Chapter 2 - Stakeholder Relationships

Perceived wrongdoing

(THIS) or questionable behavior may lead to boycotts and aggressive campaigns to dampen sales and earnings.

Stakeholder community

-An organization may generate and disseminate more intelligence about some groups that others

Stakeholders

-Customers, shareholders, employees, suppliers, government agencies, communities, and many others who have a claim in some aspect of a company's products, operations, markets, industry, and outcomes. -Businesses engage these groups, but they can also engage the business -relationship is a 2-way street

critical resources

-Stakeholder provide (THESE) - necessary for a firm's long-term success: -Shareholders: supply capital; -suppliers: offer material resources or intangible knowledge, -employees and managers: grant expertise, leadership, and commitment; -customers: generate revenue and provide loyalty -local communities: provide infrastructure -media: transmits positive corporate images.

gauge

-To (BLANK) a firm's stakeholder orientation: -Evaluate the extent the firm adopts behaviors that typify generation.

Assessing Organizational Commitment to Stakeholders and Social Responsibility

-used to evaluate current practices and to select concrete social responsibility initiatives. -social responsibility disclosures in company annual reports are directly related to the quality of corporate governance.

levels of social responsibility

1. economic: maximizing stakeholder wealth. 2. Legal: abiding by all laws and government regulations 3. Ethical: Following standards of acceptable behavior as judged by stakeholders 4. Philanthropic: "giving back" to society

social responsibility categories

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

corporate citizenship dimensions

1. strong sustained economic performance 2. rigorous compliance 3. ethical actions beyond what the law requires 4. voluntary contributions that advance the reputation and stakeholder commitment of the organization.

Identifying Resources and Determining Urgency

2 main criteria: -level of financial and organizational investments required by different actions -urgency when prioritizing social responsibility challenges -when the challenge under consideration is viewed as significant and stakeholder pressures on the issue can be expected, the challenge is considered urgent.

stakeholder theory

3 approaches: - normative approach - descriptive approach -instrumental approach

Oversight

A system of checks and balances that limit employees' and managers' opportunities to deviate from policies and strategies aimed at preventing unethical and illegal activities.

Stakeholder Orientation

Activities to address stakeholder demands: 1. Organization-wide generation of data about stakeholder groups and assessment of the firm's effects on these groups. 2. Distribution of this information throughout the firm 3. Responsiveness of the organization as a whole to this information

common good

Adam Smith theory -Associated with 6 psychological motives and values that each individual has to produce, such as propriety, prudence, reason, sentiment, and promoting the happiness of mankind.

Relationships

Associated with both organizational success and misconduct -Businesses exist because of organizational relationships between employees, customers, shareholders, and the community

interlocking directorate

Board members linked to more than one company. -legal unless it involves a direct competitor -in some cases, it seems individuals earned placement on multiple boards because they gained a reputation for going along with top management and never asking questions. -such a trend fosters a corporate culture that limits outside oversight of top managers' decisions

Demand for Accountability and Transparency

Directors chosen for expertise, competence, and ability to bring diverse perspectives. -Outside directors do not have a vested interest. -Interlocking directorate: board members linked to more than one company

decisions that damage stakeholders

Ethical misconduct and (THIS) generally impact the company's reputation in terms of both investors and consumer confidence.

Relevant stakeholder groups

Generating data begins with identifying those that matter to the firm. -should be analyzed on the basis of the power each enjoys and the ties between them and the company. -Identify the concerns that matter to these stakeholders. -Info derived from formal research, including surveys, focus groups, internet searches, and press reviews.

Federal Trade Commission and the Consumer Financial Protection Bureau

Government agencies that enforce consumer protection laws and pursue violations

Federal Trade Commission

Government agency that regulates issues related to data privacy.

Normative Approach

Identifies ethical guidelines that dictate how firms should treat stakeholders. -principles and value provide direction

market

Milton Friedman believes (THIS) is a better deterrent to wrongdoing than new laws and regulations

Stakeholder model of corporate governance

Must also answer to other stakeholders, including employees, suppliers, government regulators, communities, and the special interest groups with which it interacts. -because of limited resources, must decide which stakeholders are primary. -Once primary groups are identified, managers must implement the appropriate corporate governance mechanisms to promote the development of long-term relationships.

Adam Smith

Person who developed the concept of the invisible hand and explored the role of self-interest in economic systems. -established normative expectations for motives and behaviors in his theories about the invisible hand. -distinguished justice as consisting of perfect or inalienable rights, consisting of imperfect rights that should be performed but cannot be forced.

