Stakeholder Definitions and Significance in Achieving Organizational Objectives

Section A: Case Evaluation

Main stakeholders and ethical issues around them

Various definitions of stakeholders exist in literature but in this paper, stakeholders are defined as individuals or groups who can affect the achievement of a firm’s objectives and/or who are affected by the achievement of the firm’s objectives (Harrison et al. 2015). Stakeholders are therefore persons, institutions, neighbourhoods, organisations, groups, society, and the environment in that all these are affected and affect the achievement of an organisation’s objectives. In the case study, the main stakeholders are the company employees, its customers, its suppliers, employees in the quarries in country X, the NGO that emailed S&J, and the society in which the company operates. The company employees are primary stakeholders because without their continuing participation, S&J cannot meet its objectives (Matuleviciene and Stravinskiene 2015). This means that the company employees directly affect the ability of the company to achieve its objectives. Customers are also part of the primary stakeholders to the company because without their participation, the company would not be able to attain its sales target, which would have detrimental effects on the company turnover. The suppliers can also be considered primary stakeholders because if they are not able to supply S&J with the stone, then the company would not be able to meet the demand of its customers. The NGO and the society in this case could be considered as secondary stakeholders because they are not engaged in transactions with the company but their existence affects the ability of the company to attain its objectives and are in turn affected by the company achieving its objectives (Charan and Murty 2018). The NGO in particular has shed light on country X’s act of employing children in their quarries and this affects the ability of the organisation to achieve its objectives because if children are no longer employed, it will not be able to import the stone at a low price and additionally, if the customers learn that child labour is practiced in country X, they are highly likely to stop purchasing from S&J. The society is also integral to the company’s achievement because it shapes public perception of the company, which in turn affects consumer behaviour (Harrison et al. 2015).

The main ethical issue in the case study is the use of children in quarries in country X. In the case study, it is clear that the children would often work without protective gear, which is unethical as it exposes them to serious hazards and illnesses (Chelliah 2017). For example, children working in these quarries could develop respiratory health problems given that they are exposed to dust as well as reduced hearing capabilities as a result of exposure to noise in the quarries. Therefore, it would be ethical not only to shun child labour but also provide all workers in country X quarries with protective gear.

Child labour is known to reduce costs for companies (Cho et al. 2019), which is evident in the case study as S&J is able to import the stone at a cheaper price. According to Mikalsen and Allan (2015), profit maximisation is the aim of every company but ethical business practice requires business organisations to ensure sustainability. In this case, S&J could fall short of ethical business practices in that through importing from country X, it is making profits at the expense of the health and wellbeing of children, which puts the availability of future labour at risk. Although lowering operational costs for companies is where the ethical debate in child labour starts, this case has more to do with the illegality of child labour in country X, which shows that by importing the stone from the quarries, S&J is violating the laws that Country X has put in place in order to protect the rights of children.

Evaluation of the case using ethical theories

The selected ethical theories are Kantinism and utilitarianism. Kantian ethics is concerned with adopting a set of basic principles, which are commonly known as maxims, fit to serve as universal laws in accordance with which all are treated as ends-in-themselves and never and mere means (Hasan 2018). On the other hand, utilitarian ethics is about maximising utility (happiness, welfare, and wellbeing) while minimising overall suffering (Nyholm 2018).

