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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
McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
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