© 2005 by Nelson, a division of Thomson Canada Limited. 1 The Stakeholder Approach to Business, Society, and Ethics Search the Web Information on stakeholder theory can be found at the Clarkson Centre for Business Ethics at the University of Toronto:

© 2005 by Nelson, a division of Thomson Canada Limited. 2 Chapter Three Objectives Define stake and stakeholder Differentiate between production, managerial, and stakeholder views of the firm Discuss three values of the stakeholder model Study the concept of stakeholder management Identify the essence of stakeholder management Explain stakeholder management capability (SMC)

© 2005 by Nelson, a division of Thomson Canada Limited. 3 Chapter Three Outline Origins of the Stakeholder Concept Who Are Business’s Stakeholders? Strategic, Multifiduciary, and Synthesis Views Three Values of the Stakeholder Model Key Questions of Stakeholder Management Effective Stakeholder Management Stakeholder Management Capability The Stakeholder Corporation Stakeholder Power: Four Gates of Engagement Principles of Stakeholder Management Summary

© 2005 by Nelson, a division of Thomson Canada Limited. 4 Introduction to Chapter Three Stakeholders Individuals and groups with a multitude of interests, expectations, and demands as to what business should provide to society

© 2005 by Nelson, a division of Thomson Canada Limited. 5 Origins of the Stakeholder Concept What is a stake? An interest or a share can be categorized as: Interest RightOwnership (legal/moral)

© 2005 by Nelson, a division of Thomson Canada Limited. 6 Origins of the Stakeholder Concept What is a stakeholder? An individual who possesses a corporate interest, either financially or ethically

© 2005 by Nelson, a division of Thomson Canada Limited. 7 Who Are Business Stakeholders? GovernmentEmployees Business Community Consumers Owners

© 2005 by Nelson, a division of Thomson Canada Limited. 8 Who Are Business Stakeholders? Evolution and Development of the Stakeholder Concept Production Managerial Stakeholder

© 2005 by Nelson, a division of Thomson Canada Limited. 9 Who Are Business Stakeholders? Production and Managerial Views

© 2005 by Nelson, a division of Thomson Canada Limited. 10 Who Are Business Stakeholders? Primary and Secondary Stakeholders Primary stakeholders are those that have a direct interest in the organization and its success Secondary stakeholders are those that have a public or special interest in the organization

© 2005 by Nelson, a division of Thomson Canada Limited. 11 Who Are Business Stakeholders? Core, Strategic, and Environmental Stakeholders Core stakeholders are essential to the firm’s survival Strategic stakeholders are directly affected by threats and opportunities the organization faces Environmental stakeholders are all others in the organization's environment

© 2005 by Nelson, a division of Thomson Canada Limited. 12 The Business Stakeholders Legitimacy is the perceived validity of the stakeholder’s claim to a stake Power is the ability of a stakeholder to produce an effect Urgency is the degree a stakeholder’s claim demands immediate attention Legitimacy, Power, Urgency

© 2005 by Nelson, a division of Thomson Canada Limited. 13 Who Are Business Stakeholders?

© 2005 by Nelson, a division of Thomson Canada Limited. 14 Strategic, Multifiduciary, and Synthesis Views of Stakeholders Strategic approach considers stakeholders as managers in pursuit of profits Multifiduciary approach considers stakeholders, a group, that management has a fiduciary responsibility Synthesis approach considers stakeholders as a group to whom management owes an ethical but not fiduciary responsibility

© 2005 by Nelson, a division of Thomson Canada Limited. 15 Three Values of the Stakeholder Model Descriptive Instrumental Normative

© 2005 by Nelson, a division of Thomson Canada Limited. 16 Key Questions In Stakeholder Management 1.Who are stakeholders? 2.What are stakeholders’ stakes? 3.What opportunities and challenges do stakeholders represent? 4.What economic, legal, ethical, and philanthropic responsibilities does a firm have? 5.What strategies or actions should firms take to manage stakeholders’ opportunities and challenges?

© 2005 by Nelson, a division of Thomson Canada Limited. 17 Key Questions In Stakeholder Management Who are our stakeholders? Management must identify generic stakeholder groups and specific subgroups

© 2005 by Nelson, a division of Thomson Canada Limited. 18 Key Questions In Stakeholder Management What are our stakeholders’ stakes? The nature/legitimacy of a group’s stakes The power of a group’s stakes The specific groups within generic groups

© 2005 by Nelson, a division of Thomson Canada Limited. 19 Key Questions In Stakeholder Management What opportunities and challenges do stakeholders present? Productive working relationships with stakeholders Challenges and action on how the firm handles stakeholders

© 2005 by Nelson, a division of Thomson Canada Limited. 20 Key Questions In Stakeholder Management

© 2005 by Nelson, a division of Thomson Canada Limited. 21 Key Questions In Stakeholder Management What economic, legal, ethical, and philanthropic responsibilities does our firm have to its stakeholders? Philanthropic Responsibilities Philanthropic Responsibilities Be a good corporate citizen. Ethical Responsibilities Ethical Responsibilities Be ethical. Legal Responsibilities Legal Responsibilities Obey the law. Economic Responsibilities Economic Responsibilities Be profitable.

© 2005 by Nelson, a division of Thomson Canada Limited. 22 Key Questions In Stakeholder Management StakeholdersEconomicLegalEthicalPhilanthropic Owners Customers Employees Community Public at large Social Activists Other Stakeholder/Responsibility Matrix

© 2005 by Nelson, a division of Thomson Canada Limited. 23 Key Questions In Stakeholder Management What strategies or actions to take? Deal directly or indirectly with stakeholders? Take the offence or the defence in dealing with stakeholders? Accommodate, negotiate, manipulate, or resist stakeholder overtures? Employ a combination of the above or singular strategies?

© 2005 by Nelson, a division of Thomson Canada Limited. 24 Key Questions In Stakeholder Management Stakeholder Type 4 Mixed Blessing Strategy: Collaborate Stakeholder Type 3 Nonsupportive Strategy: Defend Stakeholder Type 1 Supportive Strategy: Involve Stakeholder Type 2 Marginal Strategy: Monitor High Low Stakeholder’s Potential for Cooperation With Organization HighLow Stakeholder’s Potential for Threat to Organization ? Types of Stakeholders

© 2005 by Nelson, a division of Thomson Canada Limited. 25 Effective Stakeholder Management Levels of Stakeholder Management Capability Rational level Process level Transaction level

© 2005 by Nelson, a division of Thomson Canada Limited. 26 Effective Stakeholder Management Stakeholder Corporation Consists of: Stakeholder inclusiveness Stakeholder symbiosis

© 2005 by Nelson, a division of Thomson Canada Limited. 27 Stakeholder Power: Four Gates of Engagement Awareness Knowledge Admiration Action

© 2005 by Nelson, a division of Thomson Canada Limited. 28 Principles of Stakeholder Management Acknowledge Monitor Listen Communicate Adopt Recognize Work Avoid Acknowledge conflict

© 2005 by Nelson, a division of Thomson Canada Limited. 29 Core Stakeholders Environmental Stakeholders Legitimacy Managerial view Power Principles of stakeholder management Process level Production view Rational level Stake Stakeholder Stakeholder inclusiveness Stakeholder management capability Stakeholder symbiosis Stakeholder view Strategic stakeholder Transactional level Urgency Selected Key Terms