The Corporation and The Corporation and Its StakeholdersIts Stakeholders

Business and Society The Stakeholder Theory of the Firm Stakeholder Analysis and Engagement The Dynamic Environment of Business

ChapterChapter

1

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Figure 1.1 Business and society: An interactive systemBusiness and society: An interactive system

Business

Society

Arguments for the stakeholder theory Arguments for the stakeholder theory of the firmof the firm

DescriptiveSays that the stakeholder view is simply a more realistic

description of how companies really work. Instrumental

Says that stakeholder management is more effective as a corporate strategy.

NormativeSays that stakeholder management is simply the right

thing to do.

The Stakeholder ConceptThe Stakeholder Concept

A stakeholder refers to persons or groups that affect, or are affected by, an organization’s decisions, policies, and operations.

Two types of stakeholders Market stakeholders Nonmarket stakeholders

Market StakeholdersMarket Stakeholders

Those that engage in economic transactions with the company as it carries out its primary purpose of providing society with goods and services. Employees Stockholders Customers Suppliers Retailers/Wholesalers Creditors

Market stakeholders of businessMarket stakeholders of business

Business firm

Distributors,Wholesalers,

Retailers

CreditorsCustomers

StockholdersEmployees

Suppliers

Figure 1.2

Nonmarket StakeholdersNonmarket Stakeholders

People or groups who—although they do not engage in direct economic exchange with the firm—are affected by or can affect its actions. Communities Activist Groups Media Business Support Groups Governments The General Public

Nonmarket stakeholders of businessNonmarket stakeholders of business

Business firm

General Public

ActivistGroups

BusinessSupportGroups

GovernmentsCommunities

Media

Figure 1.3

Stakeholder analysis asks four questions:Stakeholder analysis asks four questions:

Who are the relevant stakeholders? What are the interests of each stakeholder? What is the power of each stakeholder? How are coalitions likely to form?

Exhibit 1.Ba

Market stakeholders: Nature of interest

Stakeholder Wishes To:Stakeholder

Employees Maintain stable employment in firmReceive fair pay for workWork in safe, comfortable environment

Stockholders Receive a satisfactory return on investments Realize appreciation in stock value over time

Customers Receive fair exchange: value and quality for money spent

Receive safe, reliable products

Exhibit 1.Bb

Market stakeholders: Nature of interest

Stakeholder Wishes To:Stakeholder

Suppliers Receive regular orders for goodsBe paid promptly for supplies delivered

Retailers/

Wholesalers

Receive quality goods in a timely fashion at reasonable cost

Offer reliable products that consumers trust and value

Creditors Receive repayment of loansCollect debts and interest

Exhibit 1.Bc

Market stakeholders: Nature of power

Stakeholder Influences Company by:Stakeholder

Employees Union bargaining power Work actions or strikes Publicity

Stockholders Exercising voting rights based on share ownership Exercising rights to inspect company books and

records

Customers Purchasing goods from competitors Boycotting companies whose products are

unsatisfactory or whose policies are unacceptable

Exhibit 1.Bd

Market stakeholders: Nature of power

Stakeholder Influences Company by:Stakeholder

Suppliers Refusing to meet orders if conditions of contract are breached

Supplying to competitors

Retailers/

Wholesalers

Buying from other suppliers if terms of contract are unsatisfactory

Boycotting companies whose goods or policies are unsatisfactory

Creditors Calling in loans if payments are not made Utilizing legal authorities to repossess or take over

property if loan payments are severely delinquent

Exhibit 1.Be

Nonmarket stakeholders: Nature of interest

Stakeholder Wishes To:Stakeholder

Communities Employ local residents in the company Ensure that the local environment is protected Ensure that the local area is developed

Activist Groups Monitor company actions and policies to ensure that they conform to legal and ethical standards, and that they protect the public’s safety

Media Keep the public informed on all issues relevant to their health, well-being, and economic status

Monitor company actions

Exhibit 1.Bf

Nonmarket stakeholders: Nature of interest

Stakeholder Wishes to:Stakeholder

Business Support Groups

Provide research and information which will help the company or industry perform in a changing environment

Governments Promote economic development Encourage social improvements Raise revenues through taxes

The General Public

Protect social values Minimize risks Achieve prosperity for society

Exhibit 1.Bg

Nonmarket stakeholders: Nature of power

Stakeholder Influences Company by:Stakeholder

Communities Refusing to extend additional credit Issuing or restricting operating licenses and permits Lobbying government for regulation of the company’s

policies or methods of land use and waste disposal

Activist Groups Gaining broad public support through publicizing the issue

Lobbying government for regulation of the company

Media Publicizing events that affect the public, especially those that have negative effects

Exhibit 1.Bh

Nonmarket stakeholders: Nature of power

Stakeholder Influences Company by:Stakeholder

Business Support Groups

Using its staff and resources to assist company in business endeavors and development efforts

Providing legal or “group” political support beyond that which an individual company can provide for itself

Governments Adopting regulations and laws Issuing licenses and permits Allowing or disallowing industrial activity

The General Public

Supporting activists Pressing government to act Condemning or praising individual companies

Forces that shape the Forces that shape the business and society relationshipbusiness and society relationship

Figure 1.4

Businessand its

Stakeholders

GrowingEmphasis on

Ethical Values

EvolvingGovernmentRegulation

ofBusiness

Globalization

DynamicNatural

Environment

Explosionof New

Technology

ChangingSocietal

Expectations

The relationship of business to its The relationship of business to its stakeholders has changed over time:stakeholders has changed over time:

Inactive

Companies ignore stakeholder concerns. Reactive

Companies act only when forced to do so. Proactive

Companies try to anticipate stakeholder concerns. Interactive

Companies actively engage with stakeholders in an ongoing relationship of mutual respect, openness, and trust.

Inactive Reactive Proactive Interactive