Module 2 Stakeholders Relationship
Module 2 Stakeholders Relationship
Session Topic:
1. Identifying Stakeholders
2. Stakeholder Orientation
3. Social Responsibility and Ethics
4. Issues in Social Responsibility
5. Social Responsibility and the Importance of a Stakeholder Orientation
6. Corporate Governance
Learning Objectives:
The following specific learning objectives are expected to be realized at the end of the session:
Key Points:
Stakeholder Corporate citizenship
Stakeholder orientation Primary and secondary stakeholders
Social responsibility Sustainability
Corporate governance Consumer protection
Core Content:
Introduction
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In-text Activities
STAKEHOLDERS
They are customers, investors and 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.
Type of Stakeholders
• Primary stakeholders
- those whose continued association is absolutely necessary for a firm’s survival (employees,
customers, investors, and shareholders)
• Secondary stakeholders
- do not typically engage in transactions with a company and therefore not essential to its survival
(media, trade associations and special interest groups)
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Interactions Between a Company and Its Primary and Secondary Stakeholders
In stakeholder interaction model as shown in the diagram, 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 environments. Corporate social responsibility actions that put
employees at the center of activities gain the support of both external and internal stakeholders.
STAKEHOLDER RELATIONSHIPS
Business influences stakeholders groups, but these groups also have the ability to influence business;
thus, the relationship between companies and their stakeholders is a two-way street.
Stakeholders provide resources critical to a firm’s long-term success. These resources may be tangible
and intangible:
In a spirit of reciprocity, stakeholders should be fair, loyal, and treat the corporation in a responsible way.
When individual stakeholders share expectations about desirable business conduct, they may choose to
establish or join formal communities dedicated to defining and advocating these values and expectations.
Stakeholders’ abilities to withdraw these needed resources gives them power over businesses.
STAKEHOLDER ORIENTATION
1. the organization-wide generation of data about stakeholder groups and assessment of the firm’s
effects on these groups
2. the distribution of this information throughout the firm
3. the responsiveness of the organizations as a whole to the information
SOCIAL RESPONSIBILITY
There are four levels of social responsibility—economic, legal, ethical, and philanthropic as shown by
figure below. At the most basic level, companies have a responsibility to be profitable at an acceptable
level to meet the objectives of shareholders and create value
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Business ethics, as previously defined, comprises principles and values that meet the expectations of
stakeholders. Philanthropic responsibility refers to activities that are not required of businesses but that
contribute to human welfare or goodwill. Ethics, then, is one dimension of social responsibility. Ethical
decisions by individuals and groups drive appropriate decisions and are interrelated with all of the levels
of social responsibility. For example, the economic level can have ethical consequences when making
managerial decisions.
The term corporate citizenship is often used to express the extent to which businesses strategically
meet the economic, legal, ethical, and philanthropic responsibilities placed on them by various
stakeholders.
1. Social issues
Social issues are associated with the common good. It deals with concerns affecting large
segments of society and the welfare of the entire society. It may encompass indirectly related
issues such as jobs lost through outsourcing, abortion, gun rights, and poverty and the directly
related to business include obesity, smoking, and exploiting vulnerable or impoverished
populations, as well as a number of other issues.
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2. Consumer protection
Often occurs in the form of laws passed to protect consumers from unfair and deceptive business
practices. Issues involving consumer protection usually have an immediate impact on the
consumer after a purchase. Major areas of concern include advertising, disclosure, financial
practices, and product safety.
3. Sustainability
We define sustainability as the potential for the long-term well-being of the natural environment,
including all biological entities, as well as the mutually beneficial interactions among nature and
individuals, organizations, and business strategies. With major environmental challenges such as
global warming and the passage of new environmental legislation, businesses can no longer
afford to ignore the natural environment as a stakeholder.
4. Corporate governance
For public corporations, boards of directors hold the ultimate responsibility for their firms’ success
or failure, as well as the ethics of their actions.
The members of a company’s board of directors assume legal responsibility for the firm’s
resources and decisions, and they appoint its top executive officers. Board members have a
fiduciary duty, meaning they have assumed a position of trust and confidence that entails certain
responsibilities, including acting in the best interests of those they serve. Thus, board
membership is not intended as a vehicle for personal financial gain; rather, it provides the
intangible benefit of ensuring the success of both the organization and the people involved in the
fiduciary arrangement.
Just as improved ethical decision making requires more of employees and executives, boards of
directors are also experiencing a greater demand for accountability and transparency. In the past,
board members were often retired company executives or friends of current executives, but the
trend today is toward “outside directors” who have little vested interest in the firm before
assuming the director role.
3. Executive compensation
Many people believe no executive is worth millions of dollars in annual salary and stock options,
even if he or she brings great financial return to investors. Their concerns often center on the
relationship between the highest-paid executives and median employee wages in the company. If
this ratio is perceived as too large, critics believe employees are not being compensated fairly or
high executive salaries represent an improper use of company resources.
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Summary
Business ethics, issues, and conflicts revolve around relationships. Customers, investors and
shareholders, employees, suppliers, government agencies, communities, and many others who have a
stake or claim in an aspect of a company’s products, operations, markets, industry, and outcomes are
known as stakeholders. Stakeholders are influenced by and have the ability to affect businesses.
Stakeholders provide both tangible and intangible resources that are critical to a firm’s long-term
success, and their relative ability to withdraw these resources gives them power. Stakeholders define
significant ethical issues in business.
An organization that develops effective corporate governance and understands the importance of
business ethics and social responsibility in achieving success should develop a process for managing
these important concerns. Although there are different approaches, steps have been identified that have
been found effective in utilizing the stakeholder framework to manage responsibility and business ethics.
Assessment/Evaluation
1. Case study
2. End of lesson quiz
References
( Please refer to the course syllabus)
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