Managerial Ethics and Social Responsibility-1

Chapter1-TheCorporationandItsStakeholders.pptx

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Chapter 1

The Corporation and Its Stakeholders

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Ch. 1: Key Learning Objectives

1-1 Understanding the relationship between business and society, and how they form an interactive system.

1-2 Considering the purpose of the modern corporation.

1-3 Knowing what a stakeholder is and who a corporation’s market and nonmarket and internal and external stakeholders are.

1-4 Conducting a stakeholder analysis and understanding the basis of stakeholder interests and power.

1-5 Recognizing the diverse ways in which modern corporations organize internally to interact with various stakeholders.

1-6 Analyzing the forces of change that continually reshape the business and society relationship.

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Business and society together form an interactive social system1

Business: organizations engaged in making a product or providing a service for profit.

Society: Human beings and the social structures they collectively create.

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Business and society together form an interactive social system2

Figure 1.1

Business and Society: An Interactive System

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Business and society together form an interactive social system3

General Systems Theory (GST):

Organisms do not exist in isolation but can only be understood in relationship to their surroundings.

Businesses are embedded in a broader social environment with which they constantly interact.

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Purpose of Business

What is the purpose of the corporation?

To whom, or what, should the firm be responsible?

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Shareholder Theory of the Firm1

Sees the firm as property of owners (shareholders).

Owners’ interests take precedence over interests of others.

The purpose of the firm is to maximize its long-term market value and money for its shareholders.

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Stakeholder Theory of the Firm2

Corporations serve a broad public purpose: to create value for society.

Profit is necessary for survival, but is not the only purpose of the firm.

Corporations have multiple obligations and need to consider all stakeholders.

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Shareholder theory and stakeholder theory define the purpose of business differently

Shareholder

Purpose

Owners’Needs and Wants

Share Value

Stakeholder

Purpose

Stakeholders’ Needs and Wants

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Three arguments in support of the stakeholder theory of the firm

Descriptive

realistic description of how companies really work

Normative

Stakeholder management is the right thing to do

Instrumental

stakeholder consideration key for effective corporate strategy

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Stakeholders

Stakeholders are persons or groups that affect, or are affected by, a firm’s decisions, policies, and operations.

A stake is an interest in–or claim on–a business.

Stakeholder is NOT the same as stockholder (or shareholder).

Shareholders are just one of several kinds of stakeholders.

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Two Kinds of Stakeholders: Market and Nonmarket

Market stakeholders

Shareholders, suppliers, employees, etc.

They engage in economic transactions with the company as it carries out its primary purpose of providing society with goods and services.

Shareholders

Nonmarket stakeholders

Community, government, business support groups, etc.

People or groups who—although they do not engage in direct economic exchange with the firm—are affected by or can affect its actions.

Community

Government

Competitors

Environment

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Internal stakeholders are employed by the firm - external stakeholders are not

Internal stakeholders

work “inside” the firm and contribute their effort and skill to everyday operations.

Company

Employees

Managers

External stakeholders

may have important transactions with the firm, but are not on its payroll.

Suppliers

Society

Government

Creditors

Shareholders

Customers

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A Firm and Its Stakeholders

Figure 1.2

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Stakeholder Analysis

From Figure 1.3

Stakeholder analysis includes the identification of relevant stakeholders and an analysis of their interests and power.

Who are the relevant stakeholders?

What are the interests of each stakeholder?

What is the power of each stakeholder?

How are coalitions likely to form?

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Stakeholder Analysis Question 1 Who are the relevant stakeholders?

Draw market and nonmarket stakeholder maps.

Recognize not all groups are relevant to every situation.

 Examples:

Some businesses sell directly to the public and will not have retailers.

A certain stakeholder may not be relevant to a particular decision/action.

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Stakeholder Analysis Question 2 What are the interests of each stakeholder?

What are the groups’ concerns?

What does the group want/expect from their relationship with the firm?

 Examples:

Shareholders have an ownership interest; they expect to receive dividends and capital appreciation.

Customers are interested in gaining fair value and quality in goods and services they purchase.

Public interest groups advance broad social interests.

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Stakeholder Analysis Question 3 What is the power of each stakeholder?

Stakeholder power is the ability of a group to use resources to make an event happen or to secure a desired outcome.

There are 5 types of stakeholder power:

Voting power.

Economic power.

Political power.

Legal power.

Informational power.

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Stakeholder Power Defined

Voting Power

The legal right to cast a shareholder vote.

Economic Power

The ability to grant or withhold transactions with the focal company.

Political Power

Actions taken through legislation, regulations, or lawsuits.

Legal Power

Lawsuits filed against the focal company for harm caused by the firm.

Informational Power

Having access to valuable data, facts, or details.

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Stakeholder Analysis Question 4 How are stakeholder coalitions likely to form?

Stakeholder groups often have common interests and will form temporary alliances to pursue these common interests.

Coalitions are very dynamic (can change at any time).

Coalitions are increasingly international.

Internet has enabled coalitions to form quickly, across political boundaries.

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Stakeholder Mapping

Stakeholder map – a visual representation of the relationships among stakeholder interests, power, and coalitions with respect to a particular issue.

