Week 1

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Chapter2.StakeholderRelationshipsSocialResponsibilityandCorporateGovernance.pptx

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Part One An Overview of Business Ethics

Chapter 2 Stakeholder Relationships, Social Responsibility, And Corporate Governance

Learning Objectives (1 of 2)

Identify stakeholders’ roles in business ethics

Define social responsibility

Examine the relationship between stakeholder orientation and social responsibility

Delineate a stakeholder orientation in creating corporate social responsibility

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Learning Objectives (2 of 2)

Explore the role of corporate governance in structuring ethics and social responsibility in business

List the steps involved in implementing a stakeholder perspective in social responsibility and business ethics

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Relationships and Business (1 of 2)

Relationships are associated with both organizational success and misconduct.

Businesses exist because of organizational relationships between employees, customers, shareholders, and the community.

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Relationships and Business (2 of 2)

Stakeholder framework identifies the internal and external stakeholders who agree, collaborate, and engage in confrontations on ethical issues.

Allows organizations to identify, monitor, and respond to the needs and expectations of stakeholder groups.

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Stakeholders Define Ethical Issues in Business (1 of 3)

Approaches to stakeholder theory:

Normative: Identifies ethical guidelines that dictate how firms should treat stakeholders.

Descriptive: Focuses on the firm’s behavior; addresses how decisions are made for stakeholder relationships.

Instrumental: Describes what happens if firms behave in a particular way.

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Stakeholders Define Ethical Issues in Business (2 of 3)

Primary stakeholders

Those whose continued association and resources are absolutely necessary for a firm’s survival (customers, shareholders, employees, suppliers).

Secondary stakeholders

Those who are not typically engaged directly in transactions with a company and are therefore not essential to its survival (government agencies and communities).

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Stakeholders Define Ethical Issues in Business (3 of 3)

Other stakeholders

Others who have a “stake” or claim in some aspect of a company’s products, operations, markets, industry, and outcomes are known as stakeholders.

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Stakeholder Interaction Model

Reciprocal relationships between the firm and a host of stakeholders.

Recognizes other stakeholders; explicitly acknowledges dialogue exists between a firm’s internal and external environments.

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Stakeholder Orientation (1 of 2)

Activities to address stakeholder demands:

Organization-wide generation of data about stakeholder groups and assessment of the firm’s effects on these groups;

Distribution of this information throughout the firm; and

Responsiveness of the organization as a whole to this information.

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Stakeholder Orientation (2 of 2)

Can be viewed as a continuum.

Firms likely to adopt the concept to varying degrees.

To gauge a firm’s stakeholder orientation:

Evaluate the extent the firm adopts behaviors that typify the generation.

An organization may generate and disseminate more intelligence about some stakeholder communities than others.

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Social Responsibility and Business Ethics

Social responsibility: An organization’s obligation to maximize its positive impact on stakeholders and minimize its negative impact.

Four levels of social responsibility:

Economic

Legal

Ethical

Philanthropic

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Corporate Citizenship

The extent to which businesses strategically meet the economic, legal, ethical, and philanthropic responsibilities placed on them by various stakeholders.

Four interrelated dimensions:

Strong sustained economic performance.

Rigorous compliance.

Ethical actions beyond what the law requires.

Voluntary contributions that advance the reputation and stakeholder commitment of the organization.

Reputation is one of an organization’s greatest intangible assets with tangible value.

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Corporate Governance Provides Formalized Responsibility to Stakeholders

The stakeholder model places the board of directors in the position of balancing the interests and conflicts of a company’s various constituencies.

External control of the corporation resides not only with government regulators but also with key stakeholders which exert pressure for responsible conduct.

Social responsibility activities have a positive impact on consumer identification.

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Views of Corporate Governance

Classic agency problem: Ownership (investors) and control (managers) are separate.

Managers act as agents for investors, whose primary goal is increasing the value of the stock.

Investors and managers are distinct parties with unique insights, goals, and values.

Corporate governance mechanisms are needed to align investor and management interests.

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Board of Director Responsibilities (1 of 3)

Greater demands for accountability and transparency. Ensure the corporations are run in an ethical manner.

Duty of loyalty. All decisions should be in the best interests of the corporation.

Knowledge about the investments, business ventures, and stock market information of a company creates issues that could violate their duty of loyalty.

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Board of Director Responsibilities (2 of 3)

Executive compensation. Avoid the opportunity to vote for others’ compensation in return for their own increased compensation.

Organizational ethics. Receive training to increase competency in ethics program development.

Audit committee. Address issues such as whistle-blower claims, cyber security, and bribery.

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Board of Director Responsibilities (3 of 3)

Accountability. Oversight for system of checks and balances that limit employees’ and managers’ opportunities to deviate from policies and strategies aimed at preventing unethical and illegal activities.

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Demand for Accountability and Transparency

Directors chosen for expertise, competence, and ability to bring diverse perspectives.

Outside directors do not have vested interest.

Interlocking directorate: Board members linked to more than one company.

Legal unless it involves a direct competitor.

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Executive Compensation

Compensation paid to top executives of the company.

Ratio of the salaries of the highest-paid executives to the median employee wage should be less.

Stakeholders support high level of compensation only when it is linked to strong company performance.

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Implementing a Stakeholder Perspective (1 of 4)

Step 1: Assessing the Corporate Culture

Identify the organizational mission, values, norms, and behavior likely to have implications for social responsibility.

Step 2: Identifying Stakeholder Groups

Recognize stakeholder needs, wants, and desires.

Step 3: Identifying Stakeholder Issues

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Implementing a Stakeholder Perspective (2 of 4)

Step 4: Assessing Organizational Commitment to Stakeholders and Social Responsibility

Used to evaluate current practices and to select concrete social responsibility initiatives.

Social responsibility disclosures in company annual reports are directly related to the quality of corporate governance.

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Implementing a Stakeholder Perspective (3 of 4)

Step 5: Identifying Resources and Determining Urgency

Two main criteria: Level of financial and organizational investments required by different actions and urgency when prioritizing social responsibility challenges.

When the challenge under consideration is viewed as significant and stakeholder pressures on the issue can be expected, the challenge is considered urgent.

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Implementing a Stakeholder Perspective (4 of 4)

Step 6: Gaining Stakeholder Feedback

General assessment of a firm and its practices can be obtained through satisfaction or reputation surveys.

To gauge stakeholders’ perceptions of a firm’s contributions to specific issues, stakeholder-generated media such as blogs, websites, podcasts, and newsletters can be assessed.

Formal research may be conducted using focus groups, observation, and surveys.

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