GBE Quiz 4

Two Perspectives on Stakeholders

broad, narrow

Stakeholder Salience

degree to which managers give priority to competing stakeholder claims

Descriptive

"actually treats" a. focuses on the actual behavior of a firm b. addresses how strategies and decisions regarding stakeholder relationships are made

Philanthropic

"giving back" to society via voluntary contributions that advance the reputation of and stakeholder commitment to an organization

Normative

"normal" a. sets forth ethical guidelines that dictate how firms should treat stakeholders

Legitimacy

1. "a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions" 2. Sources of ______ a. Risk -- parties at risk can make legitimate claims on an organization b. Law -- parties can make legitimate claims based on contracts, property rights c. Ethics/morals -- parties can make legitimate claims for action(s) believed to be morally "right" 3. Here again, the _____that stakeholders possess and their willingness to advance claims vary over time

Recall that stakeholders can ...

1. ... agree or disagree on how management should handle social issues and 2. work with or against each other to influence firm's response to these issues

Stakeholder Relationships

1. All business outcomes - both success and misconduct - are rooted in relationships 2. Organizations have relationships with internal and external stakeholders a. internal b. external

Corporate Social Responsibility (CSR)

1. An organization's obligation to maximize its positive impact on stakeholders, and minimize its negative impact 2. Thus, ______ is defined in terms of stakeholders' interests

Broad view

1. Based on empirical reality that organizations can affect, or be affected by, almost any person or entity a. Organizations affect stakeholders by exercising power over them b. Organizations are affected by stakeholders exercising power over the organization 2. These parties may or may not have "legitimate" stakes in an organization; however, they can affect or be affected by an organization, and thereby are able to impact the legitimate claims of others

Narrow view

1. Based on practical reality that managers have limited resources - time, attention, patience - to expend towards addressing external constraints 2. Objective is to narrow the number of stakeholders managers should attend to by identifying those parties with truly legitimate interests in an organization 3. Legitimacy defined as a. Core to an organization's economic interests b. Morally right

Conclusions based on Stakeholder Identification Theory

1. Both power and legitimacy are important in identifying stakeholders that managers should attend to 2. Also need to consider third attribute of urgency 3. Resultant model is: a. Normative --indicates stakeholders managers should attend to b. Descriptive -- indicates stakeholders managers actually do attend to c. Dynamic -- a. stakeholders display different levels of power, legitimacy, and urgency over time b. therefore, the stakeholders that mangers should/do attend to also change over time

Stakeholder Orientation (strong vs weak)

1. Degree to which firm management understands and addresses stakeholder interests 2. Reflected in organization's activities: a. Organization-wide generation of data about different stakeholder's interests and assessment of how firm's actions effect these groups b. Distribution of generated data throughout the firm c. Coordinated response of an organization as a whole to information gleaned from data

Assumptions underlying dynamic model of Stakeholder Salience

1. Managers who wish to achieve certain objectives will pay different kinds of attention to various classes of stakeholders 2. Managers' perceptions dictate which stakeholders they pay attention to . 3. Managers can distinguish among different stakeholders based on attributes of power, legitimacy, and urgency that managers perceive different parties to possess

Stakeholder's Role in Business Ethics

1. Organizations must identify, monitor, and respond to the (values-based) needs and expectations of stakeholder groups 2. Stakeholders can agree or disagree on how management should handle ethical issues facing an organization 3. Stakeholders can work with or against each other to influence firm's response to ethical issues

What is a Stakeholder?

1. People who have a stake or claim in some aspect of a company's operations, markets, and industry 2. "A ____ in an organization is (by definition) any group or individual who can affect or is affected by the achievement of the organization's objectives" 3. Managers must identify, monitor, and respond to the needs and expectations of stakeholder groups

Dangerous -- Typology segment 5

1. Stakeholders ... a. have an urgent claim and the power to enforce it, ... b. ... but no legitimacy 2. Labeled "_____" in that they are likely to be coercive and possibly violent 3. Examples a. Employment -- wildcat strikes, employee sabotage b. Society -- environmental, political, & religious terrorism (e.g., bombings, shootings, kidnappings)

Dependent -- Typology segment 6

1. Stakeholders ... a. have urgent, legitimate claims, ... b. ... but lack power to influence a firm 2. Labeled "_____" because these stakeholders depend upon other stakeholders or firm's management for power necessary to carry out their will 3. Examples -- local residents, marine mammals and birds, and entire ecosystem were dependent stakeholders after the Exxon Valdez oil spill in Prince William sound

Demanding -- Typology segment 3

1. Stakeholders ... a. possess an urgent claim, ... b. ... but have no power to influence the organization nor legitimacy 2. _______ stakeholders are bothersome but do not warrant more than passing management attention 3. Example -- lone individual picketing outside Monsanto headquarters claiming the end of the world is coming due to Monsanto chemicals

Discretionary -- Typology segment 2

1. Stakeholders ... a. possess legitimate relationship with an organization, ... b. ... but they have no power to influence the firm and no urgent claims 2. There is no pressure on managers to engage in an active relationship with ______ stakeholders, although managers can choose to do so 3. Examples a. Beneficiaries of take a taxi program, in which the Fingerhut company picks up the tab for anyone who feels they have consumed too much alcohol to drive b. Nonprofit organization such as schools and soup kitchens who receive donations and volunteer labor from companies such as Timberland and Levi-Strauss