A stakeholder map is a useful tool, because it enables managers to quickly see how stakeholders feel about an issue, how coalitions are likely to form, how powerful these coalitions are, and what outcomes are likely.

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Stakeholder Map of SunCal’s Proposed Development

Figure 1.4

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New figure inserted from screen shot.

Stakeholder Salience

Salient – stands out from a background, is seen as important, or draws attention.

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

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The Corporation’s Boundary-Spanning Departments1

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.

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

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The Corporation’s Boundary Spanning Departments2

Figure 1.5

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The External Environment of Business is Dynamic and Ever Changing

The purpose of the firm is not simply to make a profit, but to create value for all its stakeholders – a successful business must meet both its economic and social objectives.

Six dynamic forces powerfully shape the business and society relationship:

Changing societal expectations.

Growing emphasis on ethical reasoning and actions.

Globalization.

Evolving government regulations and business response.

Dynamic natural environment.

Explosion of new technology and innovation.

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Forces That Shape The Business And Society Relationship

Figure 1.6

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End of Main Content

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Closing slide.

Accessibility Content: Text Alternatives for Images

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Business and society together form an interactive social system2 Text Alternative

The image contains a circle labeled society. Within this circle, there is another small circle positioned at the right bottom corner. This circle is labeled business. Six double-ended arrows arise from this circle. One end of each of the arrows points at the label business, and the other end points at the area within the first circle, which is labeled society.

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A Firm and Its Stakeholders Text Alternative

There are nine circles in this illustration. The largest and most central circle is labeled Business firm.

The remaining circles are labeled as follows:

Nongovernmental organizations.

Governments.

Employees.

Suppliers.

Competitors.

Customers.

Shareholders.

Creditors.

The circle labeled business firm is connected to the following via double-ended arrows:

Employees.

Governments.

Suppliers.

Shareholders.

Creditors.

Customers.

The circle labeled nongovernmental organizations is connected to the following via double-ended arrows:

Employees.

Customers.

Governments.

The circle labeled governments is connected to the following via double-ended arrows:

Nongovernmental organizations.

Business firm.

Competitors.

The circle labeled competitors is connected to the following via double-ended arrows:

Creditors.

Customers.

Governments.

Suppliers.

The circle labeled suppliers is connected to the following via double-ended arrows:

Competitors.

Business firm.

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Stakeholder Map of SunCal’s Proposed Development Text Alternative

The sections are labeled one though four clockwise starting at the upper right. On the vertical axis, it shows various stakeholders’ level of power ranging from high at the top to low on the bottom. The horizontal axis shows their position on the issue of SunCal’s proposed development ranging from Oppose on the left to Support on the right.

In the center of the figure overlapping all sections is a circle labeled City Council.

The lower right section number two contains a dotted oval surrounding three smaller circles labeled Unions, Affordable Housing, and Environmental Groups as well as a portion of City Council. This section represents the coalition in support of the project.

The upper left section number four contains a dotted oval surrounding two smaller circles labeled Disney and Local Businesses as well as a portion of City Council. This section represents the coalition in opposition to the project.

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Under review

The Corporation’s Boundary Spanning Departments2 Text Alternative

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It contains a circle labeled corporation. A bigger circle surrounds this structure. The bigger circle is divided into eight sections. Each section contains some content. In a clockwise manner of appearance, these sections contain data as follows: The content in the section that is labeled customers reads as follows: Customer relations: Customer service. Total quality management. Liability lawsuit defense. Recall management. The content in the section that is labeled community reads as follows: Community relations, corporate citizenship: Corporate philanthropy. Partners with community-based organizations. Volunteerism, employee time contributions. The content in the section that is labeled NGOs, suppliers reads as follows: Corporate relations, corporate citizenship, corporate responsibility, external affairs: Environmental scanning. Stakeholder engagement. Social reporting and auditing. The content in the section that is labeled general public reads as follows: Public relations, media relations, corporate communications: Public relations. Brand management. Image advertising. Crisis management.

The content in the section that is labeled environment reads as follows: Environment, health and safety, sustainability: EPA and state environmental compliance. Internal environmental auditing. Recycling, take-back. The content in the section that is labeled employees reads as follows: Human resources, labor relations: Communications. Union negotiations. OSHA, EEOC, and labor law compliance. Diversity and family–work programs. Healthcare. The content in the section that is labeled government reads as follows: Public affairs, governmental affairs, government relations: Public policy. Lobbying. Political action. Trade associations. Advocacy ads. Grassroots mobilization. The content in the section that is labeled shareholders reads as follows: Shareholder relations, investor relations: External and internal audit. SEC filings, compliance. Communications. Proxy election management.

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Forces That Shape The Business And Society Relationship Text Alternative

It contains a cloud at the center. This cloud is labeled business and its stakeholders. There are six arrows pointing at this cloud.

In a clockwise manner of appearance, these arrows are labeled as follows:

Evolving government regulation of business.

Globalization.

Explosion of new technology.

Dynamic natural environment.

Changing societal expectations.

Growing emphasis on ethical values.

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