Both utilitarian and Kantian ethics are evident in the case study. From S&J’s perspective, it appears that using children in the quarries in country X maximises utility in that the company is able to acquire the stone at a low price and meet customer demand. From this approach, the company sees nothing wrong in importing the stones from country X because this helps protect the interests of the primary stakeholders and shareholder in particular. Therefore, the company is happy to continue importing the stone as long as its shareholders are happy, which is a reflection of utilitarian ethics. On the other hand, the NGO adopts Kantian ethics. Kantian ethics holds that persons have reason and free will as well as the capacity to make moral decision and to conform to them (Levin 2017). The Kant’s Principle of Humanity holds that it is only persons who possess dignity and therefore must be treated as the ends. In the case study, children are persons and therefore cannot be used as resources or mere means. Therefore, the NGO from the Kantian stance holds that using children in quarries in country X is wrong, even if it maximises profits for S&J, because it treats these children as mere means. We could also argue that through emailing S&J, the NGO was also showing its Kantian stance thus encouraging the company to do what is good regardless of its consequences, but the company with a utilitarian position ignored the NGO’s email and continued to import the stone from country X because doing so lowered the cost of operation. Even after seeing the internet-based campaign, the company still does not understand it has a role in minimising suffering for the children employed in quarries in country X because its shareholders are still benefitting, which is a reflection of the utilitarian ethics. This is a clear indication that the company has self-interested reasons to continue importing stones from country X even after finding out that the quarries in country X employ children. This concurs with Teck et al. (2018) who argue that commercial organisations usually apply the utilitarian principle (being the greatest good foe the greatest number in the organisation) in the supply chain as part of their goal-oriented ethics. Therefore, S&J is in a dilemma because it has a fundamental profit motive for all those involved in the short-term at the expense of the happiness of the children working in the quarries in country X.

What I would do as the director of S&J

As the director of S&J, I would carry out audits in order to eliminate chid labour out of the supply chain. According to Bertrand and de Buhr (2015), child labour in the supply chain influences two issues for companies namely illegality of child labour and brand damage when the use of child labour is publicised. As pointed in the case study, the NGO has spearheaded an internet –based campaign on child labour in country X and has also published a list of companies that trade with country X, which implies that if I turn a blind eye for the sake of the returns I get from importing from country X, I will suffer brand damaged and might also be prosecuted for illegality of child labour in country X since I still trade with it. Ramasastry (2015) writes that social responsibility and business sustainability has attracted a lot of interest today thus continuing to ignore child labour practices in country X would cost me the business reputation in my society now that the use of children in quarries in country X has already been exposed by the NGO. To cushion these detrimental effects, I would go beyond formulating policies to adopting proactive processes that detect and prevent child labour inputs into the supply chain. I would go an extra mile of making this information public in order to convince out customers we have positively responded to child labour allegations in our supply chain, which would go a long way in protecting the brand image as well as the reputation of the company. In future publications, such as the corporate social responsibility report, I would indicate how the processes were implemented and the initiatives I adopted to ensure compliance by suppliers in order to further promote the company’s reputation. The corporate social responsibility reports would define our social responsibility in the supply chain thus convince our customers and the society we are not only interested in making profits (Hamidu et al. 2015). I would also have a committee tasked with evaluating the effectiveness of the initiatives taken to curb child labour in the supply chain, so that progress is monitored, reviews performed, and adjustments made to further promote the quality of the outcome. Such actions would show the degree at which the company is committed to curbing child labour in its supply chain, which is fundamental in promoting brand image (Ferrell et al. 2019).

Section B: Stakeholder Theory in the context of Globalisation and Sustainability

The stakeholder theory was developed in the 1960s and is credited to Freeman who argue that managers should pay attention to any individual or group who can affect or is affected by the organisation’s objectives because that group may hinder the organisation from achieving its objectives (Schaltegger et al. 2019). Stakeholders have been known to set norm for, to experience the effects of, and to evaluate the behaviour of an organisation while manager have a primary responsibility of safeguarding the welfare of the organisation while settling conflicts between the interests of multiple stakeholders (Cutovoi 2018). While traditionally it has been difficult for managers to better understand the stakeholder landscape and identify the actors that affect an organisation’s ability to serve the marketplace, globalisation has intensified these difficulties given the increase in the number of stakeholders a company should consider in order to successfully operate in the global market (Brower and Mahajan 2013). On the other hand, Ranängen (2017) asserts that the stakeholder theory is related to a company’s sustainability in that the ability of an organisation to develop mutually beneficial relationships with multiple stakeholders is integral to the company’s capacity to generate future wealth. Analogously, Hörisch et al. (2014) write that the stakeholder theory is associated with sustainability and globalisation because if a company fails to recognise the importance of a broader set of stakeholder, it will experience big trouble and disastrous results later, which negatively affects the organisation’s future viability. In other words, companies that fail to identify multiple stakeholders in the global market cannot be considered sustainable. In the same vein, Galuppo et al. (2013) write that firms that respond to the demands of stakeholders gain a competitive advantage in the global market through developing relationships and skills with their stakeholders, which in turn serves as valuable, rare, inimitable, and non-substitutable resources for the firm. These rare, valuable, inimitable, and non-substitutable resources link to the sustainability of the firm.

