COVER PAGE

PBA4803

STAKEHOLDER MANAGEMENT
PORTFOLIO EXAM MAY/JUNE 2020

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1 25

2 25

3 25

4 25

5 25

TOTAL 100

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Contents
COVER PAGE................................................................................................................................................1
DECLARATION..............................................................................................................................................2
Contents......................................................................................................................................................3
1.0 Introduction...........................................................................................................................................4
Question 1...................................................................................................................................................4
1.1 Three models of management ethics................................................................................................4
1.1.1 Immoral Management................................................................................................................4
1.1.2 Moral Management....................................................................................................................5
1.2.3 Amoral Management..................................................................................................................5
1.2 Importance of observing sound ethical practices in all stakeholder relationships............................6
1.2.1 Enhancing the company’s reputation.........................................................................................6
1.2.2 Building customer loyalty...........................................................................................................6
1.2.3 Employee retention....................................................................................................................7
1.2.4 Avoiding litigations.....................................................................................................................7
Question 2...................................................................................................................................................8
2.1 How effective stakeholder management is related to sustainability and sustainable development
on the part of companies........................................................................................................................8
2.1.1 Profit...........................................................................................................................................9
2.1.2 People.........................................................................................................................................9
2.1.3 Planet..........................................................................................................................................9
Question 3.................................................................................................................................................11
3.1 Regulation by government..............................................................................................................11
3.1.1 Reasons for government regulations........................................................................................11
3.1.2 Benefits of regulation...............................................................................................................12
3.1.3 Drawbacks of regulation...........................................................................................................13
Question 4.................................................................................................................................................14
4.1 Steps followed in the strategic management process.....................................................................14
4.1.1 Governing philosophy...............................................................................................................14
4.1.2 Value Statement.......................................................................................................................14
4.1.3 Measurement Systems.............................................................................................................15
Question 5.................................................................................................................................................17

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 5.1 Economic, legal, ethical and philanthropic responsibilities considered in managing a company....17
5.1.1 Economic responsibilities.........................................................................................................17
5.1.2 Legal responsibilities.................................................................................................................17
5.1.3 Ethical Responsibilities..............................................................................................................18
5.1.4 Philanthropic responsibilities....................................................................................................18
5.2 Importance of incorporating CSR in the strategic plan....................................................................18
5.2.1 Enlightened self interest...........................................................................................................18
5.2.2 Warding off the government regulations.................................................................................19
5.2.3 Proaction over reaction............................................................................................................19
6.0 Conclusion...........................................................................................................................................19
References.................................................................................................................................................20

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1.0 Introduction
This assignment report addresses the issues surrounding ethics, sustainability and
stakeholder management. The first question looks at the three models of management
ethics and the importance of observing sound ethical practices in all stakeholder
relationships. The second question looks at how effective stakeholder management is
related to sustainability and sustainable development on the part of companies. The
third question addresses the concept of regulation by the government and the fourth
question focuses on the steps followed in the strategic management process. The last
question dwells on the Economic, legal, ethical and philanthropic responsibilities
considered in managing a company as well as the importance of incorporating CSR in
the strategic plan

Question 1

1.1 Three models of management ethics

According to Buchholtz and Carroll (2015) it is of paramount importance that for

managers to understand the different ethical models that determines the management’s
ethical decision making within their various organisations. Consequently, there are three
models of management ethics which are immoral management, moral management and
amoral management and these are discussed below:

1.1.1 Immoral Management

As shown by Etzioni (2018), immoral management involves being actively involved in

opposing ethical principles. Consequently, decisions, behaviours, actions and practices
premised on the immoral management model are highly unethical. The motives of
managers in this model will be very selfish and only profits are considered at the
expense of people and the planet. Management will be fully aware of what is right or
wrong, yet they choose to do what is wrong. The operating strategy for managers
embracing this model therefore is based on exploiting opportunities for corporate or
personal gain. An example of immoral management is the Steinhoff fraud saga revealed

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in 2017 where the company conducted deals with companies connected to former CEO
Markus Jooste, the company also window dressed its financial to boost its value
(Bhaskar, and Flower, 2019). Another example is the VBS Bank in which they were
involved in what was described by advocate Motau in as ‘The Great Bank Heist’
comprised of fraud and corruption as an estimated R2 billion was looted from the bank
by the executives. Immoral management might have short term financial benefits but it
has long term consequences like loss of Goodwill (Business Insider SA, 2020).

