Basedon the precepts of stakeholders theory corporate decision making mustincorporate the interest of various groups because an organizationhas relationship with diverse constituents groups, and as such mustcontinuously support and engender these groups by balancing andconsidering their relevant interest. Corporate executives’ must paysimultaneous attention to the legitimate interest of all appropriatestakeholders, both in operations policies and organizationalstructures, and in case-by-case decision-making. Balancingstakeholders’ interest is a process of evaluating, appraising andaddressing the competing claims of individuals who have a stake inthe actions of the firms (Reynolds, Schultz & Hekman, 2006). Theneed to balance stakeholders’ interest is the key factors thatconstrain the decision made by a manager.
Itis evident that the anatomy of any business organization is itsculture, which dictates how business functions are conducted onday-to –today basis. Organizational culture can significantlyinfluence the potential for success or failure. In this respect, theability of the organization and executives to handle change andsupport innovation has immense bearing on the success of the firm. Afirm`s success is pegged on the goals, personalities and talents ofdifferent individuals (Reynolds, Schultz & Hekman, 2006). Thismeans that success is strongly enshrined in the present by theassessment of the attitudes and policies that come with that success.Provide the behavior and environment remain constant the stability ofthe organization is shaped by these policies and beliefs. As timepasses, certain attitudes become firmly entrenched in a system ofhabits, beliefs, inhibitions and traditions that make a distinctculture of an organization.
Incorporate leadership, there are organization culture fronts numerousconundrums. The extent to which an organization invests in status quois always huge and this means changes in strategy and policies arenot only viewed as intrinsically threatening, but they also generatea series of adjustment in values, hierarchy pattern, and objectives.Changing an organization entails the risk ofchanging policies which is applied in decision making process in thefuture. To be compelling the policies ought to be pegged on certainassumptions about the competition and conditions in the future(Freeman, 2010). The underlying conditionsare pegged on other assumptions. At a particular juncture therequired information becomes so conditional and problematical thatany further analysis is intuitive and unrewarding. This equation canbecome more complex if the desired change will entail change inorganization structure.
Businessorganizations operate in diverse environments, and it is imperativeto evaluate how different conditions shape and influence theirstructure and operations. In the business world that is rife withcompetition and sudden changes efficient and effective organizing isparamount. Contingency theory indicates that for any organization toovercome various challenges in its operations they must adopt astructure appropriate for the environment in which they operate(Freeman, 2010). There are two types oftheories that fall under the umbrella of contingency theory,leadership theory and theory of organizational structure. The twotheories belong to a category of behavioral management theories thatstate that there exist no specific way in which executives canorganize a firm and its structure (Freeman, 2010).The most suitable organizational structure and leadership style thatfits best in a given circumstance and environment should be adopted.
Inthis vein the most suitable way to organize a firm is hinged n theinternal and external environment. Critical external elements such ascompetitors, labor market, ecological issues, technologies,availability and cost of capital, and executive assumptions aboutstrategies and employee all determine the success of a firm. In orderto succeed business organizations must operate as open systems, withcareful management to balance both external and internal needs andadapt to the prevailing environmental conditions (Freeman,2010). Managers should be aware that different managementapproaches may be necessary to accomplish various tasks within thecompany.
Theagency theory indicates that due to the notion of informationasymmetries and aspects of self-interest, business owners andstakeholders (principals) can not have adequate reason to trustbusiness executives and managers (agents) (Freeman,2010). In this light, principals seek to redress these issuesby formulating a mechanism to align the interest of the agent withtheir interest to lessen the scope of opportunistic behavior andmagnitude of information asymmetries.
Basedon the agency model, managers are likely to pursue different motivesfrom those of the business owners. Managers and other businessexecutives may be influenced by other agents that are not directlyrelevant to the stakeholders. For instance, there is a propensity formanagers to be more optimistic about the economic performance of thecompany or their performance under an agreement that the realitywould indicate. In pursuit of certain business goals managers mightalso be more risk averse than stakeholders. As a consequence of thesedivergent interests, managers may have an incentive to distort theactual state of affairs and bias information flow ((Freeman,2010). In most case managers may also be in possession thatthe stakeholders and business owners do not have access to and assuch principals can not trust them entirely.
Adetule,J. (2011). Handbookon management theories.Bloomington: Author House.
Freeman,R. E. (2010). StakeholderTheory.Cambridge University Press.
Reynolds,J.S.,Schultz,C.Fand Hekman,R.D. (2006). Stakeholder Theory and ManegerialDecision-Making: Constraints and mplications of BalancingStakeholders Interests. Journalof Business Ethics, 64: 285-301.