Question 1
Stakeholder theory states that business should protect and promote its responsibilities towards its stakeholders (Corporations, Society and Stakeholders). According to Edward Freeman, stakeholders are groups of people who have a stake or interest in the corporations (2011). According to the video Corporations, Society and Stakeholders, stakeholders can be classified into primary and secondary stakeholders. Primary stakeholders hold a formal relationship with the corporations, which include the employees, shareholders and suppliers (Corporations, Society and Stakeholders). On the other hand, secondary stakeholders have informal relationship with the corporation such as the customers and local communities (Corporations, Society and Stakeholders). In stakeholder theory, corporations create values for the stakeholders aside from only making profits (Matteson & Metivier, 2017). On the other hand, shareholder theory addresses to maximize the profit in an organization as it is the interest of the owners or the shareholders (Corporations, Society and Stakeholders). According to Michael Friedman, managers or shareholders own the business, thus the primary purpose of a business is to give back to the owners, in terms of profits (1970). However, Friedman also stated that it is businesses’ responsibilities to make as much money in compliant with basic rules of society and laws (1970). Friedman believes that although it is the primary purpose of the business to make profit, it is also important that the businesses are operating morally and ethically.
Both stakeholder and stockholder theory has its own benefits and challenges. One of the benefits of stakeholder theory is it can increase the overall performance of a business. When a business applies stakeholder theory, it receives input from all its stakeholders (Teacher, 2013). For example, if a business attends to the needs of its employees such as giving appropriate wages and benefits, employees will tend to give back to the business in terms of their efficiency and quality of their work. Besides, employees will not have any difficulties following orders from the management, which contributes to the business running smoothly (Teacher, 2013). Same goes to the suppliers, who can provide the business with quality raw materials, and the customers, who can provide the revenue for the business. Overall, the stakeholders can increase the performance of a business. On top of that, stakeholder theory respects and protects human rights (Teacher, 2013). Businesses that value its stakeholders will ensure that it is their responsibilities to protect everyone affected by the business. For instance, companies that build factories in a neighborhood would limit and observe the amount of pollutant so that the local communities would not be affected. Businesses also will ensure that their employees work in an ideal environment. These are the basic human rights that should be protected through businesses’ operation in gaining profit.
However, stakeholder theory has its own challenges. Firstly, it is unclear to determine who the stakeholders are (Teacher, 2013). Anyone can be affected by a business, which include the activists, medias, environments, animals, and even the competitors (Phillips, 2004). Thus, how should a company decide who are the stakeholders and who they should protect. A company should not have any responsibilities towards its competitors but what about the non-human living things like animals (Phillips, 2004)? According to Freeman, stakeholders are people who have a stake in the business (2011). Animals do not have stake in business but they can be harmed by having them clinically tested for products (Teacher, 2013). Thus, there are claims that animals should also be protected, making animals as stakeholders too. Definition of stakeholders can be too vague, which makes it a challenge to define exactly who are the stakeholders. Consequently, it brings to another challenge of stakeholder theory, which is the problem of how managers prioritize the different stakeholders. Different stakeholders usually have different demands, thus making it a problem for businesses to address the different stakeholders. An example of two stakeholders demanding two different things would be between Walmart’s customers and employees. Walmart is favorable among the customers for the lower prices of the products. However, to achieve low prices, Walmart minimizes its operational costs by giving low wages and low-benefit health plans to its employees (Hyde, 2015). Walmart focuses too much on the satisfaction of the customers that it neglects its responsibilities towards the employees. Thus, it is a challenge for businesses to balance out the priorities among stakeholders.
Shareholder theory has its own benefits too. It provides a consistent decision making process for the managers. Since shareholder theory’s objective is to maximize the profit, the decision making would focus on the objective consistently (Kokemuller, n.d.). For example, in making decision whether to outsource the products or not, a company would choose a decision that generates a higher revenue. Besides, since shareholders own the company, shareholders would have a bigger say in the company, thus limiting the decision making to the owners and shareholders. On top of that, shareholder theory also creates an efficient communication between the shareholders and the managers (Fox & Lorsch, 2012). Shareholder theory focuses on the benefits of the shareholders; thus, it is crucial for the managers or the CEOs to share information with the shareholders. Nowadays, Regulation Fair Disclosure require corporation’s information to be released to the public (Fox & Lorsch, 2012). Consequently, this reduces the incentives for corporations to communicate with the shareholders (Fox & Lorsch, 2012). Thus, it reduces the communication between shareholders and the managers. However, if a business focuses on its shareholders, the managers will ensure the communication with shareholders be strengthen, formal and informally. An efficient communication between both parties can also result in a greater trust and would be useful in future crises (Fox & Lorsch, 2012).