1.1.2 Moral Management

Moral management is the direct opposite of immoral management and according to

Fassin, Van Rossem and Buelens (2011); managers who adopt this model conform to
the highest ethical standards as well as professional standards of behaviour. These
managers aim to succeed not only in making profits but also maintaining healthy and
positive relationships with all stakeholders. Their decisions are founded on the values of
fairness, justice, and respect for rights as well as due process. The operational strategy
of these managers is therefore to exploit business opportunities but within the confines
of ethical principles. An example of moral management is when Merck & Co, a
pharmaceutical company invested millions of dollars to create a drug that cured river
blindness, which was a Third world disease affecting eighteen million people. After no
government or aid organization had bought the drugs, Merck supplied it for free.
Immoral management may seem costly but it has long term rewards for an organization.

1.2.3 Amoral Management

Amoral management as argued by Buchholtz and Carroll (2015) is not just a middle
position on a continuum of immoral and moral management but it is different in nature
and kind for both and it can be intentional or unintentional.

 Intentional Amoral Management

Fassin et al (2011) asserts that amoral managers in this case do not factor in ethical
considerations into their decisions or behaviours as they believe business operations
reside outside the sphere to which moral judgments apply.

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  Unintentional Amoral Management

Prinsloo (2013) describes these managers as lacking ethical perception and moral
awareness as they are just casual, careless or inattentive to the fact that their decisions
and actions and actions may have negative or deleterious effects on others.

Etzioni (2018) argues that at times amoral managers may be unconscious of hidden
biases which prevent them from being objective. Their operating strategy is not to
restraint managers with excessive ethical structure but to allow free rein inside the
supposedly unspoken but understood tenets of the free enterprise system. An example
of amoral management is the Nestle case in which the company marketed infant
formulas in developing countries but did not give the mothers enough knowledge
regarding the use of the formulas and this resulted in the death of many infants.

1.2 Importance of observing sound ethical practices in all stakeholder

relationships

According to De George (2011) observing sound ethical practices in all stakeholder

relationships has numerous benefits to an organization. Some of these benefits are as
follows

1.2.1 Enhancing the company’s reputation

According to Alford (2020) an organisation’s reputation for ethical behaviour can aid it in
creating a more positive image in the market and this can earn it more customers via
referrals. On the contrary, if an organisation has a reputation for unethical practices, its
chances of getting more customers are limited especially if the scandals are published
for example through social media

1.2.2 Building customer loyalty

Customers happy with how an organisation treats them can become loyal to the
business and become repeat buyers. De George (2011) asserts that keeping an
existing customer is considerably cheaper as it does not involve advertising costs.

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Organisations who behave unethically on the other hand have high chances of losing
customers.

1.2.3 Employee retention

Employees across the globe are looking for fair compensation, career advancement
and association with good brands. Organisations who prescribed to high ethical
standards are therefore able to effectively retain their talented employees so that they
continue investing in the organisation. On the contrary, unethical organisations, serve
as training grounds for employees as they always leave in search of better
organisations

1.2.4 Avoiding litigations

Several unethical practices are illegal and they end up in litigation as aggrieved
stakeholders will be looking for payback. This usually results in penalties, legal fees,
fines or sanctions by governmental organisations. Moreover, it also comes with negative
publicity which results in long-term damage to the organisation’s reputation.

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Question 2

2.1 How effective stakeholder management is related to sustainability and

sustainable development on the part of companies

The concept of sustainability is defined by Etzioni (2018) as the ability of business

organisations to conduct their operations in a manner that meets the needs of the
present generation at the same time not compromising the ability of the future
generation to meet their own needs. This led to the increase in emphasis on the triple
bottom line which defines the three core spheres of sustainability as profit, people and
planet as shown below:

Figure 1: The Triple Bottom Line

Source: Prinsloo (2013)

For organisations to be considered sustainable, they must strike a balance between the
above three spheres and effective stakeholder management is the mechanism that
makes it possible. Stakeholder management according to Ferrell and Fraedrich (2015)
involves considering the needs of all the individual, groups and non-human species that
can affect or be affected by the decisions and actions of an organisation.

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2.1.1 Profit

Under the profit sphere, the organisation will be focused on creating material wealth
inform of financial income and assets (Etzioni, 2018). The goal of stakeholder
management in this case is making sure that the shareholders get what is due to them.
As Ferrell and Fraedrich (2015) assets, the primary objective of every profit making firm
is to create increase shareholders’ wealth hence a business should be profitable first.

