BUSINESS SCHOOL

INTBUS3501:
Corporate Responsibility for Global
Business111
Topic:
The Corporation and
Its Stakeholders

Presenter:

Associate Professor Susan Freeman

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Ch. 1: Key Learning Objectives

Understanding the relationship between business and society, and

the ways in which they are part of an interactive system
Considering the purpose of the modern corporation
Knowing what is a stakeholder, and who are a corporations
market and nonmarket stakeholders
Conducting a stakeholder analysis, and understanding how it can
be used to build collaborative relationships
Analyzing the forces of change that continually reshape the
business and society relationship

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Introduction
The Business and Society Relationship

Business: Any organization that is engaged in making a product

or providing a service for a profit

Society: Human beings and the social structures they

collectively create

Business and Society are high interdependent

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Introduction
The Business and Society Relationship

We borrow General Systems Theory (GST) from Biology to

explain this relationship; first introduced in 1940s
Theory posits that organisms cannot be understood in
isolation, even though they have clear boundaries; they can
only be understood in relationship to their surroundings
Adapted to management theory means that business firms are
embedded in a broader social environment with which they
constantly interact
Business and society together form an interactive social
system (shown graphically in the following slide)

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Business and Society: An

Figure 1.1 Interactive System

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Introduction
The Stakeholder Theory of the Firm

Two critical questions:

1. What is the purpose of the modern
corporation?
2. To whom, or what, should the firm be
responsible?

Traditional view: Ownership Theory of the Firm

Firm is the property of its owners
Purpose is to maximize returns to shareholders
Shareholders interests are paramount and take precedence
over all others

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Introduction
Stakeholder Theory of the Firm

Contrasting view: Stakeholder Theory of the Firm

Argues the corporation serves a broader purpose, to create
value for society
Must make profit for owners to survive, however, creates
other kinds of value too
Corporations have multiple obligations, all stakeholder
groups must be taken into account

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Core Arguments for

Stakeholder Theory of the Firm

Descriptive
More realistic description of how companies
really work

Instrumental
More effective corporate strategy

Normative
Stakeholder management is the right thing
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The Stakeholder Concept

A stakeholder refers to persons or groups that affect, or are

affected by, an organizations decisions, policies, and operations

A stake is an interest in or claim to a business enterprise

Businesses are embedded in networks that involve many groups

with such a stake

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The Stakeholder Concept

A Tip for Understanding

Term stakeholder is NOT the same as stockholder

Words sound similar BUT are not the same

Stockholders are one of several kinds of stakeholders

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Market and Nonmarket Stakeholders

Stakeholder groups can be divided in to two categories:
1. Market stakeholders
2. Nonmarket stakeholders

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
Sometimes referred to as primary stakeholders

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Stakeholder Maps

Drawing maps of stakeholder systems, with the business

firm in the center, is one way to visualize the relationship
between the firm and its stakeholders

Each relationship is based on a unique transaction or two-way

exchange

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Figure
1.2 Market Stakeholder Map

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Nonmarket Stakeholders

Nonmarket stakeholders are people or groups whoalthough

they do not engage in direct economic exchange with the firm
are affected by or can affect its actions
Sometimes called secondary stakeholders

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Figure Nonmarket Stakeholder

1.3 Map

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Issues: Market and Nonmarket Stakeholders

Should government be a nonmarket or market stakeholder?
Normally governments do not have direct exchange with
businesses, but in some industries there is such an
exchange

Should the natural environment be a nonmarket stakeholder?

Not a social group, generally considered to be represented
by activist groups

Should managers be classified as stakeholders?

Addressed in Exhibit 1.A on next slide

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Exhibit 1.A Are Managers Stakeholders?

Excerpts
On one hand, the answer is yes.
Like other stakeholders, managers are
impacted by the firms decisions. As
employees of the firm, managers receive
compensation often very generous
compensation. Their managerial roles confer
opportunities for professional advancement,
social status, and power over others.
Managers benefit from the companys success
and are hurt by its failure.
For these reasons, they might properly be
classified as employees on the perimeter of
the stakeholder wheel, as shown in Figure
1.2.

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Are Managers Stakeholders?