However, shareholder theory often receives public critiques regarding their disadvantages. One of the biggest challenges for shareholder theory is its absence of moral and ethical values. While corporations are striving to maximize the profit, they often tend to overlook the ethical issues of their decisions. The corporations might not realize that throughout their effort in maximizing the profit, they would leave a negative impact towards the environment, local communities, or employees. For example, as I mentioned in discussion board week two, corporations are responsible for $2.2 trillion environmental damage each year (Young, 2010). Not only corporations leave negative environmental impact, but no one takes the incentives to be responsible and clean up the damages (Freeman, 2011). This shows how corporations lack of moral and ethical values. Besides, shareholder theory faces the challenges of exposing the corporation in a long-term risk. Shareholder theory could easily turn the corporation’s goal to achieve maximum profit as a short-term goal (Teacher, 2013). Consequently, corporations could easily collapse once the profit falls (O’Farrell, n.d.). An example of a corporation that struggle after having high profit is Blackberry. Blackberry insisted on making its own version of smartphones, although it was clear that customers wanted a full touch screen smartphones (Gustin, 2013). Since its old smartphones generated a high profit, making it one of the most successful companies, Blackberry failed to evolve and listen to customers’ demand. This shows that companies that relies on maximizing the profit may put the company at a long-term risk.
An organization that exemplifies stakeholder theory is Target Corporation. Target is a company that involved in many crises but manage to maintain its reputation throughout many years. One of Target’s strategic plan is to ensure its responsibilities towards its stakeholders. In fact, Target provides a full section on its website, A Bullseye View, that addresses its stakeholders. One of Target’s stakeholders is the guests or the customers. Target always make sure that it maximizes the satisfaction of the customers. One of Target’s initiatives in addressing the needs of the customers is by creating the program Made to Matter – Handpicked by Target (The Together Effect, 2014). This program requires Target’s team to carefully select products so that the ingredients match the customers’ demand (The Together Effect, 2014). Through this initiative, Target shows that it cares and listens for the needs of its customers.
Target also provides an ideal workplace for its employees. Target received many critiques from the public that claimed the corporation to mistreat its employees in the past. However, Target has been taking many initiatives to show that it protects its employees. Target takes care of its employees in terms of their health care and financial planning. Not only Target provides a health plan for its employees and spouses, it also provides screenings for breast and colon cancer, and biometric health screening to prevent chronic diseases (The Together Effect, 2014). On top of that, Target provides a financial tool for its employees so that they can focus on their families and communities (The Together Effect, 2014). Target also provides career development and networking opportunities for its employees (Corporate Responsibility). This shows that Target values their employees.
The third group of stakeholders of Target includes the suppliers. Target introduces a program for its suppliers called Supplier Diversify to ensure it provides opportunities to diverse suppliers (Corporate Responsibility). Target has been known to partner with Women’s Business Enterprise National Council, National Gay and Lesbian Chamber of Commerce, United States Hispanic Chamber of Commerce, U.S. Pan Asian American Chamber of Commerce and National Veteran Owned Business Association (Corporate Responsibility). This shows that Target provides equal opportunities for all groups of suppliers. Target also ensure that it develops a strong partnership with its suppliers, so that they can provide a better value of its products (Corporate Responsibility).
Lastly, Target is also known for its contribution to the communities. Since 1946, Target has been giving 5% of its profit, which is more that $4 million a week, to the communities (Target Shares Roadmap to Transform Business, 2015). On top of that, Target’s employees attend city council meetings to hear the community’s opinions (Corporate Responsibility). Target also provides volunteer opportunities to the employees in local community’s areas to strengthen the relationship between the company and local community (The Together Effect, 2014). This proves that Target does not neglect its responsibilities toward the local communities.