2.1.2 People

Under the people sphere, the focus will be the social bottom line which sees a business
organisation enhancing the quality of people’s lives and the equity between people,
communities as well as nations (De George, 2011). This can be achieved through
corporate social responsibility, for example by engaging in charities, awareness
campaigns against harmful practices. An example is how the business organisations
have played a part during this Covid-19 pandemic through assisting those infected and
affected by the virus through donations of food and medical supplies across the world.
Taking care of the society is key as the employees, investors and customers of an
organisation are supplied by the society hence the organisation will be creating good
relations with its key supplier.

2.1.3 Planet

Under the planet sphere, the focus will be on the environmental bottom line as
organisations seek to protect and conserve the natural environment. The focus here is
on the nonhuman species including animals, vegetation, land, water and all the other
natural resources (Buchholtz and Carroll, 2015). Environmentally friendly organisations
aim to minimise the ecological foot print through managing consumption of energy and
non-renewable, limiting manufacturing waste and making waste less toxic as well as
disposing it safely and legally. In South Africa, Eskom Holdings has been described by
Bowie (2017) as the country’s top emitter as it is responsible for two-fifths of the
country’s greenhouse gas emissions. Other top emitters in the country include wood-
pulp company Sappi, cement manufacture PPC as well as Sasol.

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According to Prinsloo (2013) the triple bottom line therefore is a framework that
measures the effectiveness of the stakeholder management practices of an
organisation using the economic, social and environmental indicators. Effective
stakeholder management therefore ensures that an organisation minimises harm
resulting from its operation and create economic, social and environmental value.

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Question 3

3.1 Regulation by government

According to De George (2011) regulation is the process of governing, directing as per

rule, or bringing under the control of law or constituted authority. Regulation came as a
result of some sort of market failure, which is the failure of the free enterprise system,
that has occurred and government with the aim of protecting public interest took action.
Etzioni (2018) asserts that several regulations came as a result of the actions of special-
interest groups lobbying effectively for them.

Bowie (2017) posits that there are two types of regulation which are economic
regulation and social regulation. The economic regulations as shown by Ferrell and
Fraedrich (2015) regulates organisations’ behaviour through putting controls market
variables like maximum and minimum prices; entry and exit from markets as well as the
types of services offered. The social regulations on the other hand focus on the
enhancement of societal objectives instead of markets and economic variables (Fassin
et al, 2011). Consequently, social regulations focus on how the organisations are
impacting people in their various roles as workers, customers as well as citizens.
Economic regulations usually target organisations competing in a particular sector
whereas social regulations target the practices impacting all the sectors.

3.1.1 Reasons for government regulations

Regulation is conducted for the purposes of controlling natural monopolies; controlling

negative externalities; achieving social goals among others.

 Controlling Natural Monopolies

According to De George (2011), a natural monopoly occurs when in a market there is a

firm that is enjoying very high economies of scale to the extent that it can charge very
low prices which end up driving its rivals out of the market. With time these monopolies
if left unchecked they result in limited output and high prices. The government therefore
intervenes whenever it feels companies are engaged in anti-competitive practices.
Microsoft for example was once investigated for anti-competitive practice as they

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designed their operating system to work effectively on Microsoft devices and not others
which gave them an unfair advantage.

 Controlling negative externalities

Negative externalities are defined by Etzioni (2018) as spill over effects which results
when production or use of a product causes side effects that are unintentional to third
parties. Examples of such externalities include water pollution, air pollution or failure to
properly dispose toxic wastes and they result in social costs. Regulation therefore
ensures that organisations in the same sector incur similar costs to control externalities.

 Achieving Social Goals

Regulations also seek to achieve the social goals which the government deems
necessary and in the best interest of the public (Ferrell and Fraedrich, 2015). Examples
of such social goals include removing externalities; keeping people well informed;
preservation of national security; fairness and equity; allocation of scares resources as
well as protecting customers from excessive prices.

3.1.2 Benefits of regulation

According to De George (2011) the regulations by the government are beneficial as

they prevent customers as well as the public from numerous dangers, for example
through the Consumer Product Safety Commissions established in several countries.
Resultantly, the customers can shop while having a certain degree of trust regarding the
safety of the goods or services that they will be buying. However, cases of harmful
products and services being offered on the market still exist but in many instances the
government regulators are swift in eliminating those threats. In addition, regulation
creates a level competitive playing field through eliminating anti-competitive behaviours.
For example, the South African Competition Amendment Act of 2009 introduced
measures like criminal sanctions against directors and managers participating in cartel
conduct.

