Chapter 1 The Corporation and Its Stakeholders Introduction The Business and Society Relationship o Business and society are highly interdependent o The General Systems Theory in biology talks about how we can t fully understand an organism without looking at its relationship with society This applies to the relationship between business and society because companies are embedded in a broader social environment Two critical questions o What is the purpose of the modern corporation o To whom or what should the firm be responsible Two contrasting views o Ownership Theory of the Firm also called property or finance theory The firm is seen as the property of its owners shareholders This theory argues that the most important thing is the owners interests and they should take precedence over the interests of others It also argues that the purpose of the firm is to maximize its long term market value which means to make the most money for the shareholders o stakeholder theory of the firm This argues that the corporation serves a broader purpose to create value for society The company must make profit for owners to survive however the company creates other kinds of value too Corporations have multiple obligations all stakeholder groups must be taken into account Core arguments for stakeholder theory of the firm o Descriptive More realistic description of how companies really work o Instrumental More effective corporate strategy o Normative Stakeholder management is the right thing to do The stakeholder concept o A stakeholder refers to persons or groups that affect or are affected by an organization s decisions policies and operations A stake is an interest in or a claim on a business enterprise Stakeholders and stockholders are not the same thing but a stockholder is a type of stakeholder Businesses are embedded in networks that involve many groups with different kinds of stakes o Market stakeholders stakeholders that have economic transactions with the company as it carries out its primary purpose of providing the society with goods and services o Nonmarket stakeholders these people groups don t directly have economic exchanges with the company but are still affected by or still affect the company s actions Different kinds of stakeholders Further distinction o Internal stakeholders employed by the firm like employees and managers Considered inside because they contribute effort and skill to the firm usually at the company worksite o External stakeholders are not directly employed by the firm even though they might have important transactions with them Internal Stakeholders External Stakeholders Market Stakeholders Employees managers Stockholders customers creditors suppliers wholesalers retailers etc Nonmarket Stakeholders n a Governments communities nongovernmental organizations business support groups media competitors etc Stakeholder analysis o This is the process where you identify who is a relevant stakeholder and analyze their interest and power this process is part of every manager s job o Asks 4 questions Who are the relevant stakeholders A good way to answer this is to draw market and nonmarket stakeholder maps Recognize that not all of groups are relevant to every situation For example some businesses may sell directly to the public so they won t have retailers A certain type group of stakeholder may not be relevant to a particular decision action What are the interests of each stakeholder Analyzing stakeholder interests includes addressing o What are the groups concerns o What does the group want expect from their relationship with the firm Examples o Stockholders have an ownership interest they expect to receive dividends and capital appreciation o Customers are interested in gaining fair value and quality in goods and services they purchase o Public interest groups advance broad social interests What is the power of each stakeholder Stakeholder power is the ability of a group to use resources to make an event happen or to secure a desired outcome There are 4 types of stakeholder power o Voting power economic power political power legal power How are coalitions likely to form informational power Stakeholder groups often have common interests and will form temporary alliances to pursue these common interests They are very dynamic they can change at any time and coalitions are increasingly international Internet has enabled coalitions to form quickly across political boundaries International alliances coupled with media interest can be a very powerful strategic force for companies Stakeholder salience and mapping o Salient stands out from a background is seen as important or draws attention Stakeholders stand out i e are salient to managers when they have power legitimacy and urgency o Managers can use the salience concept to develop a stakeholder map a graphical representation of the relationship of stakeholder salience to a particular issue This can be a useful tool because it enables managers to see quickly how stakeholders feel about an issue The corporation s boundary spanning departments o Boundary spanning departments departments or offices within an organization that reach across the dividing line that separates the company from groups and people in society o Building positive and mutually beneficial relationships across organizational boundaries is a growing part of management s role The dynamic environment of business o The external environment of business is dynamic and ever changing o The purpose of the firm is not simply to make a profit but to create value for all its stakeholders a successful business must meet both its economic and social objectives o Six dynamic forces powerfully shape the business and society relationship Changing societal expectations Growing emphasis on ethical reasoning and actions Globalization Dynamic natural environment Explosion of new technology and innovation Evolving government regulations and business response Chapter 2 Managing Public Issues and Stakeholder Relationships Public issues its stakeholders o Public issue any issue that is of mutual concern to an organization and one or more of o Stakeholder expectations a mixture of people s opinions attitudes and beliefs about what constitutes reasonable business behavior Public issues performance expectations gap o This gap is the discrepancy between what stakeholders expect and what an organization is actually doing It s important to identify emergent expectations as soon as