Ethics and the Legal Environment The Shareholder as a Stakeholder Prof. Dawn Courtright

The Shareholder as a Stakeholder In this unit, we turn our attention to the shareholder, also known as a stockholder. In previous units, we talked about the shareholders and their interests (return on investment), but now we will really focus on the economic area of CSR and the rights and responsibilities of the shareholder stakeholder.

The Shareholder as a Stakeholder In the race for profit, with the potential for billion-dollar gains and losses for investors and companies in a single day, businesses should abide by laws and rules of ethics. The Enron, Worldcomm, Tyco, and Adelphia scandals illustrate that greed and poor ethics can destroy a company as well as the financial health of corporate stockholders. The resulting legislation on securities and corporate transparency demonstrates the legislature’s and the public’s interest in encouraging accountability. It is essential for managers to understand securities laws.

WHY MUST A MANAGER BE CONCERNED WITH THE SHAREHOLDER? Shareholders are unique stakeholders because they are the actual owners of the corporation. Through investments and stock purchases, shareholders own the corporation but are not involved in its management or direction. The business, and therefore the manager, is caught in the interesting situation of assuring the public, government agencies, and their specific industry that all financial dealings are legal and ethical, while honoring the fiduciary relationship between the business and the stockholders. To do any less can bring the company to financial ruin, as seen in the Enron scandal, which led to corporate bankruptcy and criminal charges against Enron executives.

The Shareholder as a Stakeholder In tonight’s seminar, you will play the role of shareholder, bringing your questions and concerns (that you've prepared in advance) to the meeting. Come prepared to ask questions and to be called upon. Tonight’s Seminar will be based on the following fictitious scenario.

The Shareholder as a Stakeholder Dickins Enterprises owns and manages seven mid-size theme parks throughout the United States. They have annual revenue of $200 million. In the past three years, the stock has been well-received on Wall Street, and stockholders have been pleased with the performance of their investment in the company.

The Shareholder as a Stakeholder Three years ago, the Board of Directors hired Dennis Stowe as CEO. He arrived at Dickins with nearly 25 years of successful leadership behind him. He is well liked by all board members as well as managers and employees. Since he joined Dickins, revenues have grown by almost 20 percent per year. Board members, as well as company officers, attribute this growth directly to Dennis and his leadership, vision, and intellect.

The Shareholder as a Stakeholder Last year, Stowe made a change in the company benefits package to include insurance coverage for unmarried employee's partners, either same-sex or opposite-sex. The board approved this decision, and officers, as well as employees, barely reacted other than to state that it was a good idea and that it was really the fair thing to do. Employees and management recognized that this change was not giving special rights to any one group; it was simply giving equal rights to all employees.

The Shareholder as a Stakeholder A few months ago, a popular televangelist wrote a commentary that appeared in major newspapers across the country. In the commentary, the televangelist took issue with Dickins' new benefits program, stating, "Corporations, such as Dickins Enterprises, continue to mock our American values and our American families." He then called for a nationwide boycott of all of Dickins theme parks and associated products.

The Shareholder as a Stakeholder Business at the parks has since dropped 15 percent, with several religious and children's groups canceling group trips to the parks. The issue continues to be the topic of talk radio and late night television. Dennis Stowe appeared on a national news program to defend the position. His appearance led to an extension of the boycotts by senior groups, community groups, and corporate conference travelers.

The Shareholder as a Stakeholder Stowe has the authority to repeal the benefits package and end the boycott. However, research indicates that although a national boycott is costly in the beginning, once the media frenzy ends, business resumes as those who support the decision continue to patronize the establishment.

The Shareholder as a Stakeholder Stowe stated to the Board last month, "Business will pick up, and I expect even higher returns in a year or two. The reason is simple. First, right now, these people leading the boycotts are finding it easy to get groups to cancel their trips. The trips were scheduled and all they need to do is make a phone call to cancel. Those in America who support our decision, and I assure you there are many, cannot simply hop on a plane and take vacation to show their support. However, I assure you that when it comes time to plan that family or romantic vacation, they will remember us and they will show their support by spending their money at a Dickins theme park."

The Shareholder as a Stakeholder The Board agrees but is impatient for the return of business. The Board is also concerned that stockholders will replace the board if the board does not act. Stowe has stated that he will not rescind the policy and that he stands by it as the right thing to do. He believes that corporate America must become more tolerant and must lead by example. If forced to rescind the policy, Stowe has stated that he will leave the company.

Be prepared to answer the following questions as a stockholder in the Seminar: Should the stockholders be concerned about other stakeholders? Why, or why not?

The Shareholder as a Stakeholder Should the stockholders vote to replace board members until they get a majority that will fire Stowe?

The Shareholder as a Stakeholder What are the stockholders' options?

The Shareholder as a Stakeholder What other issues must the stockholders be concerned about?

The Shareholder as a Stakeholder Does profit outweigh all else?

Adjourn See you on the discussion boards.