Shareholders’ value maximization and stakeholders’ interest: Is CEO long-term compensation the answer?
The instrumental stakeholder view of the firm (e.g. Freeman, 1984; Jones, 1995; Jones and Wicks, 1999) maintains that stakeholders play a critical role in affecting a firm’s behavior and eventually performance. Beyond providing the firm with the resources it needs, stakeholders are themselves important resources a firm can leverage to build a competitive advantage (Freeman, 1984). Establishing long-term idiosyncratic relationships with its stakeholders may benefit a firm’s efficiency, reputation and ultimately performance (see for instance Jones, 1995). Strong and long-term oriented relationships with suppliers, for instance, will make a firm save on bureaucratic and monitoring costs while boosting cooperation. By managing stakeholder relationships, firms could also develop valuable and difficult to imitate capabilities, which are critical superior resources that can be further exploited in other firm activities and operations (Sharma and Vredenburg, 1998). Thereby, according to this view, managing stakeholders’ interests and expectations is fundamental for the achievement of superior performance.