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Dr. MatherlyMAN4701STUDY GUIDE 1SPRING 2013Business & SocietyEXAM 1 CHAPTER 1• Stakeholder Theory of the Firm : argues that corporations serve a broad public purpose: to create value for society. If a company did not make a profit for their owners, then it would not continue. • Ownership Theory : also called property or finance theory. The firm is seen as the property for its owners. In this view, owners’ interests are paramount and take precedence over the interests of others. • Market stakeholders : those that engage in economic transactions with the company as it carries out its primary purpose of providing society with goods and services. Market stakeholders are also referred to as primary stakeholders. Market stakeholders include: employees, stockholders, creditors, suppliers, customers, distributors, wholesalers, and retailers. Each relationship is based on a unique transaction, or two-way exchange. • Nonmarket stakeholders : are people and groups who are affected by or can affect its actions although they do not engage in direct economic exchange with the firm. Nonmarket stakeholders are also referred to as secondary stakeholders. Nonmarket stakeholders include: the community, various levels of government, nongovernmental organizations, the media, business support groups, and the general public. • Stakeholder power : the ability to use resources to make an event happen or to secure a desired outcome. There are four types of stakeholder power voting power, economic power, political power, and legal power. o Voting power : the stakeholder has a legitimate right to cast a vote. Stockholders have the opportunity to vote on such major decisions depending on the percentage of the company’s stock they own. o Economic power : customers, suppliers, and retailers have this kind of power in the company. Suppliers can withhold supplies or refuse to fill orders, customers can refuse to buy a company’s product, and employees can refuse to work. Economic power typically depends on how well organized a stakeholder group is. o Political power : is mostly exercised by the government through legislation, regulations, or lawsuits. Stakeholders can act indirectly by urging the government to pass new laws and regulations or directly by protesting a particular public action.Dr. MatherlyMAN4701STUDY GUIDE 1SPRING 2013o Legal power : used when stakeholders bring a suit against a company for damages. Lawsuits can be brought about by customers with defective products, employees for injuries on the job, or by environmentalists. • Salience : to be salient is when something stands out from the background, seen as important, or draws attention. Stakeholders stand out to managers when they have more power, legitimacy, and urgency. o Legitimacy refers to the extent to which a stakeholder’s actions are seen as proper or appropriate by the broader society. o Urgency refers to the time sensitivity of a stakeholders claim. o The more of these attributes a stakeholder possesses, the greater the stakeholder’s salience and the more likely the managers will notice and respond. CHAPTER 2• Public issue : any issue that is of mutual concern to an organization and one or more of its stakeholders, also called social issues or sociopolitical issues. o They are typically broad issues, often impacting many companies and groups, and of concern to a significant number of people. o Public issues are often contentious- different groups may have different opinions about what should be done about them. o They often, but not always, have public policy or legislative implications. • Performance-expectation gap : the perceived distance between what a firms wants to do or is doing and what the stakeholder expects. o Example: IKEA was sourcing products from suppliers using child labor, a practice that offended many of its customers. o Stakeholder’s expectations are a mixture of people’s opinions, attitudes, and beliefs about what constitutes reasonable business behavior. • Issue management process : a five-step process where managers identify the issue, analyze the issue, generate options, take action, and evaluate results. o Issue management : the active management of public issues once they come to the attention of a business organization.  Identify issue : involves anticipating emerging concerns, sometimes called horizon issues. Managers sometimes become aware of these issues by carefully tracking the media, experts’ views, activist opinion, andDr. MatherlyMAN4701STUDY GUIDE 1SPRING 2013legislative developments to identify issues of the public concern. Organizations often use techniques such as, data searching, media analysis, and public surveys to track ideas, themes, and issues that may be relevant.  Analyze the issue : organizations must understand how the issue is likely to evolve, and how it is likely to affect them.  Generate options : generating, evaluating, and selecting possible outcomes. This requires complex judgments that incorporate ethical considerations, the organization’s reputation and good name. Selecting an appropriate response often involves a creative process of considering various alternatives and rigorously testing them to see how they work in the practice.  Take action : once an option has been chosen, the organization must design and implement a plan of action.  Evaluate results : an organization must continue to assess the results and make adjustments if necessary. Issue management is a continuous process, rather than one that comes to a clear conclusion. • Stages in the Business- Stakeholder Relationship : the nature of business’s relationship with its stakeholders often evolves through a series of stages. These stages are characterized as inactive, reactive, proactive, and interactive, with each stage representing a deepening of the relationship. Sometimes, companies’ progress through this sequence from one stage to the next: other companies remain at one stage, or move backward in the sequence. o Inactive : these companies simply ignore stakeholders concerns. These firms believe that they can make decisions unilaterally, without taking into consideration their impact on others. o Reactive : these companies only act when forced to do so, and then in a defensive matter. o Proactive : these companies try to anticipate stakeholder concerns. They often have specialized departments, such as public

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