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The significance of stakeholder relationships in corporate matters is uncontestable. For instance, Monks and Lajoux (2010) found that up to 80% of the value of any company is made up of its relations with stakeholders. The authors cited the example of Apple Inc. in 2005, whose market value stood at approximately 58 billion US dollars. However, the entity’s tangible assets were valued at 20%. The implication is that 80% of the company’s value was drawn from its stakeholder relationships. It is argued that managing corporate and stakeholder relations is a critical aspect of corporate governance that has a bearing on organizational performance.
Every association is an intangible asset in business. Given that assets gain value or depreciate, there is a need for effective corporate or business management of corporate relations and property. Cameron, Seher, and Crawley (2010) observed that effective management is central to increasing the value of relationships, while poor management exposes an entity to risk. In this regard, organizations must pay attention to their corporate affairs to avoid the negative effects.
In practice, corporate players have many stakeholders. According to Monks and Lajoux (2010), corporate entities’ main stakeholders include: owners/investors, customers, employees, suppliers, government agencies and regulators, communities and competitors. In the management of relations with the above groups, Weaver (2007) observed that principles such as engagement, authenticity, and integrity must apply. According to the mentioned, it is evident that big number of stakeholders compounds the management of relations.
Various stakeholders hold dissimilar expectations. For instance, customers often demand, want, deserve, and expect advanced customer experience. According to Turner (2008), such stakeholders complicate the matter given that they define the constituents of a superior customer experience. In addition, fierce competition implies that businesses always explore new ways of improving the experience. Such aspects demonstrate that first-class and lower services do not fall at the end of a continuum. For employees, there is a need that they get to know the value placed on them by organization (Turner 2008). The latter that is good at managing such relations focuses on demonstrating it rather than issuing statements. In particular, organizations need to show how employees’ roles fit into bigger organizational operations. More particularly, there is a need for demonstrating that what workers do is critical to the performance of an organization in reference to meeting other stakeholders’ needs such as those of customers (OGC 2007). In a nutshell, top corporate organizations are also those that treat their employees as one of the most treasured assets. In order to enhance their satisfaction and endear the course of the organization to them, the management must engage employees and invest in their growth continuously.
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Business owners and business partners have different interests. For business owners, return on investment accounts for one of their key interests. The view does not undo the fact that some investor will buy stocks based on what an entity stands for. Similarly, there is a group of people who would detest any form of association with a given firm, solely on the basis of its conduct (Friedman & Miles 2006). In the latter case, the examples include the dislike linked to tobacco, alcohol, and weapon processing plants. It is also evident that suppliers form a significant stakeholder in corporate operations. For the success to be obtained, suppliers have to provide top inputs to organization. Xia and Tang (2011) noted that the quality of a product is directly linked to the market that it is sourced from. Selecting the appropriate supplier and establishing positive relations with them is central to a positive performance. As a result, businesses need to engage with kith or partners who share similar commitments such as promoting sustainable development.
Often, competitors are overlooked when evaluating corporate governance. However, McIntyre, Ivanaj, and Ivanaj (2009) contended that overlooking competitors is ill-advised given the influence they have on the reputation of industry. For instance, misconduct on the part of one player in industry might influence public perception of the whole sector. Thus, it is prudent that each company pays attention to what competitors are doing. For example, the recent BP oil spill into the Gulf of Mexico damaged the reputation of oil drilling companies as it pertains to their commitment to environmental protection. Similarly, scandals at Worldcom and Enron left a negative image which persists today.
The power of local communities cannot be underestimated as it refers to stakeholder significance. It is real that many organizations have sought permits to operate but failed partly because communities have reservations about their operations (Friedman & Miles 2006). The idea is that before an entity gets approval to do business, it must sell itself first to the community. According to Friedman and Miles (2006), relationship management is critical towards gaining acceptance among communities. The management of associations should portray a picture that entry into an area is beneficial to both community and corporate structures. In the end, governmental influence or its role is also integral to the operations of corporate entities. In this regard, abiding by governmental regulations and rules is essential for a corporate that seeks business.
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Significance of Managing Corporate and Stakeholder Relations
The management of relations takes center stage owing to its role in business. According to Rob (2011), the governance of corporate relations represents a liaison by stakeholders in order to determine and control strategies deployed to oversee performance in organizations. In this regard, the primary concern for corporate entities is to make strategic decisions that lead to mutually beneficial outcomes. In other words, corporate governance should establish order not only between the business owners and managers, but also in guiding relations with other stakeholders. Guidance of such nature facilitates the overcoming of organizational conflicts that largely emanate from the pursuit of dissimilar interests.
