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Give an example and explain why stakeholder materiality is importsnt to both the company and its stakeholders.

User Pedrosorio
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Final answer:

Stakeholder materiality is crucial for aligning a company's objectives with the interests of those affected by its operations, such as customers, employees, and communities. It ensures their needs are met, fostering long-term profitability and sustainable business practices. Ignoring stakeholders can lead to misalignment with the market, loss of trust, and poor performance.

Step-by-step explanation:

Stakeholder materiality is a critical aspect of any business operation, emphasizing the importance of considering the interests and impacts of various stakeholders in a company's activities. To illustrate its significance, let's examine the case of a new automobile design. In this scenario, stakeholders such as the consumers who will buy the car, the mechanics who will service it, the Environmental Protection Agency (EPA) monitoring its emissions, and the oil companies providing fuel are all integral to the product's success.

Effective engagement with stakeholders ensures that their needs and concerns are addressed, thus fostering a positive relationship between the company and the various groups affected by its operations.

Highlighting the concept presented by economist Milton Friedman, whereas shareholders primarily focus on financial returns from their investment, the concept of stakeholders extends to anyone influenced by the company's actions, including employees, customers, communities, and more. Ensuring good stakeholder relations can lead to a sustainable business model, as stakeholders can offer valuable feedback, enhance the company's public image, and contribute to long-term profitability and ethical business practices.

Failure to acknowledge stakeholder materiality can result in misalignment with the market and a loss of trust and support, as seen in the mini-case study of the substance abuse prevention program. Without adequate stakeholder engagement, the program suffered from insufficient feedback and poor program implementation. This demonstrates that understanding and addressing the concerns of stakeholders is not just beneficial but crucial for the sustained success of any business venture.

User Richard Dally
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