Unit 1: The corporation and its stakeholders
Business and society
Business and society together form an interactive social system
Business
Organizations engaged in making a product or providing a service for profit.
Society
Human beings and the social structures they collectively create.
General Systems Theory (GST)
- Organisms do not exist in isolation but can only be understood in relationship to their surroundings.
- Businesses are embedded in a broader social environment with which they constantly interact.
Shareholder and Stakeholder Theory of the Firm
The Shareholder Theory of the Firm
- Sees the firm as property of owners (shareholders).
- Owners’ interests take precedence over interests of others.
- The purpose of the firm is to maximize its long-term market value and money for its shareholders.
The Stakeholder Theory of the Firm
- Corporations serve a broad public purpose: to create value for society.
- Profit is necessary for survival but is not the only purpose of the firm.
- Corporations have multiple obligations and need to consider all stakeholders.
Shareholder theory and stakeholder theory define the purpose of business differently
Shareholder Purpose
- Owners needs and wants
- Share Value
Stakeholder Purpose
- Stakeholders needs and wants
Three arguments in support of the stakeholder theory of the firm
stakeholder management
is the right thing to do
• Descriptive • Instrumental
• Normative
realistic description of stakeholder consideration
how companies really key for effective corporate
work strategy
,Stakeholders
Stakeholders are persons or groups that affect, or are affected by, a firm’s decisions, policies, and operations.
- A stake is an interest in–or claim on–a business.
- Stakeholder is NOT the same as stockholder (or shareholder).
- Shareholders are just one of several kinds of stakeholders.
Two Kinds of Stakeholders:
Market stakeholders
- Shareholders, suppliers, employees, etc.
- They engage in economic transactions with the company as it carries out its primary purpose of providing society with
goods and services.
Nonmarket stakeholders
- Community, government, business support groups, etc.
- People or groups who—although they do not engage in direct economic exchange with the firm—are affected by or can
affect its actions.
Internal stakeholders are employed by the firm - external stakeholders are not
A Firm and Its Stakeholders
,Stakeholder Analysis
Stakeholder analysis includes the identification of relevant stakeholders and an analysis of their interests and power.
- 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?
Who are the relevant stakeholders?
Draw market and nonmarket stakeholder maps.
Recognize not all 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.
What are the interests of each stakeholder?
What are the groups’ concerns?
What does the group want/expect from their relationship with the firm?
Examples:
- Shareholders 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.
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.
Stakeholder Power Defined
There are 5 types of stakeholder power:
Voting Power
- The legal right to cast a shareholder vote.
Economic Power
- The ability to grant or withhold transactions with the focal company.
Political Power
- Actions taken through legislation, regulations, or lawsuits.
Legal Power
- Lawsuits filed against the focal company for harm caused by the firm.
Informational Power
- Having access to valuable data, facts, or details.
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 very dynamic (can change at any time).
- Coalitions are increasingly international.
- Internet has enabled coalitions to form quickly, across political boundaries.
Stakeholder Mapping
Stakeholder map – a visual representation of the relationships among stakeholder interests, power, and coalitions with respect
to a particular issue.
A stakeholder map is a useful tool because it enables managers to quickly see how stakeholders feel about an issue, how
coalitions are likely to form, how powerful these coalitions are, and what outcomes are likely.
, Stakeholder Map of SunCal’s Proposed Development
Stakeholder Salience
- Salient – stands out from a background, is seen as important, or draws attention.
- Stakeholders stand out (i.e., are salient) to managers when they have power, legitimacy, and urgency.
The Corporation’s Boundary-Spanning Departments
Boundary-spanning departments (shown graphically in the following slide): 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.
The Corporation’s Boundary Spanning Departments
Business and society
Business and society together form an interactive social system
Business
Organizations engaged in making a product or providing a service for profit.
Society
Human beings and the social structures they collectively create.
General Systems Theory (GST)
- Organisms do not exist in isolation but can only be understood in relationship to their surroundings.
- Businesses are embedded in a broader social environment with which they constantly interact.
Shareholder and Stakeholder Theory of the Firm
The Shareholder Theory of the Firm
- Sees the firm as property of owners (shareholders).
- Owners’ interests take precedence over interests of others.
- The purpose of the firm is to maximize its long-term market value and money for its shareholders.
The Stakeholder Theory of the Firm
- Corporations serve a broad public purpose: to create value for society.
- Profit is necessary for survival but is not the only purpose of the firm.
- Corporations have multiple obligations and need to consider all stakeholders.
Shareholder theory and stakeholder theory define the purpose of business differently
Shareholder Purpose
- Owners needs and wants
- Share Value
Stakeholder Purpose
- Stakeholders needs and wants
Three arguments in support of the stakeholder theory of the firm
stakeholder management
is the right thing to do
• Descriptive • Instrumental
• Normative
realistic description of stakeholder consideration
how companies really key for effective corporate
work strategy
,Stakeholders
Stakeholders are persons or groups that affect, or are affected by, a firm’s decisions, policies, and operations.
- A stake is an interest in–or claim on–a business.
- Stakeholder is NOT the same as stockholder (or shareholder).
- Shareholders are just one of several kinds of stakeholders.
Two Kinds of Stakeholders:
Market stakeholders
- Shareholders, suppliers, employees, etc.
- They engage in economic transactions with the company as it carries out its primary purpose of providing society with
goods and services.
Nonmarket stakeholders
- Community, government, business support groups, etc.
- People or groups who—although they do not engage in direct economic exchange with the firm—are affected by or can
affect its actions.
Internal stakeholders are employed by the firm - external stakeholders are not
A Firm and Its Stakeholders
,Stakeholder Analysis
Stakeholder analysis includes the identification of relevant stakeholders and an analysis of their interests and power.
- 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?
Who are the relevant stakeholders?
Draw market and nonmarket stakeholder maps.
Recognize not all 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.
What are the interests of each stakeholder?
What are the groups’ concerns?
What does the group want/expect from their relationship with the firm?
Examples:
- Shareholders 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.
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.
Stakeholder Power Defined
There are 5 types of stakeholder power:
Voting Power
- The legal right to cast a shareholder vote.
Economic Power
- The ability to grant or withhold transactions with the focal company.
Political Power
- Actions taken through legislation, regulations, or lawsuits.
Legal Power
- Lawsuits filed against the focal company for harm caused by the firm.
Informational Power
- Having access to valuable data, facts, or details.
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 very dynamic (can change at any time).
- Coalitions are increasingly international.
- Internet has enabled coalitions to form quickly, across political boundaries.
Stakeholder Mapping
Stakeholder map – a visual representation of the relationships among stakeholder interests, power, and coalitions with respect
to a particular issue.
A stakeholder map is a useful tool because it enables managers to quickly see how stakeholders feel about an issue, how
coalitions are likely to form, how powerful these coalitions are, and what outcomes are likely.
, Stakeholder Map of SunCal’s Proposed Development
Stakeholder Salience
- Salient – stands out from a background, is seen as important, or draws attention.
- Stakeholders stand out (i.e., are salient) to managers when they have power, legitimacy, and urgency.
The Corporation’s Boundary-Spanning Departments
Boundary-spanning departments (shown graphically in the following slide): 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.
The Corporation’s Boundary Spanning Departments
