Business And Society

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Market Stakeholders

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stakeholder interest involves direct economic exchange with the firm (primary)

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Nonmarket Stakeholder

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stakeholder has other interest (secondary)

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Corporate Manager's Responsibility to Stakeholders

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-the legal responsibility is to manage the firm to the best interest of the owners
-top managers need to maintain autonomy in making decisions
-stakeholders perceptions are often based on incorrect info
-stakeholders may not have knowledge of the firm or concern with its well being
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The amount of attention given to a stakeholder group should depend on

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-how significantly they are affected by the firm's actions
- how much potential they have to affect the firm
-whether they have the ability and willingness to use their power
-how consistent their interests are with the interests of the firm

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types of power

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1. reward power
2. punishment power
3. expert power
4. referent power
5. legitimate power
5. legal power
7. media power
8. economic power

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reward power

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control of critical resources

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punishment power

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ability to inflict harm

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expert power

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control of essential information

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referent power

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subject identifies with other party or perceives important common interests

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legitimate power

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subject believes other party has a right to influence behavior

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legal power

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special statutory, regulatory or common law protections that align the government with a party or give one party an advantage in civil suits

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media power

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ability to shape public opinion by controlling access to or interpretation of information

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economic power

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disproportionate capacity to expend resources to influence or resist influence

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strategies for dealing with stakeholders

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1. legitimize them
2. negotiate
3. neutralize them
4. pacify them
5. ignore them

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legitimize them

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accept their right to power and accomodate them

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negotiate

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focus on a common interest and seek and "understanding"

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neutralize them

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find ways to reduce their power

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pacify them

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acknowledge them but make no significant changes in behavior

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ignore them

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disregard their influence attempts

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the stakeholder environment

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good managers attempt to shape their environment to their advantage, not merely respond to it

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in order to shape environment, manager must

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1. identify environmental interests
2. evaluate interests in terms of nature and significance
3. respond appropriately
4. scan environment for unanticipated forces
5. monitor for unanticipated trends
6. include complexity in your planning process

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What defines a society

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a group of people, larger than a family that share a common identity based on geographic territory, political authority, and culture

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Benefits to living in a society

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Security- protection against enemies
Order- ability to interact in a predictable way
Affiliation- companionship, mating, reproduction
Economics- acquire the things needed for survival and comfort

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The fundamental economic question

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"how do we allocate our labor and resources to provide for our current needs and long term prosperity"
"who does what and who gets what so we can survive and thrive"

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The way in which societies answer this fundamental question

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authority, responsibilities, laws, customs, shared values, technology and interactions
**Historically** it is answered
Tradition, command, and free market

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Tradition Based Economies

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common in societies that are isolated from others.
- are generally self sufficient
-limited commerce with outsiders
- limited encounters with hostile outsiders
-low pressure to adapt to changes

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Command Based economies

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usually arise from:
-need to defend themselves from outsiders, who want what they have
-desire to take what others have
-desire to emulate more powerful societies
-percieved need for social change
-ability for strong members to force their dominance over others
*historically this is the most common society

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Why the Free Market was revolutionary

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1. recognized wealth was dynamic
2. by efficiently creating value, one can increase the value for everyone
3.recognizes that people who act in their own self-interest will naturally create the most efficient use of labor and resources

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limits of the free market

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1. not well suited to the production of "social goods"- things that benefit the whole society but cannot easily be produced and sold in individual units
2. social values, other than efficient production of material goods are not addressed by the market
3. monopolies and other individual practices that undermine competition may prevent the market from functioning

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costs associated with societal affiliation

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-economic costs (taxes)
-conformity (pressure to conform to behavioral norms)
-limited opportunities (legal restrictions on personal achievement)
-restrictions on freedom (laws that are perceived as oppressive)

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Social Disaggregation

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when people feel the costs of membership exceed the benefits, it may result in emotional or physical separation from society
-physical withdrawal
-psychological realignment
-De-legitimization of authority