Rob (2011) went further to allege that the corporate governance geared to improving relations falls into two classes: internal and external. Concerning internal governance, Rob posits that mechanisms involving board of directors, ownership concentration, and executive compensation are critical. Next, whereas ownership concentration refers to the relative value of stock held by individual shareholders and institutional investors, the board of directors focuses partly on persons charged with the duty of representing the shareholders of a firm. The group achieves the goal through monitoring the top management. As it pertains to executive compensation, the reference is made to the employment of bonuses, salaries, and related incentives to prevail upon the management for aligning its interests with the shareholders’ ones. On the other hand, external mechanisms that include market corporate control also apply to the improvement of a firm.
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In recent times, the natural environment has been added to stakeholders. In practice, since concerns arose about environmental degradation, the emphasis has been placed on the need for promoting sustainable growth and development. In keeping good relations with the environment, Xia and Tang (2011) observed that corporate entities are expected to carry out their productive activities in a manner that supports sustainability instead of degradation. Organizations are also expected to pay attention to activities that take place within their supply chain networks.
Unlike private sector organizations, voluntary and public sector entities were previously seen as not having shareholder obligations. However, with the course of time, the distinction between public and private sectors has become blurred (Monks & Lajoux 2010). The disappearance of the separation implies that ethical considerations have assumed a significant part of such organizations. It is common today to hear phrases such as ‘acting in public interest’ for entities that operate in public service. Non-profit and public organizations are thus expected to be more like private business players in performing their activities. While becoming business-like in their operations, public sector entities (popularly known as state enterprises) and non-profit corporate organizations might be engaged in acts that harm their relations with their stakeholders. In view of the above-mentioned facts, adopting an ethical approach is expected to be the basis for protecting or managing stakeholder relations.
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Besides exposing an organization to scrutiny, concerns about the means that entities use to advance their objectives are also worth reviewing. In the pursuit of their objectives, organizations rely on different strategies. In practice, the needed goal cannot be divorced from the process or manner in which it is sought (Dess et al. 2012). For example, if a corporate entity is engaged in retrenching its workers, it is highly unlikely for the organization to expect loyalty from its employees. In addition, such a workforce cannot show commitment, morale, and motivation. In other words, strategic fit or the link between the ‘what’ and the ‘how’ must align. In order to cater for the interests of employees and create a good relationship, adopting a human-centered approach is desirable given that the method allows the input of contesting parties in the decision-making process.
Strategic fit concentrates on the alignment of strategy with the treatment of other organizational stakeholders. According to Dess et al. (2012), the association between an individual and an entity and the manner in which the relationship is developed are also the characteristics of the organizational culture. In this regard, the expectations of organizations from individuals are also put into perspective. For instance, an entity can make demands on individual workers or stakeholders such as suppliers. Therefore, the reference is made to stakeholders who have responsibilities within organization. In addition, relationships between the above stakeholders might also need to incorporate a third perspective, which is the customer/client angle, in terms of how to ensure satisfaction.
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Owing to significance attached to the management of stakeholder relations, it is not surprising that entities across sectors have altered their structural configurations. According to Dess et al. (2012), one of the justifications for the adoption of the strategy is to enhance employee-employer and organization-customer relations. Given the variations in the demand among different workers, for instance; the employers now extend dissimilar contracts to employees. The objective of the arrangement is to protect relations with the stakeholders.
The role of taking an ethical position in enhancing the management of stakeholder relations is well documented. In this regard, the decision-making process entails observance of ethics. In other words, corporate managers need to observe procedural justice. Based on research, employees who operate in an environment that promotes procedural justice exhibit a stronger link to organizational commitment (Monks & Lajoux 2010). Apparently, employees’ attitudes are influenced positively leading to improved organizational performance. Understood in different words, employees’ perceptions about justice or fairness are also influential factors in their effort to expend or their willingness to exit an organization. Here, the organizations are obliged to manage their relations with their employees prudently.
Ethics in Corporate Relations
Organizational management must be done in observance with ethical guidelines. Without a doubt, ethics plays a central role in organizational activities. Principally assessed on the basis of moral considerations, enacting new methods is required for the leaders to be in line with expectations of major stakeholders in order to avoid the insubordination of interests of other parties (Rachels & Rachels 2011). The reference to theories such as deontology and teleology helps to understand ethics in the establishment of corporate relations.
