Stakeholder Relationships, Social Responsibility, and Corporate Governance

Stakeholder Relationships, Social Responsibility, and Corporate Governance

Stakeholders Define Ethical Issues in Business

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

–   Customers                                – Investors

–   Employees                              – Suppliers

–   Government agencies                       – Communities

•      Stakeholders provide tangible and intangible resources critical to a firm’s success.

Types of Stakeholders

•      Primary stakeholders are those whose continued association is absolutely necessary for a firm’s survival.

–   Employees, customers, investors, governments and communities

•      Secondary stakeholders do not typically engage in transactions with a company and are therefore not essential to its survival.

–   Media, trade associations, and special interest groups

Interactions Between a Company and Its Primary and Secondary Stakeholders


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

–   Generation of data about stakeholder groups

–   Distribution of the information throughout the firm

–   The responsiveness of every level of this to this intelligence

Stakeholder Issues

Relationship Between
Social Responsibility and Profitability

•       Business ethics comprises principles and standards that guide behavior in business.

•       Social responsibility is an organization’s obligation to maximize its positive impact on stakeholders and minimize its negative impact.

•       Four levels of social responsibility:

–   Economic

–   Legal

–   Ethical

–   Philanthropic

Steps of Social Responsibility

Corporate Citizenship

•      Four interrelated dimensions of corporate citizenship:

–   Strong sustained economic performance

–   Rigorous compliance

–   Ethical actions beyond what is required by the law

–   Voluntary contributions that advance reputation and stakeholder commitment

Corporate Citizenship

•      How does the firm act on its commitment to the corporate citizenship philosophy?  Does it measure the extent to which it follows through by implementing initiatives?

Corporate Governance

•       The formal systems of accountability, oversight, and control

•       Accountability

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

•       Oversight

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

•       Control

–    The process of auditing and improving organizational decisions and actions

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

Corporate Governance

•      Shareholder model

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

•      Stakeholder model

–   Adopts a broader view of the purpose of business that includes satisfying the concerns of other stakeholders, from employees, suppliers, and government regulators to communities and special interest groups

Corporate Governance

•       Fiduciaries

–    Persons placed in positions of trust who use due care and loyalty in acting on the behalf of the best interests of the organization

•       Both directors and officers of corporations are fiduciaries for the shareholders

•       Issues related to corporate boards and directors

–    Accountability

–    Transparency

–    Independence

The Role of Boards of Directors

•      Ultimate responsibility for their firms’ success or failure, as well as for the ethics of their actions

•      Increased demands for accountability and transparency

•      Trend toward “outside directors” chosen for their expertise, competence, and ability to improve strategic decision making

•      Issues of executive compensation

Issues of Executive Compensation

•      Evaluate the extent to which executive compensation is linked to performance.

•      Does performance-linked compensation lead to a short-term focus at the expense of long-term growth?

Implementing a Stakeholder Perspective

•      Step 1: Assessing the corporate culture

•      Step 2: Identifying stakeholder groups

•      Step 3: Identifying stakeholder issues

•      Step 4: Assessing organizational commitment to social responsibility

•      Step 5: Identifying resources and determining urgency

•      Step 6: Gaining stakeholder feedback