Response to Research from Peer (why or why not should a manager be a stakholder?) John Mureithi

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Chapter 1 The Corpora;on and Its

Stakeholders

§ Understanding the rela1onship between business and society, and how they form an interac1ve system.

§ Considering the purpose of the modern corpora1on. § Knowing what a stakeholder is and who a corpora1on’s market and nonmarket and internal and external stakeholders are.

§ Conduc1ng a stakeholder analysis and understanding the basis of stakeholder interests and power.

§ Recognizing the diverse ways in which modern corpora1ons organize internally to interact with various stakeholders.

§ Analyzing the forces of change that con1nually reshape the business and society rela1onship.

Ch. 1: Key Learning Objec;ves

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Business and society together form an interac;ve social system

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§ Business: organiza1ons engaged in making a product or providing a service for profit.

§ Society: Human beings and the social structures they collec1vely create.

Business and Society: An Interac1ve System

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Figure 1.1

Business and society together form an interac;ve social system

General Systems Theory (GST): § Organisms do not exist in isola1on but can only be understood in rela1onship to their surroundings.

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

Business and society together form an interac;ve social system

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Purpose of Business

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§ What is the purpose of the corpora1on?

§ To whom, or what, should be firm be responsible?

§ 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.

Ownership Theory of the Firm

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§ Corpora1ons serve a broad public purpose: to create value for society.

§ Profit is necessary for survival but other values drive the firm’s purpose.

§ Corpora1ons have mul1ple obliga1ons and need to consider all stakeholders.

Stakeholder Theory of the Firm

Ownership Purpose

ü Owner’s Needs and Wants ü Share Value

Stakeholder Purpose

ü Stakeholders’ Needs and Wants

Ownership theory and stakeholder theory define the purpose of business differently

realistic description of how companies

really work

Stakeholder management is the

right thing to do

stakeholder consideration key for effective corporate

strategy

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Descriptive Normative Instrumental

Three arguments in support of the stakeholder theory of the firm

§ Stakeholders are persons or groups that affect, or are affected by, a firm’s decisions, policies, and opera1ons. § A stake is an interest in–or claim on–a business. § Stakeholder is NOT the same as stockholder (or shareholders). § Stockholders represent one of several kinds of stakeholders.

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Stakeholders

§ 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 ac1ons.

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§  Market stakeholders Shareholders, suppliers, employees, etc. They engage in economic transac1ons with the company as it carries out its primary purpose of providing society with goods and services.

Shareholders

Government Community

Competitors Environment

Two Kinds of Stakeholders: Market and Nonmarket

Government

Society

Suppliers

Managers

Employees

Company

Customers

Shareholders

Creditors

Internal stakeholders work “inside” the firm and contribute their effort and skill to everyday opera1ons.

External stakeholders may have important transac1ons with the firm, but are not on its payroll.

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

Figure 1.2

A Firm and Stakeholders

Stakeholder analysis includes iden;fica;on of relevant stakeholders and analysis of their interests and power

Figure 1.3

§ Draw market and nonmarket stakeholder maps.

§ Recognize not all groups are relevant to every situa1on.

à Examples: § Some businesses sell directly to the public and will not have retailers.

§ A certain stakeholder may not be relevant to a par1cular decision/ac1on.

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Stakeholder Analysis Ques;on 1 Who are the relevant stakeholders?

§ What are the groups’ concerns? § What does the group want/expect from their rela1onship with the firm?

à Examples:

§  Shareholders have an ownership interest; they expect to receive dividends and capital apprecia1on.

§  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 Ques;on 2 What are interests 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:

§  Vo1ng power §  Economic power §  Poli1cal power §  Legal power §  Informa1onal power

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Stakeholder Analysis Ques;on 3 What is the power of each stakeholder?

§ Stakeholder groups oben have common interests and will form temporary alliances to pursue these common interests.

§ Coali1ons are very dynamic (can change at any 1me).

§ Coali1ons are increasing interna1onal.

§ Internet has enabled coali1ons to form quickly, across poli1cal boundaries.

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Stakeholder Analysis Ques;on 4 How are stakeholder coali;ons likely to form?

§ Salient – stands out from a background, is seen as important, or draws acen1on. § Stakeholders stand out (i.e., are salient) to managers when they have power, legi1macy, and urgency. § Managers can use the salience concept to develop a stakeholder map – a graphical representa1on of the rela1onship of stakeholder salience to a par1cular issue.

§ A stakeholder map is a useful tool, because it enables managers to see quickly how stakeholders feel about an issue.

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Stakeholder Salience and Mapping

Figure 1.4

Stakeholder Map

§ Boundary-‐spanning departments (shown graphically in the following slide): departments or offices within an organiza1on that reach across the dividing line that separates the company from groups and people in society.

§ Building posi1ve and mutually beneficial rela1onships across organiza1onal boundaries is a growing part of management’s role.

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The Corpora;on’s Boundary-‐Spanning Departments

The Corpora;on’s Boundary Spanning Departments

Figure 1.5

§ 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 objec1ves.

§ Six dynamic forces powerfully shape the business and society rela1onship: §  Changing societal expecta1ons §  Growing emphasis on ethical reasoning and ac1ons §  Globaliza1on §  Evolving government regula1ons and business response §  Dynamic natural environment §  Explosion of new technology and innova1on

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The External Environment of Business is Dynamic and Ever Changing

Forces That Shape The Business And Society Rela;onship

Figure 1.6