Essay on Stakeholder Theory

Published: 2021-07-12
709 words
3 pages
6 min to read
Wesleyan University
Type of paper: 
Critical thinking
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According to Freeman (2010), businesses have grown tremendously to the point that they cannot be assumed to be purely private entities. These modern-day firms have developed to acquire new roles that give them new powers in society making them critical institutions. However, as organizations gain new functions, they encounter continued conflicts between stakeholder and stockholder needs. The general trend in contemporary organizations is that while their primary duty is towards maximizing stockholder benefits, they are increasing their role in catering to shareholder needs (Freeman, 2010).


Should managers focus only on financial performance? The answer to that question is no since ethics can help a company to maintain or gain an edge in the market. To maintain a competitive advantage, and still be a leader in financial and ethical performances, a business needs to anchor its noble goals on its economic pillars. That means that while a company engages in acts of ethics, it should remember its core function is to serve the interests of its stakeholders. Ethical endeavors by corporations should have a profit-driven element within them. For instance, Porter and Kramer (2002) cite the example of how Ciscos investment in corporate social responsibility (CSR) resulted in the company increasing its revenue base. Cisco made use of its CSR program to donate free networking equipment to schools. They also trained students, tutors and network administrators on how to use Cisco equipment. This act resulted in an increase in the number of people who were familiar with Ciscos instruments and in turn, they influenced others to get similar systems. Subsequently, governments and non-governmental agencies that were interested in spreading computer literacy to various institutions began to requisition for Cisco products. Eventually, Cisco ended up expanding their market share (Porter and Kramer, 2002). Therefore, companies should try and find an economic reason to engage in morally upright actions. Such a move is also likely to motivate shareholders to support ethical goals

In a study by Trudell and Cotte (2008) for the Wal Street Journal, the researchers sought to find out how much individuals were willing to pay for products from companies with differing degrees of morality. In all of the product categories surveyed, people were ready to pay a premium to get products from ethics-oriented entities. On the other hand, they offered far less money for goods from unethical businesses. Furthermore, McMurrian and Matulich (2016) conduct a literature review and use a value profit chain to show that ethical leadership correlates with employee loyalty, satisfaction, and enhanced productivity. In turn, customer satisfaction is boosted by high-quality products which increase loyalty and positive perceptions.

Managers have a significant degree of responsibility for their strategies. Managers are the key decision makers in an organization. As pointed out by Wells and Spinks (1996), the strategies adopted by top management have a direct correlation to the performance of employees and the overall organization. For instance, an ethics-oriented management is likely to transform their workforces job experience to a positive and a productive one. However, the lack of ethics in a companys strategy is likely to result in low morale, unethical actions, pilferage, and staff turnover (Wells and Spinks, 1996).


The example given by Porter and Kramer (2002) illustrates how essential it can be for a company to merge their ethical and financial functions to maintain a competitive advantage. Cisco managed to increase their market share using an economic outlook of CSR. Furthermore, the survey by Trudell and Cotte (2008) affirms the findings of the investigation by McMurrian and Matulich (2016). They both show that businesses can achieve and sustain a competitive advantage by embracing ethics, which in turn can lead to a positive impact on the publics perception of a company. In turn, such actions affect sales favorably. Thus, managers can maintain a strategic advantage by relating their core objectives with their morality goals.


Freeman, R. E. (2010). Strategic management: A stakeholder approach. Cambridge: Cambridge University Press

McMurrian, R. and Matulich, E. (2016). Building customer value and profitability with business ethics. Journal of Business & Economics Research, 14(3).

Porter, M. and Kramer, M. (2002). The competitive advantage of corporate philanthropy. Harvard Business Review

Trudel, R. and Cotte, J. (2008). Does being ethical pay? Wall Street Journal. Retrieved July 5, 2017 from,

Wells, B. and Spinks, N. (1996). Ethics must be communicated from the top down!Career Development International, 1(7). pp.28-30.

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