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
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:
Steps of Social Responsibility
• 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
• 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?
• The formal systems of accountability, oversight, and control
– Refers to how closely workplace decisions are aligned with a firm’s stated strategic direction
– Provides a system of checks and balances that limits employees and manages opportunities to deviate
– 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
• 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
– 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
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