Stakeholders interest for sustainability of business
Dr. D. Mukhopadhyay
Stakeholder Theory believes in professionalism and only professional practice and procedure can create value for the society. Indian business tycoons like Sahara, Kingfisher, Satyam etc exploited the stakeholders to an unimaginative extent and government is struggling for recovery of misappropriated assets of these so called blue-chip companies. The basic objective of the firm is to maximize value for the society by exploiting the available resources whose ownership belongs to the society. According to the neoclassical theory of Economics, economic value is the sum of the consumer surplus and producer surplus. Consumer’s surplus represents the gulf between the maximum price the consumers are ready to pay for the goods and serviced in order to satisfy their wants and the price they actually pay. On the other hand, producer surplus is referred to be the difference between the selling price of the product or service and the cost of resources used for generating revenue which is technically called cost. A business cannot survive and sustain if the customers shun the business. Peter F. Drucker, the renowned management thinker, of the twentieth century says that customer is the business and sales is the only window through which revenue enters into the business.
Therefore, a business cannot afford to lose the customers and ignore the interest of customers. In the same way, all the stakeholders play distinct roles in bringing about overall economic success of a firm. The opportunity cost of the factors of production is to be ascertained correctly otherwise it will be difficult to work out the magnitude of value. Here, the business has to hire the professional service of the Cost and Management Accountants (CMAs) who are the experts in cost assessment and cost ascertainments. Moreover the surplus value so created need to be appropriated in logical manner among the stakeholders in order to have command over their confidence in the governance of day to day as well as strategic affairs of the firms. A customer becomes willing to pay higher price for the bundle of benefits and not for the features of the products and then only higher magnitude of value is said to create. Sustainable strategy and strategic planning can only take care of the interest of the stakeholders. Strategy is all about competitive advantage, future, direction, resource allocation and utilisation, direction and course of action in order to achieve the objectives of value creation and the contribution of all the stakeholders is significant and meaningful for attaining the mission of the business.
Business strategies should be formulated within the framework of overall objectives of a firm with a view to meet the needs of the stakeholders. If someone sees from micro point of view, it can be understood that strategy comprises of how and where to compete, how management uses the financial resources and how it maintains its relationship with that of suppliers of capital. The mission of an economic entity normally is embodiment of three questions and they are as to why does a business exist, what does it provide and for whom does it exist ? If someone thinks deeply, strategy is nothing but mechanism for meeting the needs of the stakeholders. In this context of generating value for the stakeholders, perhaps it will be pertinent to refer the McKinsey 7-S Model where strategy has been given a important room. While dealing with the needs of the stakeholders, it is to keep in view the transparent corporate governance which is embodiment of governance, ethics and social responsibility and fair dealings with the stakeholders is possible under the spirit of these aspects of modern management principles. Stakeholders’ support is unconditionally available when an organisation practices in transparency, accountability and commits to social responsibility since these are essential ingredients of sustainable strategic management. R. Freeman says that it is the business of the business to honour the due claims of the stakeholders having direct and indirect contribution to the growth, development, survival and sustainability of business and therefore entrepreneurs should have broad view as to how to generate confidence of the stakeholders in the economic affairs of the business. It is therefore worthwhile to mention that in order to maintain the reasonable degree of flow of sustainability of a business; it is a compulsion and not just an imperative to take care of the interests of the stakeholders.
(The Author is Professor of Management, Shri Mata Vasihno Devi University, Katra-182320)