Should A Manager Be Considered A Statkeholder?

Over the last ten years, the public has placed intense scrutiny on decisions made by large corporations.  In the wake of Enron, WorldCom, and Tyco, consumer trust in institutions began to deteriorate.  In reviewing the failures of the companies stated above, it appears that the deterioration of public distrust is a direct result of management’s focus on share value of these companies rather than protecting the values of its stakeholders.  The compensation packages of the managers who are employeed by these companies were structured in such a way that it rewarded managers for increased share value rather than actually growing the business.  Ironically, among these stakeholders included employees and investors.  For this reason, managers should be considered as stakeholders of a company.

Stakeholders include anyone affected by the company’s decisions, policies, and operations.  A manager would fit into all three aspects of the stakeholder definition.  As a company employee, managers are affected by company policies as they must follow the company conduct rules.  Managers are impacted by operations as they must manage the processes.  Lastly, although they make the decisions, they must also lead by example by reinforcing the decisions made.  Though stakeholders and shareholders are similar and are closely related, the two are distinctly specific in how they each affect a company as well as the attention placed on each by members of management.  Furthermore, each having its own theory, when compared to each other, it is obvious that stakeholders cover a vast range of a company’s constituents whereas shareholders refer to only one aspect of a company.

While both shareholder and stakeholder are normative in social responsibilities dictating to managers what is right and wrong, there is often a debate between which one is right and which one is wrong.  Shareholder theory states a manager must use company funds only in ways approved by its shareholders.  This theory as stated above is important as it ensures managers are spending corporate funds correctly.  This theory presents a guideline in what is appropriate and what is not as it pertains to money management, however, it does not speak to all constituents of the company.  Furthermore, focusing only on this theory gives the managers the impression that shareholders have priority over stakeholders.

Stakeholder theory states that companies also have a responsibility to create value for society, professional development for employees, and innovative product for customers. Corporations also have a responsibility to enhance the company’s wealth creating capabilities and activities, limits the risks of the organization.  In the stakeholder theory, the manager must focus the general development and survival of the company rather than simply the share value. 

As a result, considering the manager as a stakeholder rather than simply a steward of the process of the organization will create ownership within the management ranks that will benefit the shareholder as well.  Managers make good decisions when they pay attention to the effects of their decisions on stakeholders.  Because they themselves are employed by the company who may also utilize company benefits, ensure the workplace is safe, and include enroll in company sponsored 401k, they like all other employees tie their livelihood around the success of the company.