Question

How does the stakeholder concept help firms make better and more ethical business decisions?

Answer 1

The primary purpose of a for-profit business is and will always be achieving the best possible profit margins. In markets or industries with intense competition, we often have cases of companies making unethical decisions to stay competitive in their industry. What this means is that the need for growth, differentiation, and customer value needs to be emphasized upon, and this is where unethical decisions are mostly made. A good example is the Volkswagen emission scandal where the giant of a company cheated emission test when being tested by detecting and changing the emissions.

Stakeholder theory creates the understanding that not only the business owners and shareholders’ needs are considered, but also all the individuals, groups and collectives that are in some way affected by the path a business undertakes is deemed to be relevant. It shifts the focus from profit towards a sustainable approach based on the best possible use of utilitarian principles. Since the stakeholders also include the government and even the customer, the need to take ethical actions and make ethical decisions is increased ten folds. Thus, the stakeholder concept helps a firm make better, more ethical decisions in terms of the path their business taxes and the activities they are involved with their structure.