Stakeholder Theory and Business Performance

This assignment delves into the concept of stakeholder theory and its implications for effective management and business performance. It examines how considering the interests of various stakeholders, such as employees, customers, suppliers, and communities, can lead to ethical decision-making, enhanced reputation, and ultimately, increased profitability. The assignment encourages critical analysis of academic literature and real-world examples to demonstrate the practical application of stakeholder theory in contemporary business environments.

Social responsibility of Business

Social responsibility 1
Social responsibility helps the businessmen to draw a balance between the profit
oriented activities and all those activities that are beneficial from the societies point of view
(Hartman, Desjardins and MacDonald, 2014). A corporation is an artificial person that has
completely different identity for its owners. Being an artificial it cannot see or touch but still
it has some responsibilities towards the society. CSR stands for corporate social
responsibility. It can also be read as, corporate citizenship or corporate conscience. As, every
business acquires resources from its surrounding so, it become their responsibility to take
care of the same. CSR policy assures that all the functions are performed by the business man
in compliance with ethical standards, national as well as international rules and regulations
(Kesselring and Selvage, 2013). CSR helps an organisation to attain its mission by drawing
clear lines or the path which clarifies how the organisation will represent to its target group
members.
As per the section 135, all those companies who had invested more than five core or
sum equal to it, are liable to undertake all the social consideration. In order to assure that all
the entrepreneurs make the payment and fulfil their responsibilities well with the specified
period, special committee are setup.
In this essay discussion will be carried on CSR, its nature, chances of increase in
profitability of the organisation after adoption of Corporate Social Responsibility.
There are three main approaches of social responsibility they are - corporate social
responsibility, the triple bottom line, stakeholder theory.
Under the Corporate social responsibility companies have to fulfil four basic
obligations. This includes- economic, legal, ethical and philanthropic responsibilities
(Pedersen, 2015). Every firm is establish to earn profit but there are few non-profit
organisation whose main focus is not on the profitability but still they earn reasonable amount

Social responsibility 2
so, that they can help other organisations if they are in need. In this way these firms fulfil
their economic responsibilities.
Figure 1 corporate social responsibility pyramid
There are certain rules and regulations made by the government that every
organisation need to keep in its mind while working. Whereas, there are few organisations
like W. R. Grace which at the initial stage do not follow rules and regulations but later when
the government impose fine on them they started giving importance too all laws.
Few responsibilities are needed to be performed without any obligation. These are
commonly known as ethical responsibilities (Johnson, 2017) for e.g. in Woburn,
Massachusetts deals in Beatrice foods. Company was engaged in disposing all the waste in
water which resulted in water pollution and destroyed the image of organisation in the eyes of
its customers so, it’s important to pay attention towards the ethical responsibility. Similar to
this is philanthropic responsibility, in this entrepreneur tries to ease conditions for the society.
For e.g. Google has developed the programme name “DATA-driven”. It focuses on
improving the education for the students.
The triple bottom line is another important theory of social responsibility. This theory
is based on the sustainability. As per this theory a company can rate its performance on the
basis of three major scales, they are- economic, social and environmental sustainability.

Social responsibility 3
Economic sustainability has a persistent nature (Wheelen and Hunger, 2017). Few companies
like Ford Pinto, had taken many decision which has helped the organisation to attain
tremendous growth within the short span of time, but this might cause long term harm to the
society. In such cases there is a need to take strict actions against such organisation.
Social and environmental sustainability focuses on few things such as, competition is
quite normal in the business world but there should be a healthy competition. This will help
the organisation in building goodwill in the market. Apart from this, there are some
responsibility of the companies towards the environment in which they are performing
different task. Many a time they may also indulge in degrading natural resources such as, air
water and soil because of which they might be in charged to pay heavy compensations. For
e.g. BOSCH, this company works on the guidelines that “it’s better to lose the money then
trust among people” main focus of the firm was on maintaining ecological and social balance
in the environment by planting more trees (Schaltegger and Wagner, 2017).
Although business provides many things to the society but on the other hand, it also
put burden over it. These burdens are mainly because of the manufacturers as, they are
actively engaged in production work which causes water, air as well as soil pollution.
JVCKENWOOD industry under that they will be able to run their organisation for the longer
period of time only after contribution to the society. These contributions can be done in many
ways. Some of them are involving in active interaction with the stakeholders, performing all
the activities that shows, organisational supports to culture and religion.
There are wide ranges of theories that are given by different authors. But stakeholder
theory is most important among all. Although the theory is one but all there are different
opinions given by different writers/authors, which have resulted in different approaches of
earning profit by CSR.

Social responsibility 4
According to Frenchman, business is not all about earning profits; it also involves
serious focus on eliminating discrimination on the basis of cast, colour, creed, sex and
provide proper employment opportunity to all those who are unemployed. This will improve
the image of organisation in the eyes of all stakeholders which will results in, increase in the
profitability of the company.
Milton Friedman has taken shareholder approach for fulfilling all the social
responsibilities. As per this approach shareholders are taken as, economic agent because they
are the one who invest the money in the business with the expectation to earn reasonable
amount of returns in near future (Wieland, 2017). Contrary to this, as the main aim of the
organisation is to be to earn profit so, there is no need to fulfil their responsibilities towards
public.
This concept is properly explain in the book name “Capitalism and freedom”. The
book was published at the time of World War 2. In this book clear explanation is given that
there is only one responsibility of the business that is, use all the resources and perform all
those activities that helps in increasing profits. This will help an organisation to stay in the
game.
Freeman and Friedman both have different opinion regarding the goals and the
responsibilities of firm. Mr Edward was the first to give stakeholder theory. It’s considered as
one of the major element of CSR because of this many organisation had made it an important
part of their corporate strategy. Although they all are trying their level best but still they are
unable to convert their words into actions. For e.g. many big organisations such as, Google
and Starbucks had given major importance to this theory. Both the companies have adopted
legal measures because they were taking advantage of loopholes present in British taxation

