© 2015 Cengage Learning

Chapter 3 The Stakeholder Approach to Business, Society, and Ethics © 2015 Cengage Learning

Learning Outcomes Define stake and stakeholder, and describe the origins of these concepts. Differentiate among the production, managerial, and stakeholder views of the firm. Differentiate among the three values of the stakeholder model. Expound upon the concept of stakeholder management. Identify and describe the five major questions that capture the essence of stakeholder management. Identify the three levels of stakeholder management capability (SMC). Describe the key principles of stakeholder management. © 2015 Cengage Learning

Chapter Outline (1 of 2) Origins of the Stakeholder Concept Who Are Business’s Stakeholders? Stakeholder Approaches Three Values of the Stakeholder Model Key Questions in Stakeholder Management Effective Stakeholder Management Developing a Stakeholder Culture Stakeholder Management Capability The Stakeholder Corporation © 2015 Cengage Learning

Chapter Outline (2 of 2) Principles of Stakeholder Management Strategic Steps Toward Global Stakeholder Management Summary Key Terms Discussion Questions © 2015 Cengage Learning

Origins of the Stakeholder Concept An interest or a share in an undertaking. Can be categorized as: An Interest A Right Ownership Legal Right Moral Right 6 6 © 2015 Cengage Learning

Stakeholders Stakeholder - Any individual or group who can affect or is affected by the actions, decisions, policies, practices, or goals of the organization. Stakeholder is a variant of the concept of stockholder– an investor/owner of businesses. © 2015 Cengage Learning

Who are Business’s Stakeholders? Business Stakeholder Groups Media Suppliers Special-Interest Groups Society General Public Competitors Customers Community Stockholders Employees 8 © 2015 Cengage Learning

Three Views of the Firm Production View Managerial View Stakeholder View © 2015 Cengage Learning

Production and Managerial Views of the Firm (fig 3-2 slightly different) © 2015 Cengage Learning

Stakeholder View of the Firm © 2015 Cengage Learning

Primary & Secondary Stakeholders Primary stakeholders - Have a direct stake in the organization and its success. Secondary stakeholders - Have a public or special interest stake in the organization that is more indirect. © 2015 Cengage Learning

Social Stakeholders Primary social stakeholders Secondary social stakeholders Shareholders and investors Government regulators Employees and managers Civic institutions Customers Social pressure groups Local communities Media and academic commentators Suppliers and other business partners Trade bodies Competitors © 2015 Cengage Learning

Nonsocial Stakeholders Primary nonsocial stakeholders Secondary nonsocial stakeholders Natural environment Environmental interest groups Future generations Animal welfare organizations Nonhuman species © 2015 Cengage Learning

A Typology of Stakeholder Attributes Legitimacy - Refers to the perceived validity or appropriateness of the stakeholder’s claim to a stake. Power - Refers to the ability or capacity of a stakeholder to produce an effect. Urgency - Refers to the degree to which the stakeholder’s claim demands immediate attention or response. Proximity - The spatial distance between the organization and its stakeholders. © 2015 Cengage Learning

Stakeholder Typology © 2015 Cengage Learning

Stakeholder Approaches Strategic approach - Views stakeholders primarily as factors managers should manage in pursuit of shareholder profits. Multifiduciary approach - Views stakeholders as a group to which management has a fiduciary responsibility. Stakeholder synthesis approach - Considers stakeholders as a group to whom management owes an ethical, but not a fiduciary, obligation. © 2015 Cengage Learning

Three Values of the Stakeholder Model Descriptive Value Instrumental Value Normative Value © 2015 Cengage Learning

Key Questions in Stakeholder Management Who are our organization’s stakeholders? What are our stakeholders’ stakes? What opportunities and challenges do our stakeholders present to the firm? What responsibilities (economic, legal, ethical, and philanthropic) does the firm have to its stakeholders? What strategies or actions should the firm take to best address stakeholder challenges and opportunities? © 2015 Cengage Learning