Identifying stakeholder groups

Recognize stakeholder needs, wants, and desires

Milton Friedman

Said "the basic mission of business is...to produce goods and services at a profit, and in doing this, business is making its maximum contribution to society and, in fact, is being socially responsible." -Diminished the role of stakeholders such as the government and employees in requiring businesses to demonstrate responsible and ethical behavior.

continuum

Stakeholder Orientation can be viewed as (THIS).

values and standards

Stakeholders apply these to diverse issues, including working conditions, consumer rights, environmental conservation, product safety, and proper information disclosure that may or may not directly affect an individual stakeholder's own welfare.

needed resources

Stakeholders' abilities to withdraw (THESE) gives them power over businesses.

Implementing a Stakeholder Perspective

Step 1: Assessing the corporate culture Step 2: Identifying stakeholder groups Step 3: Identifying stakeholder issues Step 4: Assessing organizational commitment to social responsibility Step 5: Identifying resources and determining urgency Step 6: Gaining stakeholder feedback

Stakeholder Orientation

The degree to which a firm understands and addresses stakeholder demands. -Involves activities and processes within a system of social institutions that facilitate and maintain value through exchange relationships with multiple stakeholders

Corporate governance

The development of formal systems of accountability, oversight, and control

sustainability

The potential for the long-term well-being of the natural environment, including all biological entities, as well as the interaction among nature and individuals, organizations, and business strategies

Secondary Stakeholders

Those who are not typically engaged directly in transactions with a company and are not essential to its survival (media, trade associations, special interest groups)

Reputation

a factor in consumers' perceptions of product attributes and corporate image can lead to consumer willingness to purchase goods and services at profitable prices.

Corporate social responsibility

actions that put employees at the center of activities gain the support of both external and internal stakeholders.

Philanthropic responsibilities

activities that are not required of businesses but that contribute to human welfare or goodwill.

board's audit committee

address anything related to a risk. -responsible for issues such as whistle-blower claims, cybersecurity, and bribery

Normative Stakeholder Theory

affirms that stakeholders have legitimacy and a right to engage organizations

Social Responsibility

an organization's obligation to maximize its positive impact on stakeholders and minimize its negative impact. -A contract with society, whereas business ethics involves carefully thought-out rules or heuristics of business conduct that guide decision making.

social issues

associated with the common good. -people have the right to try and obtain the basic necessities of life -deal with concerns affecting large segments of society and the welfare of the entire society

Native advertising

blends digital advertisements or company promotions with content on the website where it is featured. -might confuse consumers if they cannot tell the difference between an advertisement and legitimate content.

Deceptive Advertising

companies are forced to disclose to consumers if they are paying another entity to promote their products. -These practices skirt the line between ethical and questionable behavior

executive compensation

compensation paid to top executives of the company -ratio of the salaries of the highest-paid executives to the median employee wage should be less -stakeholders support high level of compensation only when it is linked to strong company performance

responsiveness of an organization

consists of the initiatives the firm adopts to ensure it abides by or exceeds stakeholder expectations and has a positive impact on stakeholder issues.

Regulators

consumer groups and even competitors can engages businesses through...

Instrumental Approach

describes what happens if firms behave in a particular way. -examines relationships involved in the management of stakeholders including the processes, structures, and practices that implement stakeholder relationships within an organization.

duty of loyalty

directors' decisions should be in the best interest of the corporation and its stakeholders. -directors' knowledge about the investments, business ventures, and stock market information of a company creates issues that could violate these.

ISO 14001

effective environmental management standard -companies certified by this group tend to have improved financial performance in the long run

corporate governance

establishes fundamental systems and processes for preventing and detecting misconduct, for investigating and disciplining, and for recovery and continuous improvement -creates a compliance and ethics culture so employees feel integrity is at the core of competitiveness.

conflicts of interest

exist when a director uses the position to obtain personal gain, usually at the expense of the organization.

Descriptive Approach

focuses on the firm's behavior and usually addresses how decisions and strategies are made for stakeholder relationships.

shareholder model of corporate governance

founded in classic economic precepts, including the goal of maximizing wealth for investors and owners -focuses on developing and improving the formal system for maintaining performance accountability between top management and the firm's shareholders. -should drive a firm's decisions toward serving the best interests of investors. -criticized for its singular purpose and focus

survival and performance

function of an organizations ability to create values for all primary stakeholders and its attempt to do so fairly, not favoring one group over the others.

Federal Sentencing Guidelines for Organizations

governing authority responsible for creating an ethical culture that provides leadership, values, and compliance.

