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Managing Stakeholders

Organizational Stakeholders
 Stakeholders
 People having an interest, claim or stake in an
organization, in what it does and in how well it performs
 Internal (Inside) Stakeholders: Shareholders/ Managers/
Workforce
 External (Outside) Stakeholders: Customers/ Suppliers/
Government/ Unions/ Community/ General Public
 Inducements
 Rewards such as money, power, and organizational
status
 Contributions
 The skills, knowledge, and expertise that organizations
require of their members during task performance
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Inducements and Contributions of
Organizational Stakeholders

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Satisfying Stakeholders Goals and
Interests
 An organization is viable as long as a dominant coalition of
stakeholders has control over sufficient inducements so that
it can obtain the contributions it needs from other
stakeholder groups

 Problems that an organization faces as it tries to win


stakeholders’ approval include:
 Choosing which stakeholder goals to satisfy;
 Is maximizing shareholder wealth always management’s primary
goal?
 Deciding how to allocate organizational rewards to
different stakeholder groups;
 Balancing short-term and long-term goals

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Top Management Hierarchy
Ownership
(Shareholders)

Trusteeship
(Board of Directors)

Corporate Management
(CEO / COO / EVPs / SVPs / VPs etc.)

Divisional Management
(GMs / DGMs etc.)

Functional Management
(Functional Managers)

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Agency Problem
 An agency relation arises when one entity (the
principal) delegates decision making authority or
control over resources to another entity (the
agent)
 In delegating authority to managers, an agency
problem- a problem in determining managerial
accountability – arises, because:
 By definition managers are the experts
 Results of managers’ performance can be evaluated
after considerable time has lapsed
 Principals (shareholders) are at an information
disadvantage compared with agents (managers)
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Moral Hazard Problem
 When principal finds it difficult to evaluate
how well the agent has performed
because the agent possesses an
information advantage; and

 When the agent has an incentive to


pursue goals and objectives that are
different from the principal’s, a moral
hazard problem arises

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Solving the Agency Problem
 By using governance mechanisms i.e.
forms of control that align the interests of
principal and agent so both entities have
the incentive to work together to
maximize organizational effectiveness

 Stock-based Compensations

 Promotion Tournaments and Career Paths


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