The Corporation and Its Stakeholders

Business and Society

Business today is one of the dominant institutions in society, all aroung the world. The term business refers here to any organization that is engaged in making a product or providing a service for a profit. Society in its broad sense, refers to human being and to trhe social structures they collectively create. In a more specific sense, the term is used to refer to segments of humankind, such as members of a particular community, nation, or interest groups. As a set of organization created by humans, business is clearly a part of society. At the same time, it is also a distinct entity, separated from the rest of society by clear boundaries.

Society

Busines s

Figure : Business and Society : An Interactive System.

Business and Society

The collection of private, commercially oriented organizations A broad group of people and other organizations, interest groups, a community, a nation.

Business

Society

Business and society interrelate in a macroenvironment as stakeholders.

Segments of the Macroenvironment

Segment Social Focus

Demographics, lifestyles, social values Nature and direction of the economy in which business operates Processes for passing of laws and election of officials. Interactions between firms, politics, and government

Economic

Political

Changes in technological advancements Technological taking place in society

Societys Expectations Versus Businesss Actual Social Performance

Societys Expectations of Business Performance

Social Performance: Expected and Actual

Social Problem
Social Proble m
Businesss Actual Social Performance

1960s Time

2000s

The Stakeholder Theory of the Firm

Purpose of the Firm Maximize Returns to Stakeholders

Corporations

Serve a broad public purpose

To Create Value for Society

Professional Development for their employees

Innovative products For their customers

The Stakeholder Theory of the Firm Three Core Arguments for their positions : 1.Descriptive 2.Instrumental. 3.Normative.

The term stakeholder refers to persons and groups that affect, or are affected by, an organizations decisions, policies, and operations. The word stake , in this context, means an interest in or claim on a business enterprise. 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. ( For this reason, market stkeholders are also sometimes called primary stakeholders.) Nonmarket stakeholders, by contrast, are people and groups who although they do not engage in direct economic exchange with the firm are nonetheless affected by or can affect its action ( also called secondary stakeholders ) Of further note, some individuals ar groups may play

The Stakeholder Concept

Employee es Distributor s,Wholesal ers,Retaile rs Stockholde rs

Business Firm
Customers Creditors

Suppliers

Figure : Market Stakeholders of Business

Communiti es General Public Governmen ts

Business Firm
Business Support Group Media Activist Groups

Figure : Nonmarket Stakeholders of Business

Stakehold er Business Firm Stakeholde r

Stakeholde r

Stakeholde r

Figure : A Stakeholder Network

Stakeholder Analysis and Engagement.

Four key questions to be answered : 1. Who are relevant stakeholders ? ( Identifying stakeholders ) 2. What are the interest of each stakeholder ? ( Stakeholder interests ) 3. What is the power of each stakeholder ? ( Stakeholder power means the ability to use resources to make an event happen or to secure a desired outcome. Experts have recognized four types of stakeholder power : voting power, economic power, political power, and legal power. ) 4. How are coalitions likely to form ? ( The coalitions are not static )

Stakeholder Engagement
Several experts have observed a shift from an inactive to a reactive to a proactive to an interactive relation. 1. Inactive Engagement 2. Reactive Engagement 3. Proactive Engagement 4. Interactive Engagement. Stakeholder dialogue

The Dynamic Environment of Business

A core argument is that the external environment of business is dynamic and ever changing. Businesses and their stakeholders do not interact in a vacumn. The six dynamic forces that powerfully shape the business and society relationship ; 1. Changing societal expectations. 2. Dynamic natural environment. 3. Explosion of new technology. 4. Globalization. 5. Evolving government regulation of business. 6. Growing emphasis on ethical values

Evolving Government Regulation of Business

Growing Emphasis On Ethical Values

Globalization Business and its Stkeholders Explosion of New Technology Dynamic Natural Environment

Changing Societal Expectations

Figure : Forces That Shape the Business and Society Relationship

Creating Value in a Dynamic Environment

The relationship between business and society is continuously changing in new and often unpredictable ways. Environments, people, and organizations change : inevitably, new issues will arise and challenge managers to develop new solutions. To be effective, corporation must meet the reasonable expectations of stakeholders and society in general. A successful business must meet both its economic and sicial objectives. The purpose of the firm is not simply to make a profit, but to create value for all its stakeholders. Ultimately, business success is judged, not simply by a companys financial performance, but by how well it serves broad social interests.

External Stakeholders Customers Contributors

Suppliers Governments Unions Local Communities General Public Inducements

The Firm

Contributors

Inducements

Internal Stakeholders Stockholders Employees Managers Board Members Figure 2.1: Stakeholders and the Enterprise

The Stakeholder Relationship

Environmental Groups General Public Local Provincial Federal

Corporate Raiders Private Citizens Institutional Investors

Communit y Busines s

Governme nt Employee s

Unions
Older Employees

Owners

Women Minorities

Consumer s
Consumer Activists Liability Threats

Civil Activists