1 The Stakeholder Approach to Business, Society, and Ethics Business and Society: Ethics and Stakeholder Management, 7e Carroll & Buchholtz Copyright ©2009 by South-Western, a division of Cengage Learning. All rights reserved Prepared by Deborah Baker Texas Christian University Chapter 3

2 Chapter 3 Learning Outcomes 1. Define stake and stakeholder and describe the origins of these concepts. 2. Differentiate among production, managerial, and stakeholder views of the firm. 3. Differentiate among the three values of the stakeholder model. 4. Explain the concept of stakeholder management. 5. Identify and discuss the five major questions that capture the essence of stakeholder management. 6. Identify the three levels of stakeholder management capability (SMC). 7. Describe the key principles of stakeholder management.

3 Chapter 3 Outline  Origins of the Stakeholder Concept  Who Are Business’s Stakeholders?  Strategic, Multifiduciary, and Synthesis Approaches  Three Values of the Stakeholder Model  Key Questions in Stakeholder Management  Effective Stakeholder Management  Developing a Stakeholder Culture  Stakeholder Management  The Stakeholder Corporation  Principles of Stakeholder Management  Strategic Steps Toward Successful Stakeholder Management  Summary  Key Terms  Discussion Questions

4 Introduction to Chapter 3 Stakeholders Individuals and groups with amultitude of interests, expectations,and demands as to what businessshould provide to accommodatepeople’s lives and lifestyles

5 Origins of the Stakeholder Concept Stake An interest or a share in an undertaking and can be categorized as: An Interest A Right Ownership Legal Right Moral Right

6 Origins of the Stakeholder Concept Stakeholder An individual or a group that hasone or more of the various kinds ofstakes in the organization

7 Who Are Business Stakeholders? Business Stakeholder Groups Media Suppliers Special-Interest Groups Society General Public Competitors Customers Community Stockholders Employees

8 DuPont’s Stakeholder Groups  Shareholders  Customers  Employees  Society

9 Evolution of the Business Enterprise Production View Managerial View Stakeholder View

10 Production and Managerial Views of the Firm Figure 3-2

11 The Stakeholder View of the Firm Figure 3-3

12 Social Stakeholders Primary social stakeholders  Shareholders and investors  Employees and managers  Customers  Local communities  Suppliers and other business partners Secondary social stakeholders  Government and regulators  Civic institutions  Social pressure groups  Media and academic commentators  Trade bodies  Competitors

13 Who Are Business Stakeholders? Primary Stakeholders Have a direct stake in theorganization and its success Secondary Stakeholders Have a public or specialinterest stake in theorganization

14 Nonsocial Stakeholders Primary nonsocial stakeholders  Natural environment  Future generations  Nonhuman species Secondary nonsocial stakeholders  Environmental interest groups  Animal welfare organizations

15 Core, Strategic, and Environmental Stakeholders  Core stakeholders are essential for the survival of the firm  Strategic stakeholders are vital to the organization’s success and the threats and opportunities the organization faces  Environmental stakeholders are all others in the organization's environment that are not core or strategic

16 Stakeholder Typology Figure 3-4

17 A Typology of Stakeholder Attributes Legitimacy refers to the perceived validityor appropriateness of thestakeholder’s claim to a stake Power refers to the ability or capacityof a stakeholder to producean effect Urgency refers to the degree to whichthe stakeholder’s claimdemands immediate attention

18 Strategic, Multifiduciary, and Synthesis Views Strategic Approach views stakeholders primarily asfactors managers should managein pursuit of shareholder profits Multifiduciary Approach views stakeholders as a groupto which management has afiduciary responsibility Stakeholder Synthesis Approach considers stakeholders as a groupto whom management owes anethical, but not a fiduciaryobligation

19 Three Values of the Stakeholder Model Descriptive Value Instrumental Value Normative Value

20 1. Who are our stakeholders? 2. What are our stakeholders’ stakes? 3. What opportunities and challenges do our stakeholders present to the firm? 4. What economic, legal, ethical, and philanthropic responsibilities does the firm have to its stakeholders? 5. What strategies or actions should the firm take to best address stakeholder challenges and opportunities? Key Questions In Stakeholder Management