Dominant -- Typology segment 4

1. Stakeholders ... a. possess power and legitimacy b. ... but have no urgent claim 2. Labeled "_____" in deference to the legitimate claims they have upon the firm and their ability to act on the claims 3. ______ stakeholders often ... a. have mechanisms in place that acknowledge their importance to the firm (e.g., Investor Relations offices, Human Resource Management departments, and Public Affairs offices) b. are recipients of organizational reports and communications (e.g., annual reports, accounting statements, environmental & social responsibility reports) 4. Examples -- owners, investors, employees, suppliers, government 5. Managers pay A LOT of attention to ______ stakeholders

Dormant -- Typology segment 1

1. Stakeholders ... a. possess power to influence organization, ... b. ... but with no legitimate relationship or urgent claim, stakeholders choose to not exercise their power 2. _____ stakeholders have little or no interaction with the firm

Stakeholder Attributes

1. Three attributes -- Power, Legitimacy, Urgency 2. Recall that all attributes share three characteristics a. Attributes are socially constructed ideas, not objective reality b. Attributes vary over time; they are not steady states c. Stakeholders 1. may or may not be aware that they possess a particular attribute 2. may or may not be willing to exercise (i.e., act on) an attribute they understand they possess

Definitive -- Typology segment 7

1. When Expectant stakeholders acquire 3rd, missing attribute, they become ______ stakeholders a. Most commonly occurs when Dominant stakeholders (with power & legitimacy) take up an urgent claim b. Examples -- GM, IBM, Kodak shareholders rose up to fire top managers when stock prices plummeted in 1993 and management response was deemed insufficient

Power

1. ability to get others to do what they would not otherwise do 2. Types of ______ a. Coercive 1. Ability to restrain or cause physical harm to a body 2. Derived from stakeholders' use of force or violence b. Utilitarian 1. Ability to provide material or financial resources 2. Material resources = goods and services 3. Derived from stakeholders' ability to provide necessary resources c. Normative 1. Ability to promote compliance (commitment?) to norms and values without resorting to coercive threat or utilitarian exchange 2. Derived from stakeholders' holding "the high moral ground" 3. Remember that the type(s) of _____ stakeholders possess and their willingness to exercise their _____ vary over time

Power, Legitimacy, and Urgency share three characteristics

1. attributes are socially constructed, not objective reality 2. attributes vary over time; they are not steady states 3. Stakeholders ... a. may or may not be aware that they possess a particular attribute b. if so, they may or may not be willing to exercise (i.e., act on) the attribute

Current CSR issues:

1. corporate governance 2. consumer protection 3. environmental sustainability 4. social issues

Corporate Citizenship

1. degree to which organizations strategically meet the economic, legal, ethical, and philanthropic responsibilities placed on them by their stakeholders 2. stakeholders will seek to drive organizations to progressively higher steps of corporate social responsibility within each issue of interest

Urgency

1. degree to which stakeholder claims call for immediate response 2. _____ is generated only when high degrees of two conditions are present: a. Time sensitivity -- degree to which managerial delay in attending to the claim is unacceptable to a stakeholder b. Criticality -- degree to which stakeholder deems claim to be important 3. As with other two attributes, the ____ with which stakeholders believe their claims should be settled varies over time

Corporate Governance

1. shareholder rights, board composition, board & executive compensation, financial oversight, risk management 2. overarching question Þ whose interests to focus on? a. Shareholder model 1. Objective is to maximize wealth for owners and investors 2. Focuses on formal processes shareholders can use to ensure top management is accountable to the shareholders' interests b. Stakeholder model 1. Premise is that a company is answerable to all important stakeholders, not just shareholders 2. Promotes stakeholder welfare along with corporate needs and interests perspective

Conclusions about Stakeholder Attributes

1. stakeholders display different levels of power, legitimacy, and urgency over time 2. therefore, the stakeholders that mangers should/do attend to also change over time

Latent Types

Dormant, Discretionary, Demanding

Levels of Corporate Social Responsibility

Economic, Legal, Ethical, and Philanthropic

Stakeholder Identification Theory

In order to effectively manage stakeholders, managers must: 1. Identify stakeholders that managers should attend to a. Relevant attributes -- Power, Legitimacy, Urgency b. All attributes share three characteristics 2. Determine which stakeholders, managers actually do attend to a. depends on # of attributes stakeholders have b. stakeholders can be Latent, Expectant, Definitive

Corporate Social Responsibility & Corporate Citizenship

Management addresses social issues by examining different stakeholder groups to which organization has an obligation

Approaches to Understanding Stakeholders

Normative, Descriptive, and Instrumental

CSR relationship to business ethics

a. CSR can be viewed as an organization's overarching contract with society b. Business ethics speaks to rules or heuristics of business conduct related to resolving ethical issues

Ethical

a. consistent adherence to standards of acceptable behavior as dictated by stakeholders, beyond what legal compliance requires

Instrumental

a. describes what happens if a firm behaves in a particular way b. if x, then y

Consumer Protection

advertising, disclosure, product/service safety, financial practices

Environmental Sustainability

global warning, air pollution, water pollution, loss of habitat, big agriculture

Various classes of stakeholders depend on the number of attributes each holds

latent, expectant, definitive

internal stakeholders

private owners, executives, managers, employees

Legal

rigorous compliance with relevant government laws & regulations

external stakeholders

shareholders, consumers, suppliers, government, community

definitive

stakeholders possess all three attributes

latent

stakeholders possess only a single attribute

expectant

stakeholders possess two of three attributes

Economic

strong, sustained economic performance that maximizes shareholder wealth

Managers pay the most attention to stakeholder classes that display a greater number of attributes (T/F?)

true

Social Issues

unemployment, health issues, gun rights/safety, poverty, privacy issues