1. The Corporation and Its Stakeholders
Chapter 1
The Corporation and Its Stakeholders

2. Ch. 1: Key Learning Objectives
Understanding the relationship between business and society and the ways in which they are part of an interactive system
Considering the purpose of the modern corporation
Knowing what is a stakeholder and who are a corporation’s market and nonmarket stakeholders
Conducting a stakeholder analysis and understanding how it can be used to build collaborative relationships
Recognizing the diverse ways in which modern corporations organize internally to interact with various stakeholders
Analyzing the forces of change that continually reshape the business and society relationship

3. Introduction – The Business and Society Relationship
Business: Any organization that is engaged in making a product or providing a service for a profit
Society: Human beings and the social structures they collectively create
Business and society are highly interdependent

4. Use of Terminology in this Course
Environment
Society

5. The Relationship Between Business and Society

6. General System Theory
A system is characterized by the interactions of its components and the nonlinearity of those interactions
An organization (corporation) is a system composed of various interacting components (departments)
Likewise, an organization is a component of the environment (system) in which it operates
Theory posits that organisms cannot be understood in isolation, even though they have clear boundaries; they can only be understood in relationship to their surroundings.

7. General System Theory
Must view organizations as open systems that interact with their environment.
The environment within which a corporation has a number of aspects:
Economic
Social
Physical

8. General System Theory
A system is characterized by the interactions of its components and the nonlinearity of those interactions
An organization (corporation) is a system composed of various interacting components (departments)
Likewise, an organization is a component of the environment (system) in which it operates
Theory posits that organisms cannot be understood in isolation, even though they have clear boundaries; they can only be understood in relationship to their surroundings.

9. General System Theory
Must view organizations as open systems that interact with their environment.
The environment within which a corporation has a number of aspects:
Economic
Social
Physical

10. General Systems Theory
But those inquiries only provide part of the puzzle pieces as to why an individual or a corporation is successful
To see the full picture, one must also look at the environment (society) in which an individual or corporation functions and how that individual or corporation adopts to and/or modifies its environment

11. General Systems Theory - Example
We can study a human being and all the internal structures and organs to help us understand how all the pieces inter-relate and function together most efficiently
Similarly, we can study a corporation and all its component systems, departments, and organizational untts in an effort to maximize efficiency

12. General Systems Theory
Understanding the interaction between an individual and the society in which they function is a key piece of the puzzle towards understanding how the individual functions

13. Strategic Operating Plan
Understanding the Internal and External Environments Is a Key Element of Strategic Planning
Strategic Operating Plan
External
Environment
Internal Resources
The environment in which the business organization functions
The culture, resources, and leadership of the business organization

14. Strategic Operating Plan
Understanding the Internal and External Environments Is a Key Element of Strategic Planning
Strategic Operating Plan
External
Environment
Internal Resources
The environment in which the business organization functions
The culture, resources, and leadership of the business organization

15. Business and Society: An Interactive System
Figure 1.1

16. Business Organization
The Course – What’s It About
Society
Government
Media
Community
Public Interest
Groups
Business Organization
Regulators
Consumers
Competitors
Suppliers

17. Introduction – The Stakeholder Theory of the Firm
Two critical questions:
What is the purpose of the modern corporation?
To whom or what should the firm be responsible?
Traditional view: “Ownership Theory of the Firm”
Firm is the property of its owners
Purpose is to maximize returns to shareholders
Shareholders’ interests are paramount and take precedence over all others

18. Introduction – Stakeholder Theory of the Firm
Contrasting view: “Stakeholder Theory of the Firm”
Argues the corporation serves a broader purpose: to create value for society
Must make profit for owners to survive, however, also creates other kinds of value
Corporations have multiple obligations; all “stakeholder” groups must be taken into account

19. Core Arguments for Stakeholder Theory of the Firm
Descriptive
More realistic description of how companies really work
Instrumental
More effective corporate strategy
Normative
Stakeholder management is the right thing to do

20. The Stakeholder Concept
A stakeholder refers to persons or groups that affect, or are affected by, an organization’s decisions, policies, and operations
A stake is an interest in – or claim on – a business enterprise
Businesses are embedded in networks that involve many groups with such a stake

21. The Stakeholder Concept A Tip for Understanding
Term stakeholder is NOT the same as stockholder
Words sound similar BUT are not the same
Stockholders are one of several kinds of stakeholders

22. Purposes of a Modern Corporation (Another View)
Making a profit.
Turning the problems of the world into business opportunities. Creating value for shareholders while helping society develop in a stable and healthy way.
Poverty
Global warming
Shaping business strategies to incorporate new opportunities.
Looking at long-term results and consequences.
What is the purpose of business?

23. The Role of Business in Tomorrow’s Society
World Business Council for Social Development
Role of Business in Society

24. Market and Nonmarket Stakeholders
Stakeholder groups can be divided into two categories:
Market stakeholders
Nonmarket stakeholders
Market stakeholders are those that engage in economic transactions with the company as it carries out its primary purpose of providing society with goods and services
Sometimes referred to as primary stakeholders

25. Market Stakeholders of Business
Figure 1.2
Market Stakeholders of Business

26. Nonmarket Stakeholders
Nonmarket stakeholders are people or groups who—although they do not engage in direct economic exchange with the firm—are affected by or can affect its actions
Sometimes called secondary stakeholders

27. Nonmarket Stakeholders of Business
Figure 1.3
Nonmarket Stakeholders of Business

28. Figure 1.4
A Stakeholder Network

29. Understanding how business can build collaborative relationships with stakeholders through engagement, dialogue, and network-building

30. Stages in the Business-Stakeholder Relationship
Over time, the nature of business’s relationship with its stakeholders often evolve through a series of stages
Inactive
Companies ignore stakeholder concerns
Reactive
companies act only when forced to do so, and then in a defensive manner
Proactive
Companies try to anticipate stakeholder concerns
Interactive
Companies actively engage stakeholders in an ongoing relationship of mutual respect, openness, and trust
© 2008 The McGraw-Hill Companies, Inc. All rights reserved.