© 2015 Cengage Learning

Who Are Our Stakeholders? © 2015 Cengage Learning

What Are Our Stakeholders’ Stakes? To identify them, consider - the nature and legitimacy of a group’s stakes. the power of a group’s stakes. Sub-groups within a generic group. © 2015 Cengage Learning

What Opportunities and Challenges do Stakeholders Present? Build productive working relationships with stakeholders The potential for cooperation Challenges Representative of how the firm handles its stakeholders The potential for threat © 2015 Cengage Learning

What Responsibilities Does a Firm Have to its Stakeholders? Apply Corporate Social Responsibility - Responsibilities are Economic Legal Ethical Philanthropic © 2015 Cengage Learning

The Stakeholder Responsibility Matrix Stakeholders Economic Legal Ethical Philanthropic Owners Customers Employees Community Public at large Social Activists Other © 2015 Cengage Learning

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? © 2015 Cengage Learning

Four Stakeholder Types - The Supportive Stakeholder High potential for cooperation, low for threat The Marginal Stakeholder Low potential for cooperation and threat The Nonsupportive Stakeholder High potential for threat, low for cooperation The Mixed-Blessing Stakeholder High on potential for threat & cooperation © 2015 Cengage Learning

Effective Stakeholder Management Stakeholder thinking - The process of always reasoning in stakeholder terms throughout the management process. Increases the complexity of decision-making, but most consistent with today’s business environment. Is facilitated by Stakeholder culture Stakeholder management capability Stakeholder corporation model Principles of stakeholder management © 2015 Cengage Learning

Developing a Stakeholder Culture Stakeholder Culture embraces the believes, values and practices that organizations have developed for addressing stakeholder issues and relationships. Moralist Altruist Instrumentalist Corporate egoist Agency Little concern for stakeholders Great concern for stakeholders © 2015 Cengage Learning

Stakeholder Management Capability 3-Transactional level 2-Process Level 1-Rational Level © 2015 Cengage Learning

Stakeholder Engagement - An approach by which companies successfully implement the transactional level of strategic management capability. Interaction with stakeholders must be integrated into every level of decision- making in the organization. A ladder of stakeholder engagement depicts a continuum from low engagement to high engagement. Transparency: working toward the open corporation. Sustainability is the latest emphasis on engaging stakeholders. © 2015 Cengage Learning

The Stakeholder Corporation In the future, development of loyal relationships with customers, employees, shareholders, and other stakeholders will become one of the most important determinants of success. The central element: Stakeholder inclusiveness © 2015 Cengage Learning

The “Clarkson Principles” of Stakeholder Management © 2015 Cengage Learning

Strategic Steps Toward Global Stakeholder Management Values Statement Create a stakeholder-inclusive “values statement.” 1. Governing Philosophy Integrate stakeholder management into the firm’s governing philosophy. Measurement System Implement a stakeholder performance measurement system. © 2015 Cengage Learning

Continued acceptance and use Expanded recognition and adoption Implementation Indicators of successful stakeholder management include: Survival Continued acceptance and use Avoided costs Expanded recognition and adoption © 2015 Cengage Learning

Key Terms (1 of 2) Clarkson principles descriptive value (of stakeholder model) instrumental value (of stakeholder model) key questions (in stakeholder management) legitimacy managerial view of the firm marginal stakeholder mixed-blessing stakeholder multifiduciary approach (to stakeholders) nonsupportive stakeholder normative value (of stakeholder model) Power primary social Stakeholders principles of stakeholder Management process level production view of the firm proximity © 2015 Cengage Learning

Key Terms (2 of 2) rational level secondary social stakeholders stake stakeholder corporation stakeholder culture stakeholder dialogue stakeholder engagement stakeholder inclusiveness stakeholder management capability stakeholder map stakeholder responsibility matrix stakeholder symbiosis stakeholder thinking stakeholder view of the firm strategic approach (to stakeholders) synthesis approach (to stakeholders) transactional level urgency © 2015 Cengage Learning