MIDLANDS STATE UNIVERSITY

FACULTY OF COMMERCE

DEPARTMENT OF BUSINESS MANAGEMENT

NAME ADMIRE CHAWATAMA

REG NUMBER R124093B

MODE OF ENTRY CONVECTIONAL

PRAGRAMME HMAN

MODULE BM408

QUESTION

Discuss the implications of the stakeholder theory and shareholder theory giving relevant
examples to any organization of your choice
Stakeholder theory is a theory of cooperate governance and according to Freeman at al (2004)
the theory claims that the corporations should serve the interests of all stakeholders rather
than shareholders only .In fact, corporations are capable of successfully serving the objectives
of multiple stakeholders. Dr. Freeman suggests that a company’s stakeholders are "those
groups without whose support the organization would cease to exist." According to Smith
(2003) these groups would include customers, employees, suppliers, political action groups,
environmental groups, local communities, the media, financial institutions, governmental
groups, and more. This view paints the corporate environment as an ecosystem of related
groups, all of whom need to be considered and satisfied to keep the company healthy and
successful in the long run.

Carr (1968) alluded that corporations do not make significant tradeoffs to meet objectives of
all stakeholder groups. The average stakeholder performance indicators are as favorable as
shareholder performance indicators. Management typically do not make trade-offs to
sacrifice the interests of other stakeholder groups. This may because the objectives of the
stakeholder groups are similar. Management's pursuit of good financial performance does not
contradict the objectives of other stakeholder groups. Thus, corporations are capable of
realizing objectives and interests of various stakeholder groups.

Delta beverages is an example of company implementing Stakeholder theory. According to

Mcwilliams and Siegel(2001)The organization on should consider not only of those who
hold stock in the company, but also of those who work in its stores, those who work and live
near its factories, those who do business with it, and even of competitors. I will discuss about
Delta in Graniteside Harare in particular and its stakeholders are employees, government,
manufacturers, suppliers, environmentalist and its neighbours

Delta beverages treat its employees fairly with good remunerations. This is so because under
stakeholder theory employees want to be treated and compensated fairly, and work
reasonable hours. According to Porter and Kramer (2002) if the company underpays the
employees, or gives them lengthy and difficult work shifts, the employee attitude and buy-in
in the company is going to erode. There will be turnover, bad word-of-mouth among the
potential workforce in the area, and a weakened company.

 Suppliers also want to be treated and compensated fairly, or similar results as those with
employees could be seen. Sneirson (2007) states that under stakeholder theory, suppliers
should also be operating their own businesses ethically, fairly, and equitably. Delta wants
long-term success, so it implies stakeholder theory which state that, it should treat suppliers
and vendors well, but also do due diligence on how the supplier companies themselves do
business.

Manufacturers are also one of company stakeholders. In a global economy, sometimes parts
or even whole products are manufactured in other countries, far away from the main
marketplace or the location of the company. For organizations to do well, it must think of its
manufacturers - and their employees - as stakeholders too. So, working conditions and wages
must be fair and equitable for them as well. Delta imports some of its products like cans
drinks form South Africa and it maintains the relationship such that they is constant supply.

Envinmental Management Agency (EMA) is also another stakeholder for Delta. It control
how company do their business in relation to natural environment. People who live in the
neighborhood where Delta is located want to be assured that the environment, water system,
power sources, and other things potentially affected by the Delta operations, are protected in
as transparent a way as possible. EMA which care about the local ecology would, under
stakeholder theory, be considered stakeholders of the company, and should be kept apprised
of plans and developments so they can have a chance to review them and weigh in with their
thoughts.

Government bodies like NASSA,ZIMRA and city council are also stakeholders of Delta
.Even with governmental approval, an organization needs regular check-ins with
governmental bodies, Delta makes sure the relevant department deals accordingly within the
by lay laws of the country. For example the finance department makes sure all arrears are
cleared and tax clearance is up to date. On the other hand administration makes sure that all
departments are operating within the specifications of city council and NASSA.

Other stakeholder which is being considered by Delta is its neighbor’s .These stakeholders
are going to be stakeholders for a long time, living alongside the Delta Company. If the
company wants to please these stakeholders, it should consider parking, green space and
parks, and perhaps create a space that can be used and shared by all the neighbors (not just
the Delta employees and customer). Levitt (1958) Neighbors should feel as though their
quality of life is being maintained or enhanced - but not reduced because e of the company. It
also participate in repair and maintenance of minor road leading to the company which can be
used by neighbours as well.

However on the other hand they is Shareholder theory which was proposed by Milton
Friedman.  According Friedman (1970) the only and sole purpose of business is to increase
profits and value returned to shareholders (owners of the company). Hired managers and
CEO's are obliged to serve interests of owners and make money for them, without particular
regard to welfare of society or employees. Managers act and decide only according to law
without particular interest on ethical or cultural factors.

According to Jensen(2001)This way of thinking created problems of short term thinking

focused only on profits and not on long term development of the company, managers were
pressured to manipulate and doctor financial reports to artificially increase profits (and their
own bonuses).For example of company which implement this theory in Zimbabwe is PSMAS
. The company did not consider the value of stakeholder especially its customers. The
company shareholders and directors were getting more financial rewards at the expense of its
custom+er. According to Chipunza P.(2014 p.6)the company Chief executive officer Dr Dube
was getting half a million united states dollars every month This brought his annual earnings
per year to just over US$6,4 million. The annual wage bill of the 15 PSMAS executives for
2013 was a whopping US$18, 6 million with Dube taking more than a third of this total.
Such huge sum of money has been approved by the board which did not care much about the
company services deteriorating because they were implementing shareholder theory.
However this did not go well to the overall performance of the company’. As a result this
lead company to lose more customers which were running away from poor service for
example Midlands State University.
References

Branco, M. C., & Rodrigues, L. L. (2007). Positioning stakeholder theory within the debate
corporate social responsibility. Electronic Journal of.
Business Ethics and Organization Studies,12(1), 5–15
Carr, A. Z. (1968). Is business bluffing ethical. Harvard Business Review, January–February,
143–146, 148–149, 152–153.
Chipunza.P(2014) Cuthbert Dube grossed US6,4 million per year Herald 31 January
Available @www.herald.co.zw accessed on 6 March 2020
Freeman, R. E., Wicks, A. C., & Parmar, B. (2004). Stakeholder theory and “the corporate
objective revisited”. Organization Science,
15(3), 364–369.
Friedman, M. (1970). The social responsibility of business is to increase its profits. In L. B.
Pincus (Ed.), Perspectives in business ethics). Singapore:
McGraw-Hill.
Friedman, M., & Friedman, R. (1962). Capitalism and freedom. Chicago: University of
. Chicago Press
Jensen, M. C. (2001). Value maximization, stakeholder theory, and the corporate objective
function. Journal of Applied Corporate Finance, 14(3), 8–21.
Levitt, T. (1958). The dangers of social responsibility. Harvard Business Review, 36(5),
41-50
Mcwilliams, A., & Siegel, D. (2001). Corporate social responsibility: A theory of the firm
perspective. Academy of Management Review, 26(1),
117–127.
Porter, M. E., & Kramer, M. R. (2002). The competitive advantage of corporate philanthropy.
Harvard Business Review, 80(12), 56–68.
Smith, H. J. (2003). The shareholders vs. stakeholders debate. MIT Sloan Management
Review,44, 85–90.
Sneirson, J. F. (2007). Article, doing well by doing good: Leveraging due care for better,
Governance Law Review, 3, 438–482. more socially responsible
corporate decision making.