Chapter 2

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Chapter 2

Stakeholder Relationships,Social Responsibility, andCorporate Governance

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Stakeholders Define EthicalIssues in Business

Stakeholders are those who have a stake orclaim in some aspect of a company’s products,operations, markets, industry and outcomes:

–Customers– Investors

–Employees – Suppliers

–Government agencies – Communities

Stakeholders provide tangible and intangibleresources critical to a firm’s success.

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Types of Stakeholders

Primary stakeholders are those whose continuedassociation is absolutely necessary for a firm’ssurvival.

–Employees, customers, investors, governments andcommunities

Secondary stakeholders do not typically engagein transactions with a company and are thereforenot essential to its survival.

–Media, trade associations, and special interestgroups

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Interactions Between a Company and ItsPrimary and Secondary Stakeholders

Source: Adapted from Isabelle Maignan, O.C. Ferrell, and Linda Ferrell, “A Stakeholder Model for ImplementingSocial Responsibility in Marketing,” European Journal of Marketing 39 (2005): 956-977. Used with permission.

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Stakeholders

Stakeholder orientation is the degree to which a firmunderstands and addresses stakeholder demands.Involves three activities:

–Generation of data about stakeholder groups to identify whichis relevant to firm

–Distribution of the information throughout the firm byemployees& managers

–The responsiveness of every level of this to this intelligencehelps the firm to impact positively on stakeholders

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Relationship Between Social Responsibility and Profitability

Business ethics comprises principles and standards thatguide behavior in business.

Social responsibility is an organization’s obligation tomaximize its positive impact on stakeholders andminimize its negative impact.

Four levels of social responsibility:

–Economic

–Legal

–Ethical

–Philanthropic

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Steps of Social Responsibility

Source: Adapted from Archie B. Carroll, “The Pyramid of Corporate Social Responsibility,” Business Horizons (July-August 1991): 42, Figure 3

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Corporate Citizenship

Four interrelated dimensions of corporatecitizenship:

–Strong sustained economic performance

–Rigorous (strict) compliance (conformity)

–Ethical actions beyond what is required by the law

–Voluntary contributions that advance reputation andstakeholder commitment

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Corporate Citizenship

How does the firm act on its commitment to thecorporate citizenship philosophy? Does itmeasure the extent to which it follows through byimplementing initiatives?

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Corporate Governance

The formal systems of accountability, supervising, andcontrol

Accountability

–Refers to how closely workplace decisions are aligned with afirm’s stated strategic direction

Oversight, (supervising)

–Provides a system of checks and balances that limitsemployees and manages opportunities to deviate

Control

–The process of auditing and improving organizationaldecisions and actions

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Corporate Governance Issues

Shareholder rights

Risk management

Executive compensation

Auditing and control

Board of directors composition

CEO selection and termination decisions

Integrity of financial reporting

Shareholder participation and input level

Compliance with corporate governance reform

CEO’s role in board decisions

Organizational ethics programs

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Corporate Governance

Shareholder model

–Founded in classic economic precepts, including themaximization of wealth for investors and owners

Stakeholder model

–Adopts a broader view of the purpose of businessthat includes satisfying the concerns of otherstakeholders, from employees, suppliers, andgovernment regulators to communities and specialinterest groups