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3.1.3 Drawbacks of regulation

On the contrary, regulation creates additional expenses for the organisations as they
change their operations in order to comply with the regulations. Consequently, the
organisations tend to transfer these costs to their customers which results in the
customers paying high prices for goods and services. Moreover, there are instances
where regulations end up promoting crime and other anti-social behaviours. For
example the recent ban on alcohol selling and drinking to mitigate the spread of Covid-
19 has led to smuggling of alcohol from neighbouring countries

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Question 4

4.1 Steps followed in the strategic management process

According to Trevino and Nelson (2016), the global competition that describes business
firms in this millennium requires organisations to take a stakeholder approach in order
to achieve effective as well as ethical management. Resultantly, for an organisation to
be sustainable in its operations, its vision must be centred on its stakeholders.
Resultantly, Buchholtz and Carroll (2015) has proposed three key steps that should be
followed in the strategic stakeholder management process and these include:
integrating stakeholder management into the firm’s governing process; creating a
stakeholder-inclusive values statement and implementing a stakeholder performance
measurement system. These steps are discussed in detail below

4.1.1 Governing philosophy

Fassin et al (2011) asserts that the first important step that managers should take is to
integrate stakeholder management into the organisational governance philosophy.
Consequently, the boards of directors as well as the top management teams must
hence transform their organisations from the notion of shareholder agent to stakeholder
trustee, it follows that the long-term shareholder value as well as sustainability become
the goal of this transformation in an organisation’s corporate governance.

4.1.2 Value Statement

As shown by Crane et al (2019), the next step that is crucial in the strategic
management process of stakeholders is to create stakeholder-inclusive value
statements. Through including stakeholder in their corporate value statements,
organisations reinforce their commitment to their stakeholder. An example of an
organisation that has integrated stakeholders in their value statement is Sasol. The
following are the core values of the company:

 We ensure that safety, health and environment is a top priority

 We care for our people and support their development

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  We value and promote diversity and inclusion
 We act with respect and integrity at all times
 We comply with all applicable legal requirements
 We take ownership and accountability for our individual and team performance
 We deliver what we promise to our customers, shareholders and other
stakeholders

From the above values, the company’s commitment to its stakeholder is reinforced even
though at times the company fails to stick to the values in their operations. For example
on the first value, the company speaks of putting the environment first, yet they are
regarded the second highest emitter of greenhouse gases after Eskom. It is therefore
critical for organisations to remain committed to the values that they would have crafted.

4.1.3 Measurement Systems

Ferrell and Fraedrich (2015) emphasises the need for management to implement a
stakeholder performance measurement system. This system however requires being
integrated, monitored and auditable as the relations between the organisation and its
stakeholders is improving. Freeman (1984) postulates that measurement in this case
will prove how serious the organisation is in relation to the achievement of its targeted
outcomes. This measurement system will therefore motivate a sustainable dedication of
the organisation to the stakeholder view. Trevino and Nelson (2016) have provided an
example of an effective measurement system as the one that has been developed by
Walmart which is the worldwide sustainability index. Through leveraging on this system,
the organisation managed to develop a supply chain that is more transparent, fostering
product innovation as well as enabling customers to access information the
sustainability of the company’s products.

With the above steps in mind, effective implementation of stakeholder management

remains key to its success as emphasised by Crane et al (2019). Implementation
includes activities such as execution, application, operationalization and enactment.

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Managers should also dedicate enough resources to stakeholder management activities
and make them a priority in decision making

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Question 5

5.1 Economic, legal, ethical and philanthropic responsibilities considered

in managing a company

Carrol (1991) introduced the Pyramid of Corporate Social Responsibility which portrays
the four components of CSR, starting with the basic building block of economic
performance at the bottom, followed by legal responsibilities, followed by ethical
responsibilities and at the top are philanthropic responsibilities as shown below.

Figure 2: The Pyramid of CSR

Source: Crane et al (2019)

5.1.1 Economic responsibilities

The economic responsibilities that should be considered include producing goods and
services needed by the customers so at to generate revenue. The business should be
profitable and this can be achieved through minimising costs. Moreover, sound strategic
decisions should be made including paying attention to the dividend policy. Investors
should be provided with satisfactory and attractive returns on their investments

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5.1.2 Legal responsibilities

The company will have to abide by the laws and obey all the regulations as required by
society (Buchholtz and Carroll, 2015). These laws include the environmental laws,
consumer laws as well as the laws protecting the employees among others. All the
contractual obligations will have to be fulfilled and the warranties and guarantees
honoured. The legal responsibility reflects the society’s view of codified ethics in the
sense that they articulate basic notions of fair practices as established by the law
makers

5.1.3 Ethical Responsibilities

The ethical responsibilities help to embrace the standards and practices expected by
society even if they are not codified into law (Trevino and Nelson, 2016). The company
will therefore avoid questionable practices as well as respond to the legal requirements.
The assumption here will be that law is the basic behaviour so the company will have to
exceed the minimum requirements. The company will have to always do what is right,
fair and just as well as promote ethical leadership.

