Werder, A. V. (2011). Corporate governance and stakeholder opportunism. Organization Science, 22 (5), 1345-1358.
The article emphasizes the relevance of corporate governance not only organizational management but also the business environment regulation. It provides insight on corporate governance through analyzing the development of the topic in the past decades and elaborately applying the advancements in the subject to explain the concept of stakeholder opportunism. In the principal-agent problem, shareholders are reluctant to fully trust the management due to the opportunist behavior of the administration that in many cases may compromise the interests of the owners. However, the article indicates that similar to the management, many stakeholders in an organization often showcase opportunism. Since different stakeholders exercise some level of opportunist behavior, it is deductible that each stakeholder is at risk of being victims of opportunism. Grounded on the developments in corporate governance that paper showcase the dynamics associated with stakeholder opportunism and illustrates the implication of opportunism to managers and business environment regulators alike.
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The paper applied literature review as a research methodology where the author focused on the identification, analysis, and synthesis of the available and relevant research on the development of corporate governance in the past decade and integrated the results with the dynamics of stakeholder opportunism in the contemporary business environment. Primarily, the article applies other studies as its data. In the first section of the report, the author gives a brief overview of the significant developments in corporate governance as a subject and its practical application in organizations. The article proceeds to discuss stakeholder opportunism and opportunism interdependencies with the intention of eventually integrating the concepts in the findings section. Utilizing literature review as a research methodology emphasizes the application of secondary data in research. Secondary data is essential since it provides both theoretical and empirical analysis of a specific topic. In this particular research, the application of secondary data was fundamentally in pinpointing the developments in corporate governance and eventually provided the basis for the incorporation and evaluation of stakeholder opportunism.
Warden (2011) emphasizes that corporate governance was initially in the domain of economics, finance, and some instances law but over the past decade, the topic has broadened to encompass strategic management and organization theory. The expansion of the application o f corporate governance illustrates a shift from the narrow traditional perspective to a comprehensive and well-rounded approach of organizational governance. Traditionally, corporate governance concentrated on the interaction of the shareholders and management as postulated in the principal-agent problem but currently the idea showcases an inclusive stakeholder approach to the governance of an organization. Moreover, the development in corporate governance illustrates an extension from the traditional emphasis on formal systems to techniques that handle both organizational behaviors as well as provide an in-depth evaluation of the processes in corporations.
The paper describes stakeholder opportunism as a situation where each member of the organization whether the managers or the shareholders are driven by self-interest. As such, opportunist actors intentionally reduce the earnings of others to maximize their benefits. The article borrows from the contractual theory to illustrate opportunist behavior is fueled by the incompleteness of contracts which is often characterized by a lack of sufficient regulations. Werder (2011) insists that it is relevant to different opportunist behavior from unethical and illegal behavior but instead look at the term as the deliberate efforts of opportunist actors to increase their expectations at the expense of others in an organization. While opportunist behavior can, it is not always illegal or unethical. The paper further probes on opportunist interdependencies which illustrate that opportunist option to one stakeholder represents opportunist risks to another. The interdependency reflects the underlying fact that stakeholders of the firm contribute to the value-creating characteristic of the firm.
The findings of the research are categorized in two core aspects including opportunism options and determinants of those options. The author acknowledges the differentiation between and amongst different stakeholder groups reflect different opportunism options. The possibilities include opportunism within stakeholder groups which encompasses conflict of interests that results to opportunist behavior which benefits a particular group while adversely affecting another. Opportunist behavior between stakeholder groups, on the other hand, focuses on the clashing interests of different members of the organization. For instance, the study borrows from the principal-agent problem to indicate shareholders and management often have opposing interests which in many cases affect junior employees and the organization's customers. Werder (Werder, 2011) insists the extent of opportunist behavior is grounded on the legal position of the stakeholder group regarding a particular transaction and the power distribution between and amongst them.
Moreover, the article postulates whether a stakeholder engages in an opportunist behavior depends on both general and situational factors. General factors consist of the legal risk protection of the different stakeholders and the governance system adopted by an organization. Situational factors, on the other hand, are the specific incentive involved in the opportunist act and the actors' psychological dispositions.
The conclusions of the research are grounded in describing the implications of stakeholder opportunism to corporate governance and associated activities. It is evident stakeholder opportunism affects the goal of an organization, the selection of top-systems and persons, the assessment of the structures and the communication dynamics in an organization. The author concludes that it is the responsibility of the management to limit conflicting interests within an organization which resultantly reduces opportunism options. The implication for regulators encompasses the desire and active efforts to adopt and implement regulations related to corporate governance that are intended to minimize opportunist options and risks. The author suggests three main avenues for future research including further analysis of opportunist behavior, opportunities and risks, further assessment of opportunism in corporate governance for both managers and regulators and analysis of existence, extent and aspects of opportunist options and patterns. The paper provides the first conceptual framework for stakeholder opportunism in corporate governance.
