Skip to main content Accessibility help
  • Print publication year: 2017
  • Online publication date: May 2018

Chapter 5 - Managing for Stakeholders in the Digital Age



Learning Objectives

  • • Identify the core principles of stakeholder theory.
  • • Understand why and how stakeholder theory pioneered and developed in the Scandinavian context.
  • • Understand company-stakeholder relationships in the age of technology.
  • • Analyse the Monsanto case study, illustrating the challenges behind managing for stakeholders in the twenty-first century.
  • Introduction

    At the beginning of the 1990s, Jack Smith, the General Motors (GM) CEO, brought Jose Ignacio Lopez, who had previously served as the successful GM head of purchasing in Europe, to purchasing operations at Detroit. The objective was clear: to stop the automaker's losses by cutting costs. Often described as a fanatically dedicated and hard-working manager, Lopez became a GM hero by ripping up long-standing contracts with dedicated suppliers and demanding lower prices. Within his first year in Detroit, Lopez achieved an astounding $1.1 billion of savings in purchasing and identified another $2.4 billion in savings for the next year, which made Jack Smith acknowledge that Lopez had ‘stopped the bleeding’ at GM (Kurylko and Crate, 2006).

    Was Lopez successful in his managerial position with the cost-cutting strategy he was using? For those who consider maximising financial returns as the primary objective of any business, it is only logical to answer ‘yes’. The rationality behind this train of thought runs, generally speaking, in the following way: shareholders own the company and their primary objective is to maximise a company's financial returns within legal boundaries; shareholders hire an executive manager to run the company and serve their interests in the best possible way; the hired executive will be rewarded, both financially and career-wise, based on his/her success in serving shareholders’ interests; thus, keeping shareholders happy, within legal boundaries, is the executive's primary responsibility, and the interests of all other parties in the business are secondary.

    Lopez was certainly successful in keeping his shareholders happy. However, this GM story does not end happily: Lopez's deeds significantly undermined the level of trust between GM and its long-time suppliers. Over time this strategy of constantly squeezing suppliers turned out to be less productive compared to the trusting long-term relationship built by Japanese car producers. The lesson behind the story is self-evident. Maximising immediate profits at the expense of ruining relationships with a stakeholder holds the company back. Lopez's success was more than dubious.