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Running Head: STAKEHOLDER THEORY
Stakeholder theory involves the management of a business and the ethics and morals involved.
According to this theory, managers are provided with the primary duty of maximizing
shareholders’ interests as per the set standards. Employees who are the main pillars in running an
organization should enjoy their due process rights so as to poise the welfares of all stakeholders.
Therefore, the theory basically states the main stakeholders in an organization and defines the
roles they play. It addresses the standard of who or what really counts in running an organization.
The traditional business view is that business owners and the stakeholders are the most important
parties and the business should prioritize their interests first. But according to the stakeholder
theory, there are other important parties which contribute equally to the success and running of
the organization. They are; suppliers, employees, political groups, financiers, trade unions, the
government, and also the community (Freeman, 1994).
The three principles of stakeholder theory
a. Stakeholder enabling principle
The stakeholder enabling principle, an organization is required to be operated in the best interests
of stakeholders. The main wish of all the stakeholder is to see the organization doing well for
personal gains. According to Dawkins (2014), states that there is the necessity to have an
“operational barometer” to determine how effective stakeholders’ interaction is. It is the role of
stakeholders to solve conflict through the principle of good faith. This means that any conflict
should be solved through dialogue, transparency, and negotiation. It is also easy to use nonbinding arbitration so as to create good faith amongst the stakeholders. They should understand
that each stakeholder as a crucial role to play and they should prioritize the goals and objectives
of the organization at all times (Freeman, 1994).
b. The principle of management responsibility
Under this principle, managers are required to act in harmony with the stakeholder enabling
principle so that the set goals and objectives of the corporation can be met. Despite the fact that
all the stakeholders which success to the organization, they all have different interests. What may
appear as ethical and prudent to one stakeholder may seem to be unethical and imprudent to the
other. This means that conflicts will always occur and it should be the role of the managers to
exercise their duty of care and solve them amicably (Freeman, 1994 p. 417). When solving any
problem, the managers should consider the needs of all stakeholders as they are equally vital ...