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Posted on April 16th, 2014, by

1. Article outline

R. Edward Freeman in his article “Managing for Stakeholders: Trade-offs or Value Creation” considers stakeholder theory from global perspective, and outlines three main interconnected ideas associated with this theory as well as the effect of stakeholder-based approach on business environment.

Freeman starts with the analysis of the concept of managing for stakeholders and consideration of origin of stakeholder idea. Basing on the idea that stakeholders are viewed as group bound together by joint interests, Freeman further explains the mechanism of business relationships, and the role of executive and entrepreneurs in it. From the perspective of stakeholder theory, corporations can be viewed as contracts between their stakeholders. In this context, this theory introduces the questions of ethics and justice as integral part of business.

In the 21st century, significant research (case studies, theoretical background, cost-benefit analysis, etc.) was performed in the sphere of distributive justice approach and trade-offs among stakeholders. Freeman outlines the link between stakeholder theory and entrepreneurship theory, basing on the fact that both theories imply the existence of trade-offs between key participants. According to Freeman, there are three interconnected ideas which are fundamental for this theory: “no stakeholder stands alone in the process of value creation”, “the primary responsibility of the executive is to create as much value as possible for stakeholders” and “stakeholders have names and faces and children” (Freeman, 2010, pp. 8-9).

Freeman criticizes the views where one group of stakeholders has certain advantages over other groups, and argues that social and economic success can only come to life if the principles of equality are observed. According to Freeman, the attention to stakeholder theory and recent adherence to this theory in business environment can lead to redefining the nature of value and trade-offs, and in general leads to more prosperous and free society.

2. Article’s importance to the course

The article of R. Edward Freeman “Managing for Stakeholders: Trade-offs or Value Creation” is highly important for the course because it allows to view business and management from ethical and global perspectives. In this article, corporations are regarded as social agents and the very existence and functioning of corporations is viewed as a contract or equilibrium between shareholders. Moreover, Freeman considers the questions of justice with regard to different stakeholders groups, and shows that any preference of one group of stakeholders towards other groups leads to negative (or non-optimal) consequences. Therefore, this article highlights justice and ethics as core component of prosperous business and prosperous society.

Freeman also present an innovative view on management. The idea of value creation mindset outlined by Freeman is highly advanced, and it illustrates how purpose-driven management can lead to success. The concepts of ethics and business efficiency, which are often viewed as opposites, are showed as mutually dependent and mutually essential in Freeman’s article. This approach allows to integrate the knowledge on strategic management (mission and vision of companies), financial knowledge (the target of corporations to increase value for shareholders) and knowledge of business ethics (justice approach). Moreover, Freeman shows how stakeholder-based approach can help make the lives of all involved people better and happier.

One more important aspect showed in the article is the importance of long-term perspective and strategic view. The effects of trade-offs on overall business efficiency presented in the article show how the ideas of justice lead to optimal productivity and optimal outcomes for all stakeholders. Three interconnected ideas of stakeholder theory outlined by Freeman also show how important it is to focus on the human aspect of business and ethics.

Freeman’s article integrates many important concepts taught in the course and offers a holistic view on business, management and ethics. Therefore, this article effectively supplements the course and adds to professional understanding of management and business ethics.

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