Business and its Stakeholders

• Concept