31. Need for Business-Stakeholder Relationship
A company can be inactive or reactive where the is little, if any, competition or foreseeable competition and minimal probability of interference from government.
The greater the competitive environment and the more power that stakeholders possess, the greater the need to be proactive and/or interaction in order for the company to be sustainable and to flourish.

32. Drivers of Stakeholder Engagement
Stakeholder engagement is, at its core, a relationship
The participation of a business organization and at least one stakeholder organization is necessary, by definition, to constitute engagement
Engagement is most likely when both the company and its stakeholders both have
an urgent and important goal,
the motivation to participate, and
the organizational capacity to engage with one another

33. Making Engagement Work Effectively
In stakeholder dialogue, a business and its stakeholders come together for face-to-face conversations about issues of common concern
Corporations sometimes encounter public issues that they can address effectively only by working collaboratively with other businesses and concerned persons and organizations in stakeholder networks

34. Making Engagement Work Effectively
Engaging with stakeholders benefits businesses by:
bringing in expertise,
defining issues,
enhancing legitimacy (buy-in), and
generating creative solutions to common problems
© 2008 The McGraw-Hill Companies, Inc. All rights reserved.

35. 9/16/2018
Constructive relationships with stakeholders are created if they are. . .
Mutual
Interactive
Consistent over time
Interdependent

36. Stakeholder relationships are built on...
9/16/2018
Stakeholder relationships are built on...
Interaction
Mutual respect
Dialogue
NOT dominance nor “management” of stakeholders

37. Stakeholder Analysis It is part of every manager’s job
Process whereby identify relevant stakeholders and analyze their interest and power
Asks these four questions:
Who are the relevant stakeholders?
What are the interests of each stakeholder?
What is the power of each stakeholder?
How are coalitions likely to form?

38. Stakeholder Analysis – Question 1 Who are the relevant stakeholders?
Answer this question by drawing market and nonmarket stakeholder maps
Recognize that not all of groups are relevant to every situation
Examples:
Some businesses sell directly to the public and will not have retailers
A certain stakeholder may not be relevant to a particular decision/action

39. Stakeholder Analysis – Question 2 What are the interests of each stakeholder?
Analyzing stakeholder interests includes addressing:
What are the group’s concerns?
What does the group want/expect from its relationship with the firm?
Examples:
Stockholders have an ownership interest; they expect to receive dividends and capital appreciation
Customers are interested in gaining fair value and quality in goods and services they purchase
Public interest groups advance broad social interests

40. Stakeholder Analysis – Question 3 What is the power of each stakeholder?
Stakeholder power is the ability of a group to use resources to make an event happen or to secure a desired outcome
There are 4 types of stakeholder power:
Voting power
Economic power
Political power
Legal power

41. Stakeholder Analysis – Question 4 How are stakeholder coalitions likely to form?
Stakeholder groups often have common interests and will form temporary alliances to pursue these common interests
Coalitions are dynamic (can change at any time)
Coalitions are increasingly international
Internet has enabled coalitions to form quickly, across political boundaries
International alliances, coupled with media interest, can be a powerful strategic force for companies

42. Stakeholder Salience and Mapping
Salient – stands out from a background, is seen as important or draws attention
Stakeholders stand out (i.e., salient) to managers when they have power, legitimacy, and urgency
Managers can use the salience concept to develop a stakeholder map – a graphical representation of the relationship of stakeholder salience to a particular issue
A stakeholder map is a useful tool, because it enables managers to see quickly how stakeholders feel about an issue

43. Stakeholder Map
Figure 1.5

44. Boundary Spanning Departments
Issue
Boundary Spanning Departments

45. The Corporation’s Boundary-Spanning Departments
Boundary-spanning departments – departments or offices within an organization that reach across the dividing line that separates the company from groups and people in society
Building positive and mutually beneficial relationships across organizational boundaries is a growing part of management’s role

46. © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
The Corporation’s Boundary-Spanning Departments
© 2008 The McGraw-Hill Companies, Inc. All rights reserved.

47. The Dynamic Environment of Business
The external environment of business is dynamic and ever-changing
The purpose of the firm is not simply to make a profit, but to create value for all its stakeholders – a successful business must meet both its economic and social objectives
Six dynamic forces powerfully shape the business and society relationship:
Changing societal expectations
Growing emphasis on ethical reasoning and actions
Globalization
Evolving government regulations and business response
Dynamic natural environment
Explosion of new technology and innovation

48. Forces that Shape the Business and Society Relationship
Figure 1.7
Forces that Shape the Business and Society Relationship

49. Questions to ask:
Should interactions between boundary spanning departments and stakeholders be centrally coordinated, or should each department act independently?
Who should access how “shaping forces” should be dealt with?