On the other hand, top executives are agents

of the firm and are responsible for acting on its
behalf. In the stakeholder theory of the firm,
their role is to integrate stakeholder interests,
rather than to promote their own more narrow,
selfish goals. For these reasons, they might
properly be classified in the center of the
stakeholder wheel, as representatives of the
firm.
Management theory has long recognized that
these two roles of managers potentially
conflict. The main job of executives is to act
for the company, but all to often they act
primarily for themselves.

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Issues: Market and Nonmarket Stakeholders

Are stakeholder maps the best way to visualize the

business/stakeholder relationship?
Network may be more appropriate depiction, given
relationships often exist among stakeholder
themselves
See Figure 1.4 on next slide

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Figure 1.4 A Stakeholder Network

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Stakeholder Analysis

It is part of every managers job

Process whereby identify relevant stakeholders and analyze their

interest and power

Asks 4 Questions:

1. Who are the relevant stakeholders?

2. What are the interests of each
stakeholder?
3. What is the power of each stakeholder?
4. How/what are coalitions likely to form?

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Stakeholder Analysis Question 1

Who are the Relevant Stakeholders?

Answer this question by drawing market and nonmarket

stakeholder maps

Use Figures 1.2 and 1.3 as guides

Recognize that not all of these 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

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Stakeholder Analysis Question 2

What are the Interests of each Stakeholder?

Analyzing stakeholder interests includes addressing:

What are the groups concerns?, and
What does the group want/expect from their relationship
with the firm?

Examples:
Stockholders 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

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 Exhibit 1.B Nonmarket Stakeholders:
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cont. Nature of Interest and Power

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Stakeholder Analysis Question 3

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

There are 4 types of stakeholder power:

1. Voting power
2. Economic power
3. Political power
4. Legal power

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Stakeholder Analysis Question 3

What is the Power of each Stakeholder?

Alternative concept called stakeholder salience, meaning

something that stands out from its background
Stakeholder salience is determined by each groups power,
legitimacy, and urgency attributes
The greater the stakeholder groups salience, the more attention
a manager should pay to that group
Groups that have all 3 attributes are called definitive
stakeholders
Groups that have 2 attributes are called expectant
stakeholders

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Stakeholder Analysis Question 4

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 increasing international
Internet has enabled coalitions to form quickly, across
political boundaries
International alliances, coupled with media interest, can be a
very powerful strategic force for companies

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Stakeholder Engagement

The action component following stakeholder analysis:

Once you know who your stakeholders

are, their interests, power, and any
coalitions, do you take action to engage
with these groups?

Companies tend to follow a progression of stages in stakeholder

engagement:

Inactive (lowest level) to interactive

(highest level) continuum shown on next
slide
The cases throughout the text
demonstrate companies at different points
on the continuum
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The Stakeholder Engagement Model

Inactive
Companies ignore stakeholder concerns
Reactive
Companies act only when forced to do so
Proactive
Companies try to anticipate stakeholder concerns
Interactive
Companies actively engage with stakeholders in an ongoing
relationship of mutual respect, openness, and trust

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Stakeholder Dialogue

Tool used by firms at higher stages of stakeholder engagement

Involves face-to-face meetings between corporate
representatives and representatives of their stakeholder groups
to discuss issues of mutual concern
Steps in dialogue
1. Each group describes their core issues & concerns
2. Together groups reach common definition of problem/s
3. Together groups invent innovative solutions that involve
mutual gain
4. Together establish procedures for implementing solutions

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Stakeholder Engagement and Dialogue

Benefits

Helps companies learn about

societal expectations
Generates creative solutions to
problems
Helps win stakeholder support for
implementing solutions
Can neutralize critics
Can improve corporate reputation
for taking constructive action

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Conclusion Chapter 1
Core Arguments in Your Text

1. The external environment of business is dynamic and ever

changing
Six such forces identified in Figure 1.5 on next slide

2. A successful business must meet both its economic and social

objectives

3. The purpose of the firm is not simply to make a profit, but to

create value for all its stakeholders

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Figure Forces that Shape the

1.5 Business and Society
Relationship

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Summary

1.

2.

3.

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