these implementations Shell was able to develop a five-year plan to get its company back on track. d)Shell assesses its compliance with its stake-holders by implementing the management system that allows feedback and concern from within the company.

3. Why don’t more organizations use the Stakeholder theory in practice?

More organizations tend to shy away from practicing the stakeholder theory for many reasons. Basically, this theory is better played out on paper than in practice. Some researchers do not believe that the stakeholder concept allows room for studying or the practice of management. There is also a division between managers and stakeholders, whereas the stakeholders have a division within themselves as well. There are active and passive stakeholders where the active stakeholders have more decision-making concerning the company. To be better used in business, the stakeholder theory needs to be more grounded instead of theoretical .

4.Conditions under which the stakeholder concerns become a priority.

The concerns of the stakeholders become a priority when the company itself is at risk. The shareholders are focused and interested in the financial aspect of decision-making. However, the stakeholders’ interests and concerns have the ability to make the company succeed or fold.