Stakeholder Relationships,Social Responsibility, andCorporate Governance
C H A P T E R 2
Relationships and Business
•Building relationships is one ofmost important areas in businesstoday
–Can be associated withorganizational success andmisconduct
•Stakeholder framework
–Helps identify internal andexternal stakeholders
–Helps monitor and respond toneeds, values, andexpectations of stakeholdergroups
Source: Stockbyte
What Is a Stakeholder?
•Stakeholders are those who have a stake or claim insome aspect of a company’s products, operations,markets, industry and outcomes
–Customers– Investors
–Employees – Suppliers
–Government agencies– Communities
•Stakeholders can influence and are influenced bybusinesses
Primary vs. Secondary Stakeholders
•Primary stakeholders: Those whose continuedassociation is necessary for a firm’s survival
–Employees, customers, investors, governmentsand communities
•Secondary stakeholders: Are not essential to acompany’s survival
–Media, trade associations, and special interestgroups
The Stakeholder Interaction Model
Stakeholder Orientation
•The degree to which a firm understands andaddresses stakeholder demands
•Three activities:
–Generation of data aboutstakeholder groups
–Distribution of the informationthroughout the firm
–Organization’s responsivenessto this intelligence
Source: Digital Vision
Social Responsibility
•Is an organization’s obligation to maximize its positiveimpact on stakeholders and minimize its negativeimpact
•Four levels of social responsibility:
–Economic
–Legal
–Ethical
–Philanthropic
Source: Nancy Ney
Social Responsibility and theImportance of Stakeholder Orientation
•From a social responsibility perspective, businessethics embodies standards, norms, and expectationsthat reflect concerns of major stakeholders
•Social responsibility is associated with:
–Increased profits
–Increased employee commitment
–Greater customer loyalty
Best and Worst Companies for SocialResponsibility
Social Responsibility and Ethics
•Social responsibility can be viewed as a contractwith society
•Business ethics involves carefully thought-outrules (heuristics) of conduct that guide decisionmaking
The Steps of Social Responsibility
Corporate Citizenship
•The extent to which businesses strategically meettheir economic, legal, ethical, and philanthropicresponsibilities
•Four interrelated dimensions:
–Strong sustained economic performance
–Rigorous compliance
–Ethical actions beyond what is required by the law
–Voluntary contributions that advance reputationand stakeholder commitment
Reputation
•Reputation is one of an organization’sgreatest intangible assets with tangible value
–Difficult to quantify,
but very important
Source: Digital Vision
The World’s Most Ethical Companies
Corporate Governance
•Formal systems of accountability, oversight, andcontrol
•Accountability
–Refers to how closely workplace decisions arealigned with a firm’s stated strategic direction
•Oversight
–Provides a system of checks and balances thatlimits employees and minimizes opportunities formisconduct
•Control
–The process of auditing and improvingorganizational decisions and actions
Common Corporate GovernanceIssues
Corporate 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 a variety ofstakeholders
Boards of Directors
•Hold final responsibility for their firms’success, failure, and ethicality of actions
•Increased demands for accountability/transparency
•Trend toward “outside directors” chosen forexpertise, competence, and strategic decisionmaking
•Executive compensation a large and growingconcern
Executive Compensation
•Many boards spend more time discussingcompensation than ensuring integrity offinancial reporting systems
–How closely linked is executive compensation tocompany performance?
–Does performance-linked compensationencourage executives to focus on short-termperformance at the expense of long-term growth?
Percentage of U.S. Workforce Who FeelExecutive Compensation Is Appropriate,Based on Ethics Cultural Strength
Source: 2009 National Business Ethics Survey, Ethics Resource Center, p. 27
The Reactive-Accommodative-Proactive Scale
Rating
Strategy
Performance
Reactive
DenyResponsibility
Doing less thanrequired
Defensive
Admitresponsibility, butfight it
Doing the leastthat is required
Accommodative
Acceptresponsibility
Doing what isrequired
Proactive
AnticipateResponsibility
Doing more than isrequired
Implementing a StakeholderPerspective
1.Assessing the corporate culture
2.Identifying stakeholder groups
3.Identifying stakeholder issues
4.Assessing organizational commitment tosocial responsibility
5.Identifying resources and determiningurgency
6.Gaining stakeholder feedback