While teleology focuses on the effects that are attributable to actions, deontology concentrates on unconditional rightness or wrongness of conduct (Rachels & Rachels 2011). In this regard, utilitarianism posits that ethical behavior results from the actions that derive the highest degree of happiness for the largest proportion of people. Based on the theory, the companies are bound to produce changes that yield beneficial results to the biggest percentage of stakeholders during the adoption of strategies. Nevertheless, the problem with the theory emerges based on the idea that individual rights are not considered since it supports the majority’s aspirations with little regard to the minority (Rachels & Rachels 2011). Conversely, the deontological ethical thought would require right and justifiable measures based on the ‘duty to do what is right’. The implication is that deontologists do not rather focus on outcomes but on the process. According to J. Rachels and S. Rachels (2011), the consequences of an action do not affect individuals who agree with the school of thinking. Under deontological ethics, the organizations must take right actions regardless of the result of such engagements in the management of stakeholder relations (Mill 2011). In a business environment, assuming the teleological ethical strand seems more logical if compared to the deontological logic given that primary goal is to satisfy the highest number of stakeholders’ demands and/or expectations. Satisfying the majority of stakeholders is what an organization should follow despite the significance of paying attention to the interest of the minorities.
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The agency theory is also useful in assessing stakeholder relations within the corporate environment. Within an organizational arrangement, it is evident that some parties have the task of setting the work, while others have the role of executing it (Dess et al., 2012). In other words, the principal or owner engages an agent or manager to take charge of a corporation. On the basis of the agency theory, parties’ motivation is based on separate interests. Given the presence of self-interest, conflict is likely to mar the running of corporate affairs. In this regard, agents are expected to sacrifice their interests or align them with those of their principals. It is also necessary that owners can deploy methods such as corporate storytelling and executive compensation.
Strategy in Managing Corporate and Stakeholder Relations
Many approaches are available for exploitation by corporate entities. One of the main methods to influence corporate relations within an organization is to use the corporate storytelling strategy. As an approach, internal storytelling is crucial in a bid to engage staff with specific focus on improving personal-level relations. The objective of such concentration is to strengthen employees’ loyalty. Based on the position held by Rob (2011), internal corporate relations play an important role in the enhancement of employees’ loyalty owing to the effect it has on influencing employees’ engagement through communication. Rob (2011) also observed that corporate storytelling improves employees’ commitment within any organization significantly. Based on the above account, one may discern that corporate storytelling is crucial to the effective management of employee-employer relations. Owing to the role of employees in the performance of the whole organization, having satisfied workers is important to the improvement of overall performance.
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In a bid to improve performance within organization, control mechanisms should focus on balancing the roles of major stakeholders: shareholders, community, board of directors, government, and managers (Rob, 2011). Whereas stockholders provide capital in return for profit, the managers are tasked with the role of steering the business to profitability. The law accords shareholders' diverse rights such as the authority to choose the board of directors, approve additional capital or expansion plans, and/or permit changes to the structure of capital (Dess et al. 2012). In actual fact, shareholders’ interests lie on the maximization of equity while controlling risk. Apart from protecting shareholders’ interests, boards of directors also have the task of taking care of other stakeholders’ expectations. Thus, the board fills the gap that separates owners and managers of a firm. For the board to succeed, it must exercise its authority independently. The balance must be struck to ensure that managers, directors, the community, shareholders, and other stakeholders work harmoniously through the use of various internal mechanisms of corporate governance. However, it must be acknowledged that useful internal mechanisms might be deficient. Thus, if corporate relations are to be all-encompassing, external controls including those from regulatory and legal agencies are required. A valuable regulatory setup is the one that enhances the protection of all stakeholders’ interests. Best practices issued by either national or international bodies are also helpful in this regard.
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The corporate environment is largely dynamic. As a result, organizations need to adopt prudent management on corporate and stakeholder relations owing to their significance of performance. The evidence gathered in the paper demonstrates that building good relations is central to creating a sustainable organization. Making ethical decision and taking an inclusive approach in the execution of activities are among the most important attributes of sound management. The finding leads to the affirmation that the management of corporate and stakeholder relations remains crucial as it influences the performance of the whole organization.
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