Stakeholder versus Shareholder Value Creation

Stakeholder versus Shareholder Value Creation 1

Stakeholderversus Shareholder Value Creation

Thestakeholder and shareholder value creation models differ primarily inthe definition of value. The shareholder model is based on theideology that value is the monetary benefits the shareholders get(TantaloandPriem, 2014).This is the neoclassic theory which states that economic value iscreated when a business registers profit i.e. when the price theconsumers pay for the product is more than the cost the businessincurred in the process of production (Argandona, 2011). Hence, abusiness using the shareholder model is considered successful basedon the contentment of the investors. On the other hand, thestakeholder model of governance insists that businesses mustacknowledge that they have social responsibilities and therefore thevalue is evaluated based on the satisfaction of all stakeholders(Weber and Kroeger 2014). As such, the stakeholder model is builtaround the consumers, employees, and local community.

Theshareholder model encourages managers to do whatever it takes to getmaximum returns for the shareholders (TantaloandPriem, 2014).A business based on this model is therefore bound to meet high shortterm returns and it may find expand rapidly in the initial years ofoperation. However, by ignoring the social responsibility, thebusiness fails to build a reputation that would ensure it attainslong term success (Weber and Kroeger 2014). On the other hand, thestakeholder-minded business may be seen to achieve low profits as itfocuses on giving the stakeholders value-for-money products. In thelong run, however, the business is more sustainable since it has ahigher retention rate of its customers (TantaloandPriem, 2014).

Inour organization we use the stakeholder model and it has been asuccess. The organization hires professional research companiesregularly to assess the consumers’ thoughts on our products. Theresults and recommendations of these studies form the basis forchanges in policies, if need be.

References

Argandona,Antonio (2011). IESE Business School of Navara: StakeholderTheory and Value Creation. Vol .11, No. 6

WeberChristina, Kroeger Arne (2014). Academy of Management: Developinga Conceptual Framework for Comparing Social Value Creation. Vol. 39,No. 4

Tantalo,CaterinaandPriem, Richard (2014). Strategic Management Journal: Valuecreation through stakeholder synergy. Vol. 37, No. 2