Board members

have an obligation to request information, conduct research, use accountants and attorneys, and obtain the services of ethical compliance consultants to ensure the corporations in which they have an interest are run in an ethical manner.

economic issues

have ramifications to society such as antitrust, employee well-being, insider trading, and other issues that diminish competition and consumer choice

board of directors

hold the ultimate responsibility for their firms' success or failure, as well as the ethics of their actions. -assume legal responsibility for the firm's resources and decisions, and they appoint its top executive officers. -assumed a positions of trust and confidence that entails certain responsibilities, including acting in the best interests of those they serve.

accountability

how closely workplace decisions align with a firm's stated strategic direction and its compliance with ethical and legal considerations.

Stakeholder Framework

identifies the internal and external stakeholders who agree, collaborate, and engage in confrontations on ethical issues. -Allows organizations to identify, monitor, and respond to the needs and expectations of stakeholder groups

Assessing the Corporate Culture

identify the organizational mission, values, norms, and behavior likely to have implications for social responsibility.

reciprocity

in a spirit of (THIS), stakeholders are anticipated to be fair, loyal, and treat the corporation in a responsible way.

social issue events

jobs lost through outsourcing, health issues, gun rights, and poverty.

consumer protection

laws passed to protect consumers from unfair and deceptive business practices. -areas of concern include advertising, environmental hazards, financial practices, and product safety.

determinants of performance

legal and economic responsibilities are generally accepted as the most important

stakeholder model

many businesses evolved into this as a result of government initiatives, consumer activism, industry activity, and other external forces.

board of directors job duties

monitoring the decisions made by executives on behalf of the company. -Includes choosing top executives, assessing their performance, helping to set strategic direction, and ensuring oversight, control, and accountability mechanisms are in place. -Assume ultimate authority for the organizations effectiveness and subsequent performance.

ethical misconduct

more difficult to overcome than poor financial performance

one third

nearly (THIS AMOUNT) of employees quit an organization because they do not agree with a company's ethical standards

board membership

not intended as a vehicle for personal financial gain. -it provided intangible benefit of ensuring the success of both the organization and the people involved in the fiduciary arrangement.

issues that directly relate to business

obesity, smoking, and exploiting vulnerable or impoverished populations, as well as a number of other issues

data privacy

one of the most important social and ethical issues facing marketing today. -All organizations need to understand how to develop cybersecurity and have contingency plans to respond if a data breach happens.

reputation

one of the organization's greatest intangible assets with tangible values. -an organization's actions, choices, behaviors, and consequences influence stakeholders' perceptions of it.

fiduciaries

persons placed in positions of trust that act on behalf of the best interests of the organization. -They have a duty of care or a duty of diligence to make informed and prudent decisions.

stakeholder model

places the board of directors in the position of balancing the interest and conflicts of a company's various constituencies

Officer compensation packages

present a challenge for directors. -Directors have an opportunity to vote for others' compensation in return for their own increased compensation.

Covert Marketing

promotions embedded into television programs without informing consumers -warrant greater consumer protection

Stakeholder Interaction Model

relationship between businesses and stakeholders. -reciprocal relationships between the firm and a host of stakeholders. -recognizes other stakeholders and explicitly acknowledges that dialogue exists between a firm's internal and external environments.

external control

resides not only with the government regulators but also with key stakeholders which exert pressure for responsible conduct.

legitimacy

secondary groups cannot be ignored or given less consideration in the ethical decision making process because they have (THIS)

ethical values

should guide decisions and buffer the possibility of illegal conduct.

technology

social media, consumer activism, as well as recent ethical scandals have brought new attention to communication and transparency.

demands of society

some economists believe if companies address economic and legal issues these are satisfied. -trying to anticipate and meet additional needs would be almost impossible.

legitimacy deficits

stakeholders can be subject to the risks and costs resulting from business decisions that are not regulated. -more democratic involvement of various stakeholders is one solution to resolve this.

Corporate Citizenship

the extent to which businesses meet the legal, ethical, economic, and voluntary responsibilities placed on them by various stakeholders

control

the process of auditing and improving organizational decisions and actions

Primary Stakeholders

those whose continued association and resources are absolutely necessary for a firm's survival -employees, customers, shareholders -also government agencies and communities that provide necessary infrastructure

Identifying stakeholder issues

understanding the main issues of concern. -Conditions for collaboration exist when problems are so complex that multiple stakeholders are required to resolve the issues, and adversarial approaches to problem solving are clearly inadequate