As stewards of the shareholder’s investment, directors have a fiduciary duty to safeguard their investment in the business and to work to maintain and increase the wealth of the shareholder. This is the traditional or stockholder view, but a more considerate approach states that companies should not have a limited view; rather they should have an extended view with regard to the whole society. The stakeholder view states that that as an organization is so powerful, socially, politically and economically, unrestrained and injudicious use of their power will eventually lead to the infringement of the rights of other people. The stakeholder theory thus proposes corporate accountability, not just to the shareholders, but to the stakeholders of the company as well.
A stakeholder is an entity that can affect, or be affected by the achievement of an organization’s objectives. But, there is considerable dispute about who should be considered to be a stakeholder, and thus, have a legitimate claim on the company and its activities. The way an organization deals with stakeholders, and their stakeholder perspective (the legitimacy of stakeholder claims) depends on the moral, ethical and political standpoint of the organization and on the level of influence and power a stakeholder has on the organization.
One way of analyzing the importance of stakeholders to an organization is through the Mendelow’s matrix. Mendelow classified stakeholders on a grid whose axes are the power to influence and the interest in the organizations activities. These factors help to identify the relationship between a company and its stakeholders and the potential approach of the organization to stakeholder concerns.
According to the Mendelow’s matrix, the stakeholders in grid A are those who have low levels of interest in the organization’s operations and only a limited power to influence the organizations activities. These people, thus, require only minimal effort by the organization. For most general organizations, customers can be identified as low power, low interest stakeholders. Customers anyway have a low power against a company, unless and otherwise they are organized against the company. Also customers will be rather less interested in the activities of the company as long as they receive their good or service from the company.
Grid B, however, is populated by individuals with a high level of interest but a low level of power over the organization. These stakeholders do not have the ability to influence an organizations strategy, but they may lobby and influence the views of other, more powerful stakeholders, and, so the organization has to, at the very least keep them well informed. Employees of an organization can be fit into this description. Employees will be constantly worried about their job security, their pay, promotions etc. So that means they have a high interest towards the business. But being employees, they possess low power to influence any business activity of the organization.
Alternatively, stakeholders in grid C have a high degree of power to influence strategy, but only low levels of interest in organizational activities, therefore, these stakeholders must be treated with caution, as they may develop an interest in the organization, thus making them important to organizational strategy and success. These stakeholders, should, thus be kept satisfied. The Government towards a normal business organization may have this kind of relationship. A government will only meddle with the business activities only when necessary.
Grid D, on the other hand, represents stakeholders with a high interest in organizational activities and a high degree of power to influence operations. These are, thus, the key players, and the organization’s strategy must be at least acceptable to them. The business should pay a very close attention to the needs of these stakeholders because their withdrawal from the business could mean trouble. High power high interest stakeholders are usually main shareholders of the company, main investors of the company, government authorities etc.