The Primary Goal of a Business Entity
The primary goal of a business entity is to participate in operations that generate profits for its owners. Previously, it was widely held that the prime purpose of a company's management was to maximize the welfare of its owners. However, in the previous market environment, the word "shareholders" evolved to "stakeholders" to refer to those who have a right or interest in a company. The concept has been broadened to include individuals that have no prior interaction with a specific business entity. Community communities, the media, social organizations, leaders, and rivals are examples of indirect stakeholders. Stakeholder theory acknowledges that those who have either direct or indirect contact with an entity have a right to participate in determining the direction of an entity (Friedman, 2007). For this discussion, I will tend to lean more with the Freeman in that business firms should actively listen to all its stakeholders.
The Importance of Listening to Stakeholders
Friedman believes that an entity should be managed for the benefits and at the expense of the owners. He failed to acknowledge that an entity does not achieve its ultimate goal of profit-making on its own. An entity must rely on the efforts of certain individuals and it must involve or affect particular individuals in the course of achieving its ultimate objective. As such, a company should consider its impacts on such individuals and actively listen to them. In the current customer-driven market, it is paramount to listen to customers but listening to stakeholders enables a corporate to succeed in the marketplace (Samuelson & Birchard, 2003). At the marketplace, firms are projected to not only attend to its shareholders and customers but also other interested groups. Facilitating this kind of stakeholders' involvement will enhance an entity's image so as to match with its business name.
The Citizen-Like Behavior of Business Firms
Since business firm in law is considered as a citizen because of its independence from the owner, it necessitates it to behave like a real citizen. It is absurd for Friedman failing to acknowledge that an entity acquires all its inputs from the local community; that is to say, local citizens. As such, the company should also find a way of giving back to fellow citizens for their contribution to profit-making of the company. Business decisions have social impacts which expose a firm certain kind of public scrutiny. The public will scrutinize a firm mostly based on the effects of its actions on the community. Positive effects will enhance a company's acceptability in the community which will ultimately lead to enhanced profits (Friedman, 2007). Hence, Friedman should recognize that profits emanate from the surrounding community who make up organizational customers.
Safeguarding the Environment and Sustainable Management
The actions of business corporates should reflect the current values consisting of human rights to environmental issues. Corporates should formulate policies meant to safeguard the environment because adversity in the environment affects even the functioning of an entity. In line with Freeman, business firms are expected to participate in the management and sustainability of the environment for the well-being of both the community and the company. The safe and healthy environment will provide a favorable working environment that will enable the firm to maximize on the emerging opportunities (Hood, 1998). As such, corporates should identify and work with key stakeholders to enable it implements its environmental sustainability policies as well as leading the charge in corporate citizenship. These efforts will improve company reputation, protect its brand equity and cultivate acceptability among the host community.
The Importance of Valuing Employees
Friedman overlooked the contribution of employees to profit-making. Implementation of business strategy is executed significantly by employees. Thus, it is necessary to safeguard and promote their welfare in order to maintain a pool of highly trained and motivated workforce. Motivated labor-force is likely to be efficient and effective when executing their duties and responsibilities. It will reduce administration and turnover costs and increase productivity in the workplace. Enhanced productivity will mean achievement of the organizational objective in a timely manner as well as the profits. Employees' welfare should be catered through competitive remuneration and benefits package and also, through cultivating an organizational culture which embraces diversity, provides inclusion and good working environment to all employees (Samuelson & Birchard, 2003). If Friedman had acknowledged this fact, he would have yield results for owners to whom he was so indebted to.
Changing Corporate Behavior and Stakeholder Engagement
Cognizant of the distrust existing between the corporations and social advocacy factions, corporates ought to change their behavior. As Friedman believed, many businesses are mostly concern with the internal processes and systems which they believe profitability depend on. Consequently, corporations' behaviors tend to safeguard internal factors which impact on these processes and systems ignoring the external factors which mostly form the indirect stakeholders. This behavior is ill-advised because just like how an entity is affected by external components of the environment so is also affected by indirect stakeholders. Hence, business firms should consider changing their behaviors in regard to engaging share and stakeholders through internal communication of values, establishing performance standards and dialogue with indirect stakeholders (Samuelson & Birchard, 2003). Corporate citizenship issues should be embedded in company's programs and activities.
Catering to the Needs of All Stakeholders
In today's business environment, the only most viable way of creating value for the shareholders is through catering the welfare of all stakeholders simultaneously. All groups of stakeholders are equal. Although the welfare of direct stakeholders is well-catered for by the profitability of the firm; the welfare of indirect stakeholders should be addressed by formulation an appropriate social strategy. In many business firms, they usually develop social corporate responsibility plan. This plan outlines how a company intends to participate in communal programs so as to satisfy the needs of indirect stakeholders (Hood, 1998). The plan acknowledges that an entity has a responsibility toward the community in which it is undertaking its operations and the society at large. A company may focus its attention on environmental conservation, social and educational programs aiming at contributing positively to the overall well-being of the society.
Conclusion
To sum it up, stakeholder theory presents various groups of stakeholders with varying needs which any business entity striving to survive in today's competitive environment should satisfy (Hood, 1998). The groups, both direct and indirect stakeholders are interlinked and affect each other. Thus, there is no supreme group over the other. A company should strike a balance in order to achieve its objectives. The demands arising from corporate citizenship should be addressed by an effective social corporate responsibility plan. Active corporate participation in social issues and programs will give a corporate a sense of belonging amongst the local community enhancing its acceptability.
References
Friedman, M. (2007). The social responsibility of business is to increase its profits. Corporate ethics and corporate governance, 173-178.
Hood, J. (1998). Do Corporations Have Social Responsibilities?. FREEMAN-NEW YORK-FOUNDATION FOR ECONOMIC EDUCATION-, 48, 680-684.
Samuelson, J., & Birchard, B. (2003). The voice of the stakeholder. STRATEGY AND BUSINESS, 97-106.
