The Relationship Between Stakeholders, Corporations and .The Relationship Between Stakeholders,

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  • The Relationship Between

    Stakeholders, Corporations and CSR Claire Moore | October 2012

    Executive Summary

    This paper explores the relationship between corporations and their stakeholders and how that relationship can have an impact on the ways that corporations design and implement their corporate social responsibility strategies. It explores theories of corporate social responsibility and how globalization has moved the emphasis from the stakeholder theory of maximizing profits into the realm of engaging in social responsibility that includes a larger stakeholder constituency.

    We point out that corporations engage in CSR activities for a number of reasons which all culminate in the desire to accrue benefit to the company and its immediate stakeholders. Because corporate executives are not cognizant of the motives and desires of all stakeholder groups in their sphere, they have come to rely on various forms of stakeholder dialog as a means to drive and monitor their CSR activities.

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    CONTENTS

    Introduction ................................................................................................................................................................ 3

    Friedman's Mandate ............................................................................................................................................... 4

    New Corporate Citizenship (NCC) .................................................................................................................... 5

    Definitions and Terminology ............................................................................................................................. 5

    Stakeholders and CSR ............................................................................................................................................ 7

    Reasons for Engaging in CSR .............................................................................................................................. 8

    Corporate Legitimacy ............................................................................................................................................. 9

    Stakeholder issues ................................................................................................................................................ 11

    Stakeholder dialog ................................................................................................................................................ 11

    Stakeholder dialog in various countries .................................................................................................. 12

    Case Study: Nike ..................................................................................................................................................... 13

    CSR Reporting .......................................................................................................................................................... 15

    Conclusion ................................................................................................................................................................. 16

    References ................................................................................................................................................................. 17

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    INTRODUCTION

    The traditional role of the corporation was to maximize profits within the dictates of

    the law. The only duty owed by corporate executives was to the shareholders and any other

    actions taken with corporate assets were a violation of that trust. In recent years, however,

    the changes brought about by globalization and the availability of information and

    communication through the Internet have influenced investors to make choices based on a

    broader spectrum of goals and values. These changes in shareholder attitudes come at time

    where we see government retreating from some of its traditional activities in the social arena.

    The void left by government is being filled by corporations fueled by the new dictates from

    shareholders to be more socially responsible. Finally, we have seen a change in definition of

    the corporation from that of an "artificial person" with no social responsibility to an actual

    person endowed with many of the rights of individuals.

    This paper seeks to bring together the concepts of how corporations can engage in

    ethical practices that are socially responsible and how stakeholders can be the driving and

    directing force in that process. The link that makes stakeholder engagement possible is the

    dialog that can be engaged in between the corporation and its stakeholders. Key to enhancing

    meaningful dialog are transparency, a uniform system of disclosure and multidirectional

    communication.

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    FRIEDMAN'S MANDATE

    Corporations exist primarily to serve their owners, the stockholders of the company.

    According to economist Milton Friedman, it is the primary purpose of a corporation to

    increase its profits. Any other consideration is at best, irresponsible and at worst,

    communism. Friedman asserts that only people can have responsibilities and that a

    corporation is an artificial person. A business, in Friedman's view cannot have

    responsibilities. It is however, incumbent on the corporate board of directors, who are

    employees of the corporation, to serve the needs of the corporation and to do all that is

    within their power, and within the letter of the law, to further corporate goals in the form of

    increased profits. For a corporate executive to use company assets for any purpose other

    than to increase profits is in Friedman's view, a violation of their duties to the company.

    It is Friedman's belief that when the corporate executive spends corporate assets for

    a socially responsible purpose that he is essentially imposing a tax on corporate stakeholders

    by:

    raising the price of products to the customer

    lowering wages paid to the employees

    lowering the profits that accrue to the stockholders

    The fault lies, according to Friedman, in placing more value on the political mechanisms

    rather than market mechanisms in deciding how corporate assets can best be used. Friedman

    sees this view as problematical in that it places the decision in the hands of the corporate

    executive as to how assets will be used and whereas the executive may be an expert in

    running a company, he may not be well versed in the best ways to accomplish social change.

    Friedman wrote his essay on corporate responsibility in 1970 where it was published

    in the New York Times Magazine. At that time his view was "chapter and verse" for corporate

    practices. Much has happened in the forty years that have transpired since the publication of

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    Friedman's article. Globalization has added layers of complexity to the relationship between

    corporations and their stakeholders who can see the results of corporate choices in the

    changes within the environment and in economies across the globe. The power of technology

    has enabled stakeholders to gather and analyze information without the intervention of the

    corporation. As a result, stakeholders are demanding more input regarding how corporate

    assets are used.

    NEW CORPORATE CITIZENSHIP (NCC)

    More recently we have seen the creation of a theory known as the New Corporate

    Citizenship (NCC) where the role of the corporation is expanded to include many of the

    services that have typically been provided by government. However, it is the assertion of

    NCC's creators that government has withdrawn from many of its traditional responsibilities

    and so the corporation must step in to take over in the forms of privatization of essential

    services, providing essential services to third-world countries, and dealing with the impact of

    globalization and its effects on both the economic markets and upon the environment.

    According to NCC theory, shareholders, especially those with the largest corporate

    holdings, will have the power to influence corporate policy through the influence of their vote

    and their choices in where they invest their dollars.

    DEFINITIONS AND TERMINOLOGY

    The concept of CSR has continued to evolve since its inception in the 1950s. What has

    resulted is a variety of approaches. Dow Votaw approached the issues of CSR noting that it

    had different meaning to different people:

    To some it conveys the idea of legal responsibility or liability; to others, it means

    socially responsible behavior in the ethical sense; to still others, the meaning

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    transmitted is that of responsible for in a causal mode; many simply equate it with a

    charitable contribution; some take it to mean socially conscious; many of those who

    embrace it most fervently see it as a mere synonym for legitimacy in the context of

    belonging or being proper or valid; a few see a sort of fiduciary duty imposing higher

    standards of behavior on businessmen than on citizens at large (