Social responsibility 5
system. Now the Starbucks in order to win over its customers has to pay Euro10m in the
upcoming next two years (Andriof et.al. 2017).
As per the views of Freeman (stakeholders theory) all those number of people who are
having stake in the organisation can give their contribution in determining the factors which
will help the organisation to move ahead (Phillips, 2011). However, Friedman has completely
different opinion. According to him, businessmen’s are not responsible for all those number
of people who are outside the organisation but still have their ownership in it (Harrison and
Wicks, 2013).
In the opinion of Freeman Employees, competitors, local community any one can be
the stakeholder, apart from this author is quite clear regarding all his queries. Some of them
are, among all the stakeholders who will pay the expense to manage the firm and who are
able to attain its benefits. Friedman does not pay much attention to all these questions, which
result in earning high profitability (Harrison, Freeman and de Abreu, 2015).
Employee segment is the important area which Friedman has overlooked. Whatever
the success that organisation is able to attain is because of its employees which are
considered as an essential asset of the organisation. If the firm is able to keep their employees
happy, then then it will reduce employee turnover ratio and help to build strong team of good
workers within the organisation. These good workers will work more efficiently and
effectively which will further help the organisation to earn satisfactory amount of profit.
Each and every thing in this world has two faces, “one is good and other is bad” and it
is because of the different perceptions of individuals living in this universe. Similarly,
Friedman in his theory believes that in spite of paying attention to an individual sector of
employees, multiply groups should be taken into consideration as, all the segments are

Social responsibility 6
interrelated. Therefore by establishing equality among all the segments organisation can earn
considerable amount of profit.
Similarly, Clarkson and Wood possess different opinions. Clarkson has divided the
stakeholders into two major categories, primary and secondary. Primary stakeholders are very
important for the organisation as firm cannot survive longer enough without their
participation whereas, secondary stakeholders are not directly involved or have capability to
influence the corporation.
On the other hand, Mr Wood divide the stakeholders on the basis of three major
attributes such as, their command over the others, legitimacy and earnestness (Clemens et.al.
2014). Further on the basis of these attributes they are broadly divided into three major
classes namely- latent, definitive and expectant stakeholders. If the powerful group of
stakeholders are shareholders then there are high chances that there firm is able to earn high
profits only because of their existence.
There are three models of social responsibility that will help us to understand all the
above statements in properly, some of them are- Carroll’s, Halal and Ackerman’s model
(Yakovleva, 2017). Among all these models (Yakovleva, 2017) is the best as, it’s used by,
any organisation in order to fulfil their social responsibility. This model in involve three
important concepts based on corporate performance. Each and every firm have some duties
towards the society. Some these duties may include, economic, ethical, discretionary and
legal.

Social responsibility 7
As every corporation came into existence in order to perform some work with the
motive to earn reasonable amount of profit. This help them indirectly to fulfil their all the
legal obligations well on time. On the other hand, there few responsibilities that are not
mandatory to be performed but still entrepreneur should pay proper attention toward them
(Suliman, Al-Khatib and Thomas, 2016). Similarly, discretionary responsibilities are the one
which aim at voluntary contribution of corporation in all the social causes such as, Starbucks
has aim to strengthen community. Carroll had presented all these four categories in the
pyramid form.
Halal’s model is based there are many conflicts that occur within the organisation and
the most prominent among them is the conflict that occurs between shareholders and social
obligations with the motive of increasing wealth (Yunan et.at. 2017).
Ackerman’s model involves three phases different phases involved in the
development of social responsibility (Yang et.al. 2011). First phase, it focus on identifying
the social problem that firm is facing from the longer period of time. Second phase, at this
stage experts are been appointed so, that they can give their suggestions for improvements

Social responsibility 8
and in the last phase, full prove social responsibility programme is made. One of the best
example of CSR is TISCO an Indian firm, in which social audit was conducted by the firm in
year 1970s.
It can be concluded that, “The social responsibility of a business is to increase its
profit”. It is very important for any organisation to earn reasonable amount of profit so that it
can make payment to all its stakeholders well on time, as the result of contribution made by
them in the organisation by making some investment. There are different models which
explain different approaches to perform social work in order to establish good image in the
eyes of society members. This good image can be set by performing different social activities
such as, ethical, social and many more. Apart from all these, there are certain theories that
given experts to show different approaches towards fulfilling social responsibility.
Now a day’s governments of all the countries are also giving it importance to social
obligations, by developing appropriate policies as well as laws. So, we can say that social
work is preformed not with the motive of earning income but with the aim of getting suitable
outcomes. Further this will help organisation in increasing its profitability.

Social responsibility 9
References
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thinking: theory, responsibility and engagement. Routledge.
Clemens, M., Rijke, J., Pathirana, A. and Quan, N.H., 2014, September. Effective stakeholder
analysis for urban flood resilience in Vietnam using design proposition. In the International
Conference on Urban Drainage, Sarawak, Malaysia (pp. 7-12).
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Business ethics quarterly, 23(1), pp.97-124.
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