Over the years, social and ethical concerns have brought attention to the community that caused much bitter conflict to the relationship between business and society. As people become better educated and more affluent, rising expectations naturally follow for major institutions and these developed a backdrop against which criticisms towards businesses have grown. Therefore, these created the need for them to assume greater societal responsibilities rather than mere ruthless pursuit of own profits.
Many businesses today share the same viewpoint that making profit for profit’s sake no longer leads to sustainable performance, stakeholder management has become an increasingly important aspect of a business’ operation integrating traditional economic considerations with environmental and social concerns (Jones 2012). While doing well and doing good are no longer seen to be mutually exclusive, corporations practicing stakeholder management is highly debated to be sustainable to a large extent. With all the benefits that it brings, this approach however also has its fair share of limitations to be discussed later in this essay.
Outlining the term ‘sustainability’
Sustainability is the capacity to endure. One of the best known general definitions about sustainable development was expressed as “meeting the needs of the present without compromising the ability of future generations to meet their own needs” (United Nations 1987). Increasing attempts at definition are also recognizing the needs interdependence between economic, environmental and social systems that thus considered them in an integrated way.
Soyka (2012) put forward that sustainability encompasses three major elements namely economic propensity, environmental protection and social equity. Corporations have to make profit to provide support for its shareholders and employees and contribute to their long-term wellbeing. It must produce surpluses to carry through tough times and afford funds for growth, and at the same time innovate in minimizing environmental pressures and offer benefits to its community of consumers. The root of this idea is that all systems, both human and natural ones, need to be balanced and regenerative in order to last.
Why stakeholder management?
Therefore, as sustainability is defined as involving the different aspects of a business operation, the fundamentals of stakeholder management come into place. At the core of stakeholder theory is the notion that the long-term sustainability of business depends on acquiring the cooperation of various constituents, including but not restricted to shareholders (Donaldson & Preston 1995). Stakeholders include shareholders, employees, customers, suppliers, government and the community at large.
Caroll and Buchholtz (2000) proposed that pluralism exists within society where there is a wide decentralization of power among many groups and organizations. This implies an exchange, or rather an interdependent relationship between corporations and its society as decisions made by either party can impact the achievement of individual objectives. For example, stakeholders provide capital to the firm and expect maximum returns on their investment. As managers and employees put in their time and commitments, they demand reasonable income and satisfactory working conditions. If whichever way is unsatisfied, the party may withdraw and affect the progress of the other. This interrelationship results in a strategic reason for corporations to leverage on stakeholder management in meeting expectations that ultimately strengthens their competitiveness.
Hence, there exists a two-way understanding between them reflecting mutual expectations on each other’s roles, responsibilities and ethics. Donaldson and Dunfee (1994) identified this as a “social contract” which addresses universally understood expectations that are...