STAKEHOLDERS, COMPANY MISSION, GOVERNANCE AND BUSINESS ETHICS

• Stakeholder - A person, group, or organization that has direct or indirect stake in an organization because it can affect or be affected by the organization's actions, objectives, and policies. Key stakeholders in a business organization include creditors, customers, directors, employees, government (and its agencies), owners (shareholders), suppliers, unions, and the community from which the business draws its resources.

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• Stakeholder - All persons and institutions that have an interest in seeing a venture or company succeed. Stakeholders include shareholders, management, employees, the larger community, and even the government. While stakeholders may not have a direct financial holding in the company, they would still stand to benefit if the venture or company succeeds.

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STAKEHOLDER PERSPECTIVE

• Although numerous ways of viewing stakeholders exist, categorizing stakeholder perspectives into three broad categories helps elicit the basic underlying themes among these numerous views. These broad categorizations include the separation perspective, the ethical perspective, and the integrated perspective.

Separation Perspective

• The separation perspective suggests that, because managers are agents of the firm's owners—the shareholders—managers should always strive to act in the best interest of the firm's owners. This view does not cause managers to ignore non-owner stakeholders; indeed, when taking actions that benefit stakeholders also benefit owners, the separation perspective would advise managers to do so. One facet that differentiates this perspective from the others, however, is the rationale behind such decisions; the reason managers make decisions and take actions benefiting non-owner stakeholders is ultimately to reward owners. Clearly, problems arise when a given decision would maximize the benefit to non-owners at the expense of owners, but that would serve the greater good of society in general. 

Separation Perspective

• .For example, suppose a new but relatively expensive technology was created that lowered pollution from steel mini-mills below the level required by the DENR. In this case, there is no law requiring the steel mini-mills to purchase and implement the new technology, but doing so would benefit stakeholders such as the community in which the mini-mill had factories. Yet, due to the cost of the new technology, owners' profits would suffer. The separation perspective would direct managers in this situation to dismiss the benefit of lower pollution levels for the community in favor of maximizing owners' profits by meeting DENR requirements, but not by spending funds in excess of what the DENR requires.

Ethical Perspective

• The ethical perspective is that businesses have an obligation to conduct themselves in a way that treats each stakeholder group fairly. This view does not disregard the preferences and claims of shareholders, but takes shareholder interests in consideration only to the extent that their interests coincide with the greater good. 

• This approach focuses on ethics and suggests that managers have responsibilities apart from profit-oriented activities. While recognizing the claims shareholders have to profit in exchange for putting their capital at risk, the stakeholder perspective that holds ethics as the preeminent decision rule. 

Ethical Perspective

• Taken to an extreme, this perspective can minimize the right of owners to participate in financial gain in proportion to the risks they bear when doing what is ethically best for non-owner stakeholders runs counter to what is financially best for owners. A possible outcome in a capitalistic society could be that fewer and fewer owners place their capital at risk through firm ownership, a condition that may ultimately decrease the economic good of society in general and thus harm the very groups the ethical perspective intended to protect.

Ethical Perspective

• Budweiser, for example, has modified its advertising over the years to discourage under-age drinking and driving while intoxicated. Social activist groups such as Mothers against Drunk Drivers have pressured Budweiser through their own advertising as well as media attention to maximize responsible alcohol consumption even though this may decrease overall sales for Budweiser. 

Integrated Perspective

• This suggests that firms cannot function independently of the stakeholder environment in which they operate, making the effects of managerial decisions and actions on non-owner stakeholders part and parcel of decisions and actions made in the interests of owners. This view holds that managerial decisions and actions are intertwined with multiple stakeholder interests in such a way that breaking shareholders apart from non-owner stakeholders is not possible. Managers who, according to this approach, make decisions in isolation of the multitude of stakeholders and focus singly on shareholders overlook important threats to their own well-being as well as opportunities on which they might capitalize.

Integrated Perspective

• For example, the National Association of Securities Dealers (NASD) is a self-regulatory organization that monitors and disciplines members such as insurance companies and brokerages. By incorporating NASD regulations into their management decisions and actions, insurance companies and brokerages, at least to some extent, preempt outside governmental action that may make compliance more restrictive or cumbersome. The NASD, in turn, answers to the governmental agency, the Securities and Exchange Commission (SEC). The SEC reports to the U.S. Department of Justice. Each of these—insurance companies and brokerages, the NASD, SEC, and U.S. Department of Justice—are linked in such a way insurance companies and brokerages ignoring these stakeholders would quickly be unable to make a profit and thus fail to serve the interests of owners.

A Stakeholder’s View of Company Responsibility

STOCKHOLDERS

Participation in distribution of profits Additional stock offerings Assets on Liquidation Inspection of Company Books Transfer of Stock Election of Board of Directors

CREDITORS

Legal proportion of interest payments due and return of principal from the investment.

Security of pledged assets; relative priority in the event of liquidation

EMPLOYEES

Economic, social, and psychological satisfaction in the place of employment.

Freedom from arbitrary and capricious behavior on the part of company officials.

Share in fringe benefits, freedom to join union and participate in collective bargaining.

Adequate working conditions.

CUSTOMERS

Service provided with the product Technical data to use the product Suitable warranties Spare parts to support the product during

use R&D leading to product improvement.

SUPPLIERS

Continuing source of business Timely consumption of trade credit

obligations Professional relationship in contracting for,

purchasing, and receiving goods and services

GOVERNMENT

Taxes

Adherence with the requirements of fair and free competition

Discharge of legal obligations

UNIONS

Recognition as the negotiating agent for employees.

Opportunity to perpetuate the union as a participant the business organization.

COMPETITORS

Observation of the norms for competitive conduct established by society and the industry.

Business statesmanship on the part of peers.

LOCAL COMMUNITIES

Place of productive and healthful employment in the community

Participation of company officials in community affairs

Provision of regular employment Fair play Reasonable portion of purchases made in the

local community Interest in and support of local government Support of cultural and charitable projects

THE GENERAL PUBLIC

Participation in and contribution to society as a whole

Creative communications between governmental and business units designed for reciprocal understanding

assumption of fair proportion of the burden of government and society.

Fair price for products and advancement of the state-of-the-art technology that the product line involves.

Types of Social Responsibility

Economic Responsibilities

• Most basic social responsibilities of business.

• Living up to their economic responsibilities requires managers to maximize profits whenever possible.

• The essential responsibility of business is assumed to be providing goods and services to society at a reasonable cost.

Legal Responsibilities

• Reflect the firm’s obligations to comply with the laws that regulate business activities.

Ethical Responsibilities

• Reflect the company’s notion of right and proper business behavior.

• Ethical responsibilities are obligations that transcend legal requirements.

• Firms are expected but NOT required, to behave ethically. (Some actions are legal but might be considered unethical.

Discretionary Responsibilities

• These are those that are voluntarily assumed by a business organization.

• Include: Public relations activities, good citizenship, and full corporate social responsibility.