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Stakeholder Approach in Corporate Governance

The stakeholder approach in ethics is a perspective that emphasizes considering the interests, rights, and well-being of all stakeholders affected by a particular decision or action. 

But who is a stakeholder? 

Stakeholders are individuals, groups, or entities that have a stake or interest in the outcome of a decision or activity. 

Let’s look at a few stakeholders at an organisational level to understand their purpose and where their interests tend to lie. 

Types of Stakeholders in Organizations

  • Employees: As key contributors to organizational success, employees have a vested interest in ethical conduct. They expect fair treatment, transparency, and adherence to ethical standards in areas such as hiring, compensation, and workplace safety.

  • Customers: Customers expect honesty, product quality, and fair pricing. Ethical lapses, such as false advertising or exploitation, can damage trust and harm the organization's reputation.

  • Shareholders: Shareholders seek profitability but also demand ethical behaviour to protect their investments. They expect transparency, accurate financial reporting, and responsible corporate governance.

  • Suppliers: Suppliers rely on fair dealings and ethical practices from the organization to maintain long-term partnerships. Unethical behaviour, such as late payments or contract breaches, can strain supplier relationships.

  • Government: Regulatory bodies and government agencies set legal and ethical standards that organizations must follow. Compliance with regulations is essential to maintain trust and avoid legal repercussions.

  • NGOs/Activists: Non-governmental organizations and activists advocate for ethical behaviour, holding organizations accountable for their social and environmental impact.

  • Competitors: While competitors may have conflicting interests, ethical competition ensures a level playing field and fosters trust within the industry.

  • Communities: Communities impacted by the organization expect ethical conduct regarding environmental sustainability, social responsibility, and contributions to local development.

By considering the diverse perspectives of these stakeholders, organizations can cultivate a culture of ethics and integrity, leading to sustainable success and positive societal impact.

Advantages of the Stakeholder Approach

  1. Inclusive and Holistic: It ensures that all relevant stakeholders are considered, leading to more holistic and ethical decision-making.

  2. Long-term sustainability: Prioritizing the needs of various stakeholders enhances reputation, rapport, and contributes to long-standing relationships.

  3. Ethical accountability: Holding organizations accountable to a broader range of stakeholders promotes transparency, fairness, and ethical behaviour.

Disadvantages of Stakeholder Approach

  1. Conflict of interests: Balancing the conflicting interests of multiple stakeholders can be challenging and may result in compromises that do not fully satisfy any single group.

  2. Complexity: Managing the diverse needs and expectations of stakeholders requires significant time, resources, and expertise, potentially increasing operational complexity.

  3. Subjectivity: Determining which stakeholders to prioritize and how to weigh their interests can be subjective, leading to inconsistencies and disagreements in decision-making.


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