Globalisation has forced firms to acquire and develop relationships with external stakeholders and this has further promoted the sustainability of such firms in that developing mutual relationships with external stakeholders is known to be costly and difficult to imitate and therefore over time helps a firm to build a common ground with multiple stakeholders, which enhances the sustainability of the firm (Den Hond and de Bakker 2016). Nonetheless, literature of corporate social performance does not identify the factors that drive organisations to identify and respond to stakeholder demands in the global market. In relation to sustainability, Richter and Dow (2017) note that the values and nature of a firm’s stakeholders can be used to predict the behaviour of the firm and therefore having multiple stakeholders challenges organisations to adopt behaviour that promotes the sustainability of the firm. In addition, Andriof and Waddock (2017) write that firms with multiple stakeholders are more responsive in terms of responding to the demands of stakeholders, which includes responding to the characteristics of the stakeholder environment thus making that organisation sustainable. Further, Rosenau (2017) notes that in the globalisation era, firms are very sensitive to stakeholder demand; this in turn promotes sustainability given that stakeholders are increasingly aware of the need to conduct businesses in a socially responsible way.

Sustainability literature has shown that considering stakeholders in business practices promotes the sustainability of business practices. According to Hörisch et al. (2014), the stakeholder theory asks with and for whom value is being created in sustainability, which implies that multiple stakeholders essentially contribute to and benefit from value creation while value creation promotes the sustainability of business activities. On the other hand, Bridoux and Stoelhorst (2016) write that the networks and joints purposes of stakeholder relationships contribute to value creation, which in turn promote sustainability. Analogously, Windsor (2017) asserts that multiple stakeholders in the globalisation era provide resources, affect the business environment, benefit from the organisation, and affects the organisation’s impacts and efficiencies. From this perspective, the authors argue that the collective efforts of stakeholder network are core to value creation and withdrawal of support from any stakeholder could threaten the viability of a business (Harrison and Wicks 2013). This could imply that multiple stakeholders in the current hypercompetitive business environment are a major resource for companies and significantly impacts the viability of businesses. Therefore, the relationships between different stakeholders form the basis for a functioning value creation network, which is integral to sustainable business practice. In agreement, Brondoni (2014) write that under the influence of globalisation, it is impossible to operate a business model that does not create room for sound relationships between internal and external stakeholders. However, Hörisch et al. (2014) note that in the event of globalisation, there are many stakeholders and given that organisations are found around specific objectives, a joint purpose should result from the shared values of an organisation and its stakeholders which then serves as motivating and strong reference point for joint value creation if the businesses activities are to be sustainable.

In the globalisation era and in line with the stakeholder theory, joint value creation is fundamental to sustainability of business operations. These relationships need to be deeper than transaction-oriented encounters and appreciate the contribution of different stakeholders if sustainability has to be achieved (Brondoni 2014). In addition, value creation should be beneficial for all stakeholders otherwise the organisation will lose some stakeholders to its competitors, which would threaten the competitive advantage of the firm (Galuppo et al. 2014). On the other hand, Rosenau (2017) writes that in the current business environment, business relationships with multiple stakeholders should sustainability-oriented, which underscores the need to ensure business decisions have an ethical content. Ethical behaviour should be encouraged for all stakeholders as unethical behaviour would result in withdrawal of stakeholder support, thereby threatening the viability of the business model. In agreement, Tantalo and Priem (2016) write that value creation for sustainable business activities should integrate social and ecological impacts, which is seen as the defining feature of sustainability-oriented business models. Therefore, the stakeholder theory has a significant impact on viability of business operations, which in turn determine how sustainable the business is: multiple stakeholders are an integral part of the global economy.

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