Download stakeholders, company mission, governance and

STAKEHOLDERS, COMPANY
MISSION, GOVERNANCE AND
BUSINESS ETHICS
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Stakeholder - A person, group, or organization
that has direct or indirect stake in an
organization because it can affect or be affected
by the organization's actions, objectives, and
policies. Key stakeholders in a business
organization include creditors, customers,
directors, employees, government (and its
agencies), owners (shareholders), suppliers,
unions, and the community from which the
business draws its resources.
http://www.businessdictionary.com
•
Stakeholder - All persons and institutions that
have an interest in seeing a venture or company
succeed. Stakeholders include shareholders,
management, employees, the larger community,
and even the government. While stakeholders
may not have a direct financial holding in the
company, they would still stand to benefit if the
venture or company succeeds.
http://financial-dictionary.thefreedictionary.com/
•
Although numerous ways of viewing
stakeholders exist, categorizing stakeholder
perspectives into three broad categories helps
elicit the basic underlying themes among these
numerous views. These broad categorizations
include the separation perspective, the ethical
perspective, and the integrated perspective.
STAKEHOLDER PERSPECTIVE
Separation Perspective

The separation perspective suggests that, because managers are
agents of the firm's owners—the shareholders—managers
should always strive to act in the best interest of the
firm's owners. This view does not cause managers to ignore
non-owner stakeholders; indeed, when taking actions that benefit
stakeholders also benefit owners, the separation perspective
would advise managers to do so. One facet that differentiates this
perspective from the others, however, is the rationale behind
such decisions; the reason managers make decisions and
take actions benefiting non-owner stakeholders is
ultimately to reward owners. Clearly, problems arise when a
given decision would maximize the benefit to non-owners at the
expense of owners, but that would serve the greater good of
society in general.
Separation Perspective
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.For example, suppose a new but relatively expensive technology
was created that lowered pollution from steel mini-mills below
the level required by the DENR. In this case, there is no law
requiring the steel mini-mills to purchase and implement the new
technology, but doing so would benefit stakeholders such as the
community in which the mini-mill had factories.Yet, due to the
cost of the new technology, owners' profits would suffer. The
separation perspective would direct managers in this situation to
dismiss the benefit of lower pollution levels for the community in
favor of maximizing owners' profits by meeting DENR
requirements, but not by spending funds in excess of what the
DENR requires.
Ethical Perspective

The ethical perspective is that businesses have an obligation to
conduct themselves in a way that treats each stakeholder group
fairly. This view does not disregard the preferences and claims of
shareholders, but takes shareholder interests in consideration
only to the extent that their interests coincide with the greater
good.

This approach focuses on ethics and suggests that managers have
responsibilities apart from profit-oriented activities. While
recognizing the claims shareholders have to profit in exchange
for putting their capital at risk, the stakeholder perspective that
holds ethics as the preeminent decision rule.
Ethical Perspective

Taken to an extreme, this perspective can minimize the right
of owners to participate in financial gain in proportion to
the risks they bear when doing what is ethically best for
non-owner stakeholders runs counter to what is financially
best for owners. A possible outcome in a capitalistic society
could be that fewer and fewer owners place their capital at
risk through firm ownership, a condition that may ultimately
decrease the economic good of society in general and thus
harm the very groups the ethical perspective intended to
protect.
Ethical Perspective

Budweiser, for example, has modified
its advertising over the years to
discourage under-age drinking and
driving while intoxicated. Social
activist groups such as Mothers
against Drunk Drivers have pressured
Budweiser through their own
advertising as well as media attention
to maximize responsible alcohol
consumption even though this may
decrease overall sales for Budweiser.
Integrated Perspective

This suggests that firms cannot function independently of the
stakeholder environment in which they operate, making the
effects of managerial decisions and actions on non-owner
stakeholders part and parcel of decisions and actions made in the
interests of owners. This view holds that managerial decisions
and actions are intertwined with multiple stakeholder interests in
such a way that breaking shareholders apart from non-owner
stakeholders is not possible. Managers who, according to this
approach, make decisions in isolation of the multitude of
stakeholders and focus singly on shareholders overlook
important threats to their own well-being as well as
opportunities on which they might capitalize.
Integrated Perspective

For example, the National Association of Securities Dealers
(NASD) is a self-regulatory organization that monitors and
disciplines members such as insurance companies and
brokerages. By incorporating NASD regulations into their
management decisions and actions, insurance companies and
brokerages, at least to some extent, preempt outside
governmental action that may make compliance more restrictive
or cumbersome. The NASD, in turn, answers to the
governmental agency, the Securities and Exchange Commission
(SEC). The SEC reports to the U.S. Department of Justice. Each of
these—insurance companies and brokerages, the NASD, SEC,
and U.S. Department of Justice—are linked in such a way
insurance companies and brokerages ignoring these stakeholders
would quickly be unable to make a profit and thus fail to serve
the interests of owners.
A Stakeholder’s View of
Company Responsibility
STOCKHOLDERS
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Participation in distribution of profits
Additional stock offerings
Assets on Liquidation
Inspection of Company Books
Transfer of Stock
Election of Board of Directors
CREDITORS

Legal proportion of interest payments due and
return of principal from the investment.

Security of pledged assets; relative priority in
the event of liquidation
EMPLOYEES
 Economic, social, and psychological satisfaction
in the place of employment.
 Freedom from arbitrary and capricious
behavior on the part of company officials.
 Share in fringe benefits, freedom to join union
and participate in collective bargaining.
 Adequate working conditions.
CUSTOMERS
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Service provided with the product
Technical data to use the product
Suitable warranties
Spare parts to support the product during use
R&D leading to product improvement.
SUPPLIERS
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Continuing source of business
Timely consumption of trade credit obligations
Professional relationship in contracting for,
purchasing, and receiving goods and services
GOVERNMENT

Taxes

Adherence with the requirements of fair and
free competition

Discharge of legal obligations
UNIONS

Recognition as the negotiating agent for
employees.

Opportunity to perpetuate the union as a
participant the business organization.
COMPETITORS

Observation of the norms for competitive
conduct established by society and the
industry.
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Business statesmanship on the part of peers.
LOCAL COMMUNITIES
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Place of productive and healthful employment in the
community
Participation of company officials in community affairs
Provision of regular employment
Fair play
Reasonable portion of purchases made in the local
community
Interest in and support of local government
Support of cultural and charitable projects
THE GENERAL PUBLIC
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Participation in and contribution to society as a
whole
Creative communications between governmental and
business units designed for reciprocal understanding
assumption of fair proportion of the burden of
government and society.
Fair price for products and advancement of the stateof-the-art technology that the product line involves.
Types of Social Responsibility
Economic Responsibilities
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Most basic social responsibilities of business.
Living up to their economic responsibilities requires
managers to maximize profits whenever possible.
The essential responsibility of business is assumed to
be providing goods and services to society at a
reasonable cost.
Legal Responsibilities

Reflect the firm’s obligations to comply with the laws
that regulate business activities.
Ethical Responsibilities

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Reflect the company’s notion of right and proper
business behavior.
Ethical responsibilities are obligations that transcend
legal requirements.
Firms are expected but NOT required, to behave
ethically. (Some actions are legal but might be
considered unethical.
Discretionary Responsibilities

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These are those that are voluntarily assumed by a
business organization.
Include: Public relations activities, good citizenship,
and full corporate social responsibility.