PowerPoint Presentation

Part One:An Overview of Business EthicsPart One:An Overview of Business Ethics

Part One:An Overview of Business EthicsPart One:An Overview of Business Ethics

Chapter 2:Chapter 2:

Stakeholder Relationships,Social Responsibility, andCorporate GovernanceStakeholder Relationships,Social Responsibility, andCorporate Governance

Chapter 2:Chapter 2:

Stakeholder Relationships,Social Responsibility, andCorporate GovernanceStakeholder Relationships,Social Responsibility, andCorporate Governance

Relationships and BusinessRelationships and Business

Building relationships is one of the mostimportant areas of business today

Strong relationships associated with organizationalsuccess

Stakeholder framework

Helps identify internal and external stakeholders

Helps monitor and respond to needs, values, andexpectations of stakeholder groups

Corporate governance: The formal systemof accountability and control of ethical andsocially responsible behavior

Stakeholders Define Ethical Issuesin BusinessStakeholders Define Ethical Issuesin Business

Stakeholders: Those who have a stake orclaim in some aspect of a company’sproducts, operations, markets, industry, andoutcomes

CustomersInvestors

EmployeesSuppliers

Government agenciesCommunities

Stakeholders can influence and areinfluenced by businesses

Identifying StakeholdersIdentifying Stakeholders

Primary stakeholders: Those whose continuedassociation is necessary for a firm’s survival

Employees, customers, investors, governments, andcommunities

Secondary stakeholders: Are not essential to acompany’s survival

Media, trade associations, and special interestgroups

The Stakeholder Interaction ModelThe Stakeholder Interaction Model

A Stakeholder OrientationA Stakeholder Orientation

The degree to which a firm understandsand addresses stakeholder demands

Three activities

Generation of data about stakeholder groups

Distribution of the information throughout the firm

Organization’s responsiveness to this intelligence

Best Corporate CitizensBest Corporate Citizens

Social ResponsibilitySocial Responsibility

An organization’s obligation to maximize itspositive impact on stakeholders andminimize its negative impact

Four levels of social responsibility

Economic

Legal

Ethical

Philanthropic

The Importance of a StakeholderOrientationThe Importance of a StakeholderOrientation

Social responsibility cannot be reactive

Must be part of business strategy

Is associated with

Increased profits

Increased employee commitment

Greater customer loyalty

Business ethics involves carefully thought-out rules of conduct that guide decisionmaking

The Steps of Social ResponsibilityThe Steps of Social Responsibility

Corporate CitizenshipCorporate Citizenship

The extent to which businesses strategicallymeet their economic, legal, ethical, andphilanthropic responsibilities

Four interrelated dimensions

Strong sustained economic performance

Rigorous compliance

Ethical actions beyond what is legally required

Voluntary contributions to advance reputation andstakeholder commitment

ReputationReputation

Reputation is one of an organization’sgreatest intangible assets with tangiblevalue

Difficult to quantify

Very important

The World’s Most Ethical CompaniesThe World’s Most Ethical Companies

Trader Joe’s

Aflac

Xerox

General Mills

Nike

Best Buy

Dow CorningCorporation

Starbucks

Ford Motor Company

Target

General Electric

Salesforce.com, Inc.

PepsiCo

Barrett JacksonAuction Co.

Whole Foods Market

Patagonia

Source: “2010 World’s Most Ethical Companies,” Ethisphere, Q4, 30–31.

Corporate GovernanceCorporate Governance

Formal systems of accountability, oversight,and control

Accountability

How closely workplace decisions align with a firm’sstrategic direction

Oversight

A system of checks and balances to minimizeopportunities for misconduct

Control

The process of auditing and improvingorganizational decisions and actions

Source: “Corporate Alert: Top 10 Topics for Directors in 2011,” December 6, 2010,http://

Source: “Corporate Alert: Top 10 Topics for Directors in 2011,” December 6, 2010,http://

Corporate Governance TopicsCorporate Governance Topics

Source: www.corpgov.deloitte.com/binary/com.epicentric.contentmanagement.servlet.ContentDeliveryServlet/USEng/Documents/

Board%20Governance/Top%2010%20Topics%20for%20Directors%20in%202011_Akin_120610.pdf

(accessed February 15, 2011).

Corporate Governance ModelsCorporate Governance Models

Shareholder model

Founded in classic economic precepts

The maximization of wealth for investors andowners

Stakeholder model

A broader view of the purpose of business

Includes satisfying concerns of stakeholders

Board of DirectorsBoard of Directors

Holds final responsibility for its firm’ssuccess, failure, and ethicality of actions

Increased demands for accountability/transparency

Trend toward “outside directors” chosen forexpertise, competence, and strategic decisionmaking

Executive compensation is a growing concern

Demands for Accountability andTransparencyDemands for Accountability andTransparency

Stakeholders demand that boards areanswerable for their actions andtransparent

Directors chosen for expertise, competence,and diverse perspectives

Qualified, knowledgeable, unbiased boards canprevent misconduct

Interlocking directorate: Board memberslinked to more than one company

Executive CompensationExecutive Compensation

Many boards spend more time discussingcompensation than ensuring integrity offinancial reporting systems

How closely linked is executive compensationto company performance?

Does performance-linked compensationencourage executives to focus on short-termperformance at the expense of long-termgrowth?

Changes in Corporate GovernanceChanges in Corporate Governance

Implementing a Stakeholder PerspectiveImplementing a Stakeholder Perspective

1.Assessing the corporate culture

2.Identifying stakeholder groups

3.Identifying stakeholder issues

4.Assessing organizational commitment to socialresponsibility

5.Identifying resources and determining urgency

6.Gaining stakeholder feedback