21 Who Are Our Stakeholders? Figure 3-6

22 What Are Our Stakeholders’ Stakes?  Identify the nature/legitimacy of a group’s stakes  Identify the power of a group’s stakes  Identify specific groups within a generic group

23 What Opportunities and Challenges Do Stakeholders Present? Opportunities Build productive working relationships with stakeholders The potential for cooperation Build productive working relationships with stakeholders The potential for cooperation Challenges Representative of how the firm handles its stakeholders The potential for threat Representative of how the firm handles its stakeholders The potential for threat

24 Factors Affecting Potential for Threat & Cooperation Figure 3-7

25 Stakeholders EconomicLegalEthicalPhilanthropic Owners Customers Employees Community Public at large Social Activists Other Stakeholder/Responsibility Matrix Figure 3-8

26 What Strategies or Actions Should Management Take?  Do we deal directly or indirectly with stakeholders?  Do we take the offense or the defense in dealing with stakeholders?  Do we accommodate, negotiate, manipulate or resist stakeholder overtures?  Do we employ a combination of the above strategies or pursue a singular course of action?

27 Diagnostic Typology of Organizational Stakeholders Stakeholder Type  Mixed Blessing Strategy: Collaborate Stakeholder Type  Mixed Blessing Strategy: Collaborate Stakeholder Type  Nonsupportive Strategy: Defend Stakeholder Type  Nonsupportive Strategy: Defend Stakeholder Type  Supportive Strategy: Involve Stakeholder Type  Supportive Strategy: Involve Stakeholder Type  Marginal Strategy: Monitor Stakeholder Type  Marginal Strategy: Monitor High Low Stakeholder’s Potential for Cooperation with Organization HighLow Stakeholder’s Potential for Threat to Organization ? Figure 3-9

28 Summary of Four Stakeholder Types … managers should attempt to satisfy minimally the needs of marginal stakeholders and to satisfy maximally the needs of supportive and mixed blessing stakeholders, enhancing the latter’s support for the organization.

29 Levels of Stakeholder Commitment 1. Basic Value Proposition 2. Sustained Stakeholder Cooperation 3. Understanding Broader Societal Issues 4. Ethical Leadership

30 Effective Stakeholder Management Stakeholder corporation model Principles of stakeholder management Stakeholder management capability Stakeholder culture

31 Developing a Stakeholder Culture MoralistAltruistInstrumentalistCorporate egoistAgency Little concern for stakeholders Great concern for stakeholders

32 Stakeholder Management Capability Transactional level Process Level Rational Level

33 Stakeholder Engagement Stakeholder Engagement An approach by which companiesimplement the transactional levelof strategic management capability

34 The Stakeholder Corporation Stakeholder symbiosis Stakeholder inclusiveness

35 Principles of Stakeholder Management Key Words  Acknowledge  Monitor  Listen  Communicate  Adopt  Recognize  Work  Avoid  Acknowledge conflicts

36 Principles of Stakeholder Management Figure 3-10

37 Strategic Steps Toward Successful Stakeholder Management 2.Values Statement. Create a stakeholder-inclusive “values statement.” 2.Values Statement. Create a stakeholder-inclusive “values statement.” 1. Governing Philosophy. Integrate stakeholder management into the firm’s governing philosophy. 3.Measurement System. Implement a stakeholder performance measurement system. 3.Measurement System. Implement a stakeholder performance measurement system.

38 Key Indicators of Successful Stakeholder Management Survival Continued acceptance and use Avoided costs Expanded recognition and adoption

39  Stake  Stakeholder  Production view of the firm  Managerial view of the firm  Stakeholder view of the firm  Primary social stakeholders  Secondary social stakeholders  Core stakeholders  Strategic stakeholders  Environmental stakeholders  Legitimacy  Power  Urgency  Proximity  Stakeholder thinking  Stakeholder culture  Stakeholder management capability  Rational level  Process level  Transactional level  Stakeholder engagement  Stakeholder corporation  Stakeholder inclusiveness  Stakeholder symbiosis  Principles of stakeholder management Selected Key Terms