Target is a corporation that exemplifies stakeholder theory very well. Despite of the critiques it received from the public, Target does not stop in creating more incentives that can address the needs of each stakeholder. Target’s effort in protecting its stakeholders not only provides a better relationship with the stakeholders, but it would ensure the company’s sustainability in long-term. Besides, Target’s strong commitments to its stakeholders would result in gaining trust from all stakeholders.
Question 2
In my opinion, Mackey’s actions were unethical. I would like to analyze Mackey’s actions through Universalism theory, which states that the decision made is right for everybody involved, if anybody were to make the decision (Moral and Ethical Principles). According to this theory, the decision made should be beneficial for everybody. This includes its competitors. This theory does not indicate that a company should decide based on the best benefits for its competitors, but it is meant for companies to avoid harm to its competitors, which is right for both the company and the competitors. Besides, according to this theory, the decision made should also be based if anybody were to make the decision. Thus, Mackey should really ask himself if Wild Oats would do the same decision as he did. Besides, if Mackey put himself in Wild Oats situation, would he favor being talked down by the competitors? I believe Mackey would not want to be talked down by the competitors. Although Mackey’s intention was to help his company acquire Wild Oats, it does not justify his actions in bringing his competitor down. As mentioned in the video, Universalism theory states that we should always do good (Moral and Ethical Principles). This regards any intentions Mackey had while making the decision. If Mackey practiced Universalism theory, he would not decide to talk down about Wild Oats anonymously.
Another approach that I believe would indicate Mackey’s actions as unethical is Rights approach. Rights approach requires that “the best ethical action is that which protects the ethical rights of those who are affected by the action” (A Framework for Making Ethical Decisions, 2011). This approach states that those who are affected by the decision also have their ethical rights. In Mackey’s case, Wild Oats has every ethical right to have a healthy competition with Whole Food. When Mackey talked down on Wild Oats at a public blog, he took away Wild Oats’ right to have a healthy competition in the market. Besides, Rights approach also underlines our moral and duty obligations. This shows that Mackey has his own moral and duty obligations, and while performing the duties, he should not violate his competitor. By harming his competitor, Mackey’s actions were considered unethical. On top of that, Mackey’s actions also showed that he disrespects his competitor.
Based on the two approaches, I believe that Mackey’s actions were unethical. He might have a good intention for his company, but he needs to ensure that he respects everyone involved in making the decision. Although his company benefited from the actions, it costs his competitor to collapse in the market. Besides, I believe that Mackey knows the actions were unethical, which is why he hid his identity, to make sure that it would not affect his own company.
I am not surprised to learn about Mackey’s action. Through the article Rethinking the Social Responsibility of Business, although Mackey stated that he has responsibilities towards all its stakeholders, Mackey somehow implied that he believes in shareholder theory when he said that his business is to maximize the profit (Mackey, 2005). In fact, he puts his customers first because “customer happiness is merely a means to an end: maximizing profits” (Mackey, 2005). We could see that Mackey’s decision in protecting its customers or any stakeholders involved is driven by the motivation to have a maximum profit.
Besides, it is psychologically easy for people to make bad decisions with individuals or groups are perceived as the enemies (Moberg, 2015). According to Moberg, “a final problem that brings out the worst in good people is the very human tendency to morally exclude certain persons”. Mackey perceived Wild Oats as his biggest enemy in the market, thus he excluded Wild Oats in making his decisions. Mackey shifted his attention into having maximum profit for Whole Foods that he simply decided to harm his competitor. Besides, the market is getting more competitive since everyone is interested to change their lifestyle to wholefood. Thus, it is very possible for Mackey to incorporate a bad decision.
On top of that, Mackey was also seduced to continue in making his bad decisions. The readers and public love his blogs, and claimed that the writer of the blog “have special insight into the industry”, motivating him to continue his decision in talking down on Wild Oats with an anonymous identity.
To conclude, I am not surprised with Mackey’s action because he has always shown his motivation towards maximizing profit. It is also likely that Mackey decided to do his actions because of the competitive market. However, as I stated earlier, his intentions of maximizing profit for his own company do not justify his unethical actions that consequently tore down his competitor.