5.1.4 Philanthropic responsibilities

The nature of these responsibilities is voluntary or discretionary and is guided by the

company’s desire to engage in social activities which are not mandated by law (Fassin
et al, 2011). The company will be a good corporate citizen that gives back to the society
and making corporate contributions. The company should also introduce initiatives that
support the community for example education, health and culture. It will also engage in
volunteerism.

5.2 Importance of incorporating CSR in the strategic plan

5.2.1 Enlightened self interest

According to Ferrell and Fraedrich (2015) business who thrive have a long term
orientation and not short-term. It follows that engaging in CSR is a key component of
sustainable business practices that ensure continued future gains for the organisation.
The enlightened self-interest is the states that if organisations are to have a positive

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operating environment to operate in future, then the decisions it creates today should
reflect that and ensure long-term viability.

5.2.2 Warding off the government regulations

Engaging in CSR aids the organisation in warding off the interventions and regulations
by the government (Buchholtz and Carroll, 2015). In the present environment, there are
several areas in which government intervenes with a costly, elaborate regulatory
apparatus to fill a gap that has been left with failure of organisations to take action to
such a degree that the organisational policies with self-disciplined standards and
guidelines can forestall future government interventions.

5.2.3 Proaction over reaction

When it comes to business operations, being proactive is always better than being
reactive (Trevino and Nelson, 2016). Encompassing CSR in the organisational strategic
helps in anticipating all the possible CSR initiatives an organisation may need to
undertake so that they can be planned in time. Moreover, when it comes to
environmental issues, being proactive in avoiding pollution is better than attempting to
rectify the negative impacts of pollution.

6.0 Conclusion
This assignment report addressed the issues surrounding ethics, sustainability and
stakeholder management. The first question looked at the three models of management
ethics and the importance of observing sound ethical practices in all stakeholder
relationships. The second question looked at how effective stakeholder management is
related to sustainability and sustainable development on the part of companies. The
third question focused on the concept of regulation by the government and the fourth
question focused on the steps followed in the strategic management process. The last
question dwelt on the Economic, legal, ethical and philanthropic responsibilities
considered in managing a company as well as the importance of incorporating CSR in
the strategic plan

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References
Alford, M., 2020. Antagonistic governance in South African fruit global production
networks: a neo‐Gramscian perspective. Global Networks, 20(1), pp.42-64.

Bhaskar, K. and Flower, J., 2019. Financial failures and scandals: From Enron to
Carillion. Routledge.

Bowie, N.E., 2017. Business ethics: A Kantian perspective. Cambridge University

Press.

Buchholtz, AK & Carroll, AB., 2015. Business and society, ethics and stakeholder
management. 9th edition. South Western, Cengage Learning.

Business Insider SA (2020). The biggest South African business scandals over the past
decade.

Crane, A., Matten, D., Glozer, S. and Spence, L., 2019. Business ethics: Managing
corporate citizenship and sustainability in the age of globalization. Oxford University
Press, USA.

De George, R.T., 2011. Business ethics. Pearson Education India.

Etzioni. A., 2018. The Moral Dimension: Towards a New Economics New York: Basic
Books.

Fassin, Y., Van Rossem, A. and Buelens, M., 2011. Small-business owner-managers’
perceptions of business ethics and CSR-related concepts. Journal of Business
ethics, 98(3), pp.425-453.

Ferrell, O.C. and Fraedrich, J., 2015. Business ethics: Ethical decision making & cases.
Nelson Education.

Freeman, R. E. (1984). Strategic management: A stakeholder approach. Boston:

Pitman. Latest edition Strategic Management: A Stakeholder Approach

Prinsloo, F.C. (2013). Good Governance in South Africa: A Critical Analysis. Technical
Report, Development and Environment. Stellenbosch University. p 1-9. Good
Governance in South Africa: A Critical Analysis

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Trevino, L.K. and Nelson, K.A., 2016. Managing business ethics: Straight talk about
how to do it right. John Wiley & Sons.

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