Business Ethics: Ethical Decision Making and Cases: Chapter 2: Stakeholder Relationships, Social Responsibility, and Corporate Governance

Stakeholder Model of Corporate Governance

Adopts a broader view of the purpose of business. Although a company certainly has a responsibility for economic success and viability to satisfy in stockholders, it must also answer to other stakeholders, including employees, suppliers, government regulators, communities, and the special interest groups with which it interacts.

Secondary Stakeholder

Do not typically engage directly in transactions with a company and are therefore not essential to its survival. These include the media, trade associations, and special interest groups like the American Association of Retired People (AARP), a special interest group working to support retirees' rights such as health care benefits.

Stakeholder

In a business context, customers, shareholders, employees, suppliers, government agencies, communities, and many others who have a "stake" or claim in some aspect of a company's products, operations, markets, industry, and outcomes are known as stakeholders.

Corporate Governance

Involves the development of formal systems of accountability, over-sight, and control. Strong corporate governance mechanisms remove the opportunity for employees to make unethical decisions.

Shareholder Model of Corporate Governance

Is founded in classic economic precepts, including the goal of maximum wealth for investors and owners. For publicly traded firms, corporate governance focuses on developing and improving the formal system for maintaining performance accountability between top management and the firm's shareholders.

Reputation

Is one of the organization's greatest intangible assets with tangible value. The value of a positive reputation is difficult to quantify, but it is important.

Executive Compesation

One of the biggest issues corporate boards of directors face is executive compensation. In fact, most boards spend more time deciding how much to compensate top executives than they do ensuring the integrity of the company's financial reporting system.

Interlocking Directorate

The concept of board members being linked to more than one company is known as an interlocking directorate. The practice is not considered illegal unless it involves a direct competitor.

Stakeholder Orientation

The degree to which a firm understands and addresses stakeholder demands can be referred to as a stakeholder orientation. A stakeholder orientation involves "activities and processes within a system of social institutions that facilitate and maintain value through exchange relationships with multiple stakeholders.

Stakeholder Interaction Model

There are reciprocal relationships between the firm and a host of stakeholders. In addition to the fundamental input of investors, employees, and suppliers, this approach recognizes other stakeholders and explicitly acknowledges that dialogue exists between a firm's internal and external environment.

Primary Stakeholder

Those whose continued association and resources are absolutely necessary for a firm's survival.

Corporate Citizenship

often used to express the extent to which business strategically meet the economic, legal, ethical, and philanthropic responsibilities places on them by various stakeholders.