STAKEHOLDER THEORY

Stakeholder Theory is a view of capitalism that stresses the interconnected relationships between a
business and its customers, suppliers, employees, investors, communities and others who have a
stake in the organization. The theory argues that a firm should create value for all stakeholders, not
just shareholders.

In 1984, R. Edward Freeman originally detailed the Stakeholder Theory of organizational

management and business ethics that addresses morals and values in managing an organization.
His award-winning book Strategic Management: A Stakeholder Approach identifies and models
the groups which are stakeholders of a corporation, and both describes and recommends methods
by which management can give due regard to the interests of those groups.
The theory has become a key consideration in the study of business ethics and has served as a
platform for further study and development in the research and published work of many scholars,
including those featured on this website.

Since the 1980s, there has been a substantial rise in the theory’s prominence, with scholars around
the world continuing to question the sustainability of focusing on shareholders’ wealth as the most
fundamental objective of business.
We aim to be the hub of leading stakeholder research and thinking by providing resources to new
scholars, students, and business leaders.

GOOGLE STAKEHOLDER ANALYSIS:

Google Stakeholders Analysis: All the Details

Google Inc. is the leading global search engine provider and renowned technology Innovation
Company. The company has revolutionized the way people access and use information. In the
process meeting its goal of organizing information from all over the world and making it
comprehensively accessible and useful, Google Inc. has created networks of parties who work
together to reach this shared vision (Mace, 2013). These stakeholders contribute to its success by
utilizing the several resources at their disposal for mutually beneficial results. Google must
address the interests of all its stakeholders for it to remain as the leader in innovative search engine
technology (Meyer, 2016). Stakeholder analysis is critical as it helps recognize the key influencers
in the organizations processes. Analysis of Google stakeholders will also promote understanding
their stand as either proposers or opposers for particular company projects. This will help the
business to design effective communication strategies to engage them (Levine, 2014).

Who Are Google's Stakeholders? 

One can group all the stakeholders grounded on the shared interests. The following stakeholders
are of prior importance: 

 users
 employees
 customers and advertisers
  investors
 communities
 governments

The list above is created in accordance with the priority and significance. All these groups are
affecting the company and do everything they can to make Google meet their needs and interests.
As we can see, users are in the first place, meaning that a company treats them with respect and
considers them to be the most influential group. 

The Essential Stakeholders

These are all the users that use Google products daily. If you give preference to Chrome or Google
search engine on a regular basis, you also belong to this group. The behavior of users demonstrates
whether a service is popular and highly recommended on a rolling basis. The important point, this
group doesn’t pay the company, but nevertheless, their influence is of the highest importance. 

Employees

The second priority belongs to those who work for the company. These people are interested in
rewards and compensations as a replacement for being devoted to the company and its aims. This
is no secret that millions of people worldwide dream of working for Google because it has an
image of a perfect employer. Its reputation speaks volumes, and it is known as a company that is
rapidly developing and implementing a pile of perks for their employees. 

Customers and advertisers 

This significant group directly determined the financial performance of Google. Being the key
source of revenue, advertisers are always concerned about getting top services like powerful
advertising campaigns. 

Those Who Invest 

This group of stakeholders is interested in ensuring that an American corporation boosts its profit.
Investors are vital due to defining the accessibility of the capital used in the business for its growth
and development. 

Google provides useful products, and this is what helps a company stand out from the crowd and
be in the leading position for many years. All the products satisfy not only the first two groups of
stakeholders but the investors as well. A pile of useful products helps a company flourish and be
not only profitable but widely recognized. 

Communities 

They aim to get benefits from Google. Hypothetically, companies benefit from various
communities through a pile of charity programs and other significant activities. This group
influences how customers perceive the company and its products. 
Governments 

Governments affect Google through various regulations, and this is no surprise because the
company does business worldwide. This group is of great significance as well due to the fact that
it can prohibit or allow commercial activity.  

Every company has a responsibility towards its stakeholders. Google Inc. has diverse stakeholders
that come from the different groups impacted by its varied products. The company has an
extensive array of products ranging from Google search, software, hardware, internet and cable
television services (Thompson, 2015). These products create a pool of different stakeholders that
can be grouped based on their shared interests. Each stakeholder has a relationship with Google
which forms the source of its power to affect decisions. The distribution of this power ensures that
no stakeholder can singly determine the direction to be taken by the company. The most
significant internal stakeholders include Google employees, the management, and shareholders.
The noteworthy external stakeholders include the individual Google users, businesses,
governmental agencies, and competitors (Meyer, 2016). These stakeholders have different
interests, perceptions, and expectations. Their attitude determines the support that the organization
receives as well as the contentment of the stakeholders.

Google has more than 30, 000 employees who are affected by the company’s decision. They also
have a tremendous impact on the achievement of the company’s vision. Most of these employees
have a sense of job security and satisfaction which has a significant influence on their motivation
to work and innovation (Meyer, 2016). They perceive the company as one of the best to work in
because of its favorable working environment and adequate compensation for their input coupled
with several benefits. As a result, the company attracts the most qualified and talented individuals
boosting its capabilities for innovation (Meyer, 2016). The implication of this that employees own
the company’s vision and work towards meeting it. This leads to job satisfaction which promotes
the employee productivity and raises the Googles organizational value. Additionally, the right
perception among the employees affects the company’s capabilities such as innovation.

