Dr Matherly MAN4701 STUDY GUIDE 1 SPRING 2013 Business Society EXAM 1 CHAPTER 1 Stakeholder Theory of the Firm purpose to create value for society If a company did not make a profit for their owners then it would not continue argues that corporations serve a broad public Ownership Theory property for its owners In this view owners interests are paramount and take precedence over the interests of others also called property or finance theory The firm is seen as the 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 Matherly MAN4701 STUDY GUIDE 1 SPRING 2013 o 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 its stakeholders also called social issues or sociopolitical issues any issue that is of mutual concern to an organization and one or more of 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 do or is doing and what the stakeholder expects the perceived distance between what a firms wants to 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 analyze the issue generate options take action and evaluate results a five step process where managers identify the issue o Issue management the attention of a business organization the active management of public issues once they come to involves anticipating emerging concerns sometimes called Identify issue horizon issues Managers sometimes become aware of these issues by carefully tracking the media experts views activist opinion and Dr Matherly MAN4701 STUDY GUIDE 1 SPRING 2013 legislative 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 to evolve and how it is likely to affect them organizations must understand how the issue is likely 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 design and implement a plan of action once an option has been chosen the organization must 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 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 the nature of business s 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 defensive matter these companies only act when forced to do so and then in a o Proactive these companies try to anticipate stakeholder concerns They often have specialized departments such as public affairs community relations consumer affairs and government relations to manage stakeholder relationships These firms are much less likely to be blind sided by crises and negative surprises However concerns are still a problem to be managed than a competitive advantage o Interactive these