Stakeholder Theory, Value, and Firm Performance. Business Ethics Quarterly

Freeman formulated the stakeholder theory from 1984. Stakeholder concept is concerned with redefining organizations. It explores how the firm should be and its expected conceptualization. Stakeholder theory has been said to facilitate a proper channel for understanding the intricate perception of the value sought after by the stakeholders. The organizations whose key objective is to deliver the needs of a huge number of stakeholders will always generate more value in the long run. All the same, there exists numerous and diverse explanations of basic stakeholder ideas where theory creation has been termed intricate. Stakeholder theory underscores the “joint ness of stakeholder welfare” and its essentiality in benefitting all the stakeholders at the long run via their collaboration. Regardless of its significance to stakeholder theory, the attention focused on the concerns over the significance of value creation and how it can be measured remains inadequate. From a managerial point of view, the significance of value based on stakeholder point of view is that managers seem to concentrate on ideas that generate a higher performance (Sachs, S. and Riihli, E. 2011). Instead of simply concentrating on performances’ economic standards, the performance standards based on stakeholder theory compels managers to thoroughly assess the value of exchange by their organizations from the perception of the stakeholders taking part in value. Therefore, it facilitates managers with the information necessary in engaging stakeholders besides improving managerial capacity to utilize such awareness in more value creation. Nonetheless, not at all times that stakeholders will show collaboration, and at times there may be conflict of interests, more so when one functions from a theoretical position that underscores such likely conflicts (such as agency theory) (Harrison and Wicks, 2013). There are different forms of the stakeholder theory: normative, instrumental and distractive. The normative stakeholder theory demonstrates managers’ and stakeholders’ expected behavior and how they are expected to perceive the organization’s purpose. The descriptive concept is focused on understanding manager-stakeholder relations and how the managers represent stakeholder interests. Lastly, the instrumental aspect examines the managers’ expected behavior in the pursuit for their interests, which are synonymous to the organizational interest. That is, maximizing profit or maximizing shareholder value (Donaldson and Preston, 1995).