Employees are top priority stakeholders in Google. They define the company’s capabilities and
competitiveness. Strategic communication is the key to ensuring that Google employees stay on
task. The strategic communication process entails passing the right message according to the
organizational goals and using the proper channels to do so (Levine, 2014). It is essential for
sharing the strategic plan and direction to the employees. The primary goal of using strategic
communication with Googles employee group is to articulate, explain and promote the shared
vision of organizing information from all over the world and making it comprehensively
accessible and useful. Strategic Communication also aims at eliminating lost productivity and
saving costs (Thomas & Stephens, 2014). This will help in creating a unified voice among Google
workers and promote accomplishment through teamwork. Also, explaining the strategic focus of
creating value for the customers and stakeholders to Google employees helps them to understand
how their work performance affects the users.

 
 MARAKON MODEL OF SHAREHOLDER VALUE CREATION

The Marakon model was developed by Marakon Associates, a management consulting firm

known for its work in the field of value-based management. According to Marakon model,
a firm’s value is measured by the ratio of its market value to the book value. An increase in this
ratio depicts an increase in the value of the firm, and a reduction reflects a reduction in the firm’s
value. The model further states that a firm can maximize its value by following these four steps:

 Understand the financial factors that determine the firm’s value

 Understand the strategic forces that affect the value of the firm
 Formulate strategies that lead to a higher value for the firm
 Create internal structures to counter the divergence between the shareholders  goals and the
management’s goals.

FINANCIAL FACTORS
The first step in this model is to identify the financial factors that affect the value of the firm. The
model states that a firm’s market value to book value ratio, and hence, its value depends on three
factors – return on equity, cost of equity, and growth rate. This conclusion is drawn indirectly
from the constant growth dividend discount model.

The constant growth dividend discount model says that

P/B = M/B =  (rxb) / (k-g)

where,

 M, be the current market price of the firm’s share

 k, be the cost of equity
 g, be the growth rate in earnings and dividends
 r, be the return on equity
 B, be the current book value per share
 b,  be the dividend pay-out ratio.

Thus, a firm’s market value to book value ratio can be derived from its return on equity, its cost of
equity and its growth rate. It can be observed from the formula that;

 A firm’s market value will be higher than its book value only if its return on equity is
higher than its cost of equity. This is supported by the other theories of valuation of equity.
 When the return on equity is higher than the cost of equity, the higher a firm’s growth rate,
the higher its market value to book value ratio.

Hence, a firm should have a positive spread between the return on equity and the cost of equity,
and a high growth rate in order to create value tor its shareholders.
 Strategic Forces
The financial factors that affect a firm’s value are in turn affected by some strategic forces. The
two important strategic factors that affect a firm’s value are market economics and competitive
position. The market economics determines the trend of the growth rate and the spread between
the return on equity and cost of equity for the industry as a whole. The firm’s competitive position
in the industry determines its relative rate of growth and its relative spread.

Market economics refers to the forces that affect the prospects of the industry as a whole. These
include:

 Level of entry barriers

 Level of exit barriers
 Degree of direct competition
 Degree of indirect competition
 Number of suppliers
 Kinds of regulations
 Customers influence.

Competitive Position refers to a firm’s relative position within the industry, A firm’s relative
position is affected by its ability to produce differentiated products and its economic cost position.
A product can be referred to as a differentiated product when the consumers perceive its quality to
be better than the competitive products and are ready to pay a premium for the same. The firm can
benefit from a differentiated product in two ways. It may either increase its market share by
pricing it competitively, or can command a higher price for its product than its competitors, and
forego the higher market share. Thus, the ability to produce differentiated products improves a
firm’s relative position vis-a-vis its competitors. The other factor that helps a firm enjoy a strategic
advantage over its competitors is a low per unit economic cost. Economic costs include operating
costs and the cost of capital employed. A low economic cost may result from a number of factors
like:

 Access to cheaper sources of finance

 Access to cheaper raw material
 State-of-the-art technology resulting in better quality control
 Better management
 Strong dealer network
 Exceptional labor relations.

Formulation of Strategies

Once a company has identified its potential growth prospects and analyzed its strengths and
weaknesses, it needs to develop strategies that would help it utilize its strengths and underplay its
weaknesses, thus achieving the maximum possible growth and creating value. For achieving this
objective two kinds of strategies are required – participation strategy and competitive strategy.

A company, to create value for its shareholders, has to either operate in an area where the market
economies are favorable, or has to produce those products in which it can enjoy a highly
competitive position. The strategy that specifies the broad product areas or businesses in which a
firm is to be involved is referred to as its participation strategy. At the level of a business unit, this
strategy outlines the market areas (in terms of the geographical areas, the high-end market or the
low-end market, the level of quality and differentiation to be offered) to be entered.
The strategy on the preferred markets is followed by the competitive strategy, which specifies the
plan of action required for achieving and maintaining a competitive advantage in those markets. It
includes deciding the way of achieving product differentiation, the method for utilizing the
differentiation so created (i.e. by increasing the price of the product or the market share) and the
means of creating an economic cost advantage.

Creation of Internal Structures

The separation of ownership and management in the traditional manner results in the management
bearing all the risks associated with value-adding decisions, without their enjoying any of the
benefits. This often results in the management taking sub-optimal decisions. A firm needs internal
structures which can control this tendency of the management. These may include

 The management’s compensation being linked to the company’s performance.

 Corporate governance mechanisms that specify responsibilities and holds managers
accountable for their decisions.
 Resource allocation among projects guided by the specific requirements of the projects
rather than the past allocations and capital rationing.
 A mechanism for making sure that the various projects undertaken form part of a strategy,
rather than being disjointed, discrete projects.

Plans being made in accordance with the long-term goals and target performance being fixed in
accordance with these plans, rather than the level of achievable targets determining the plans.
Performance targets should be a function of the plans, rather than being the base for the plans.

Target performance, when achieved, should be rewarded with promised incentives. Non-
fulfillment of such promises affects the future performance.
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