Business paper

Stakeholder Theory and Analysis BUS 166, Week 2 Matthew Maguire [email protected] San José State University

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1. What is the purpose of the modern corporation?

2. Stakeholder analysis

3. The corporation’s boundary-spanning departments

4. Stakeholder analysis exercise: Uber’s App-On Gap

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What is the purpose of the modern corporation?

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Differentiating business and society

Business = “any organization that is engaged in making a product or providing a service for a profit” (TEXTBOOK, p. 4)

“Society, in its broadest sense, refers to human beings and to the social structures they collectively create.” (p. 4)

Business is part of an interactive social system (p. 5).

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Differentiating business and society

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What is the purpose of the modern corporation?

Shareholder theory of the firm = “The purpose of the firm is to maximize its long-term market value, that is, to make the most money it can for shareholders who own stock in the company.” (p. 6)

Stakeholder theory of the firm = The purpose of the firm is “to create value for society.” (p. 6)

• “Stakeholder refers to persons and groups that affect, or are affected by, an organization’s decisions, policies, and operations.” (p. 8)

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What is the purpose of the modern corporation?

In August 2019, CEOs from 181 American corporations signed a pledge to “lead their companies for the benefit of all stakeholders.” https://www.businessroundt able.org/business-roundtable-redefines-the -purpose-of-a-corporation-to-promote-an-e conomy-that-serves-all-americans

What do you make of this? Is this meaningful change or just window dressing?

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Three arguments in favor of a stakeholder perspective

1. Descriptive — the stakeholder view is simply a more realistic description of how companies really work.

2. Instrumental — stakeholder management is more effective as a corporate strategy.

3. Normative — stakeholder management is simply the right thing to do.

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Forces that shape the business and society relationship

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Stakeholder analysis

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Identifying and differentiating stakeholders

We identify stakeholders from the point of view of the focal organization:

• Market vs. nonmarket stakeholders — Does the stakeholder engage in economic transactions with the focal organization?

• Market: stockholders, creditors, employees, suppliers, customers.

• Nonmarket: community, government, NGOs, competitors, general public.

• Internal vs. external stakeholders — Is the stakeholder employed by the firm?

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Identifying and differentiating stakeholders

Focal organization

Creditors

Retailers

Suppliers

Customers

Shareholders

Employees

Trade associations

Communities

NGOs

Governments

General public

Competitors

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Four key questions of stakeholder analysis

1. Who are the relevant stakeholders?

2. What are the interests of each stakeholder?

3. What is the power of each stakeholder? • Five kinds of power: voting power, economic power, political power, legal power, and informational power.

4. How are coalitions likely to form?

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Different types of power The stakeholder influences the focal organization...

• by voting on the focal organization’s major decisions (i.e., voting power);

• through economic transactions and decisions (i.e., economic power);

• through legislation, regulations, and protests (i.e., political power);

• through lawsuits (i.e., legal power); and/or

• through the collection and dissemination of valuable data (i.e., informational power).

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Stakeholder salience and mapping

Salient = “stands out from a background, is seen as important, or draws attention” (p. 15)

• Stakeholders stand out (i.e., are salient) to managers when they have power, legitimacy, and urgency.

• Managers can use the salience concept to develop a stakeholder map — a graphical representation of the relationship of stakeholder salience to a particular issue.

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Example: SunCal’s proposed development

SunCal, a real estate developer, proposed to build condominiums outside Disneyland, setting aside 15% of the units for below-market-rate apartments.

• Affordable housing advocates, environmentalists, and some labor unions supported the plan.

• Disney itself strenuously opposed the plan, along with the local chamber of commerce.

• Anaheim’s City Council, which had to approve the plan, was split.

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Example: SunCal’s proposed development

Which stakeholders have the greatest power?

• Affordable housing advocates

• City Council

• Disney

• Environmental groups

• Local businesses

• Unions

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Stakeholder salience and mapping Stakeholder map of SunCal’s proposed development

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The corporation’s boundary-spanning

departments

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The corporation’s boundary-spanning departments

Boundary-spanning departments (shown graphically in the following slide) = “departments or offices within an organization that reach across the dividing line that separates the company from groups and people in society” (p. 19)

• Building positive and mutually beneficial relationships across organizational boundaries is a growing part of management’s role.

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Boundary-spanning departments

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Discussion case: Insuring Uber’s App-On Gap

What happened? — UberX driver kills a 6-year old girl with his car during the “app-on gap.”

• App-on gap = time during which the driver has the Uber application activated but has not yet connected with a passenger

• Susan Bonilla introduces legislation in the CA State Assembly requiring the company to provide insurance during the “app-on gap”.

Should Uber voluntarily extend insurance for drivers to cover the “app-on” gap before the CA State Assembly votes on this bill?

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Discussion case: Insuring Uber’s App-On Gap

1. Who are Uber’s relevant market and nonmarket stakeholders in this situation?

2. What are the various stakeholders’ interests? (Indicate whether or not they support Uber voluntarily extending insurance for drivers to cover the “app-on” gap.)

3. What sources of power do the relevant stakeholders have?

4. Dra t a stakeholder map of this case. What conclusions can you draw from it?

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