Managing for Stakeholders Using Multiple-Criteria Decision-Making Techniques

Abstract

Managing for shareholders means maximising the market value of a company by increasing their returns. Managing for stakeholders means simultaneously creating value for multiple parties, such as employees, government, suppliers, customers, the environment and even society as a whole, which requires a multiple-criteria decision-making approach. This paper develops social indicators to measure the value that a company has distributed to stakeholders since the foundation of the company, and then calculates its relative efficiency using data envelopment analysis (DEA). The accumulated value of the investments made by the shareholders, the subsidies received and the loans borrowed are proposed as inputs. The accumulated value of taxes paid by the company, personnel payments, interest payments to creditors, and purchases from suppliers are proposed as outputs. All values are adjusted for the time value of money at the valuation date. We chose a weighted DEA model because not all stakeholders are worth the same, obtaining the weights from the preferences of social investment experts using a multi-attribute decision-making technique. A practical case is presented, obtaining the relative efficiency of a sample of companies in creating value for five years since their foundation. We found a positive relationship between efficiency in generating value for shareholders and efficiency in generating value for some non-shareholders, although the results are sensitive to the outputs chosen. The proposed method is useful for social investors when they invest or for public administrations when they provide subsidy to entrepreneurs.