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how to counteract social disaggregation

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societies must reinforce in the minds of their members why membership to the society is good for them

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Social Institutions

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Groups, organizations, and ordered systems of relationships and behaviors that are
-relatively permanent
-serve a social purpose beyond the benefit of the members
-have degree of social approval from other members
-social institutions may be planned, emergent or both

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functional Types of social institutions

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large, complex social institutions need to perform 3 basic funtions to prevent disaggregation
-Governmental institutions
-Cultural Institutions
- Economic Institutions

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what essential functions does society need from government

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-protect members from external threats
-maintain order within society
-administer justice when laws are violated/ or members feel that their rights have been violated

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examples of cultural institutions in the US

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churches, schools, media,

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What is the function of cultural institutions

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they should remind us of the values we share that are more important than the way we differ

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example of economic institutions

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banks, stock markets, corporations

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what is the function of ECONOMIC institutions

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to create wealth for society by producing the goods and services people want, effectively and efficiently

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Objective Definition of a Stakeholder

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anyone who affects or is affected by a firm's decisions, operations or policies (textbook)
-assumes that corp. have a responsibility to consider the effect of their actions on all stake holders when making decisions

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Political Definition of a Stakeholder

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Anyone who perceives an interest in the firm's actions and acts to influence it
-focuses on how external groups actually influence corporate decisions. anyone can be a stakeholder if they want

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Examples of Stakeholders

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stockholders, customers, employers, suppliers, debt holders, interest groups, communities

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theories of the firm: Ownership theory

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corporations are the property of the owners and exist to maximize their returns

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corporations are the property of the owners and exist to maximize their returns

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corporations exist to serve broad social purposes; owners are the only one group of stakeholders whose interests must be considered
**stakegholder theory is a THEORY
**Ownership theory is the LAW

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Market stakeholders include

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employees, stockholders, creditors, suppliers, customers, distributors, wholesalers, and retailers. Each relationship is based on a unique transaction, or two-way exchange.

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Stakeholder power according to the text

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the ability to use resources to make an event happen or to secure a desired outcome. There are four types of stakeholder power voting power, economic power, political power, and legal power.

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Salience

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to be salient is when something stands out from the background, seen as important, or draws attention. Stakeholders stand out to managers when they have more power, legitimacy, and urgency.

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o Legitimacy

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refers to the extent to which a stakeholder’s actions are seen as proper or appropriate by the broader society.

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o Urgency

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refers to the time sensitivity of a stakeholders claim.

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• Public issue:

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issue that is of mutual concern to an organization and one or more of its stakeholders, also called social issues or sociopolitical issues.

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• Performance-expectation gap

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the perceived distance between what a firms wants to do or is doing and what the stakeholder expects.

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• Issue management process

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a five-step process where managers identify the issue, analyze the issue, generate options, take action, and evaluate results.

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o Issue management

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the active management of public issues once they come to the attention of a business organization

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 Identify issue

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involves anticipating emerging concerns, sometimes called horizon issues. Managers sometimes become aware of these issues by carefully tracking the media, experts’ views, activist opinion, and legislative developments to identify issues of the public concern. Organizations often use techniques such as, data searching, media analysis, and public surveys to track ideas, themes, and issues that may be relevant.

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 Analyze the issue

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organizations must understand how the issue is likely to evolve, and how it is likely to affect them.

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 Generate options:

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generating, evaluating, and selecting possible outcomes. This requires complex judgments that incorporate ethical considerations, the organization’s reputation and good name. Selecting an appropriate response often involves a creative process of considering various alternatives and rigorously testing them to see how they work in the practice.

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 Take action:

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once an option has been chosen, the organization must design and implement a plan of action.

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 Evaluate results

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an organization must continue to assess the results and make adjustments if necessary. Issue management is a continuous process, rather than one that comes to a clear conclusion.

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• Stages in the Business- Stakeholder Relationship

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the nature of business’s relationship with its stakeholders often evolves through a series of stages. These stages are characterized as inactive, reactive, proactive, and interactive, with each stage representing a deepening of the relationship. Sometimes, companies’ progress through this sequence from one stage to the next: other companies remain at one stage, or move backward in the sequence.

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o Inactive

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these companies simply ignore stakeholders concerns. These firms believe that they can make decisions unilaterally, without taking into consideration their impact on others.

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o Reactive

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these companies only act when forced to do so, and then in a defensive matter.

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o Proactive

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these companies try to anticipate stakeholder concerns. They often have specialized departments, such as public affairs, community relations, consumer affairs, and government relations, to manage stakeholder relationships. These firms are much less likely to be blind-sided by crises and negative surprises. However, concerns are still a problem to be managed than a competitive advantage.

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o Interactive

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these companies actively engage with stakeholders in an ongoing relationship of mutual respect, openness, and trust. Firms with this approach recognize that a positive stakeholder relationship is a source of value and competitive advantage for the company. They know that these relationships must be nurtured over time.

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• Drivers of Business-Stakeholder Engagement

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

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5. The drivers of stakeholder engagement

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goals, motivation and organizational capacity

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goals

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both the business and the stakeholder must have a problem that is important and urgent they want solved

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motivation

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both sides must be motivated to work with each other to solve the problem. Both sides depend on each other to accomplish their goals because the objectives cannot be accomplished on their own (interdependence)

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organizational capacity

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: each side must have the organizational capacity to engage the other in a productive dialogue. Ex. An external affair department within the business or leadership for the stakeholder

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Corporate social responsibility: (CSR)

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means that a corporation should act in a way that enhances society and its inhabitants and be held accountable for any of its actions that affect people, their communities, and their environment. It implies that harm to people and society should be acknowledged and corrected if possible

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Arguments for corporate social responsibility:

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- Social groups with specific public interests (ex. Environmentalists, discriminations)
- Government officials are in favor of CSR because it ensures corporate compliance with rules and regulations that protect the public
- voluntary social acts may head off increased government regulation that may inhibit the freedom for both business and society.
- Social initiatives by businesses produce long-run business profits.
- It improves business value and reputation. Reputation refers to (un)desirable qualities associated with an organization or its actors that may influence the organization’s relationship with its stakeholders. The firms reputation is a valuable intangible asset that attracts loyal customers and better employees
- Corrects social problems caused by business. Ex. If a firm pollutes the environment, they are responsible to clean it up

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Arguments against social responsibility:

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Lowers Economic Efficiency and Profits: any time a business uses some source of its resources for social purposes, it risks lowering its efficiency.
o Imposes Unequal Costs among Competitors: CSR imposes greater costs on more responsible companies, putting them at a competitive disadvantage.
o Imposes Hidden Costs Passed On to Stakeholders: many social proposals undertaken by business do not pay their own way in an economic sense; therefore, someone must pay for them. Society pays all costs.
o Requires Skills Business May Lack: putting businesspeople in charge of solving social problems may lead to unnecessarily expensive and poorly conceived approaches.
o Places Responsibility on Business rather Than Individuals: Only individual people can be responsible for their actions. People make decisions; organizations do not. An entire company cannot be held liable for its actions, only those individuals who are involved in promoting or carrying out a policy.

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Hierarchy of Social responsibility

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economic -> legal -> ethical -> discretionary

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Significance of a hierarchy

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1. priority necessity: economic and legal are what you must do, ethical is what you should do, and discretionary is what you might do

2. priority of significance: firms that assume higher levels of responsibility are better than those that don't

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what are the economic responsibilities of a corporation

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to provide goods and services valued by the market efficiently and effectively and to create wealth for society

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what are discretionary responsibilities

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responisbilities that the firm voluntarily undertakes for the benefit of society as a whole or for the benefit of a clear external party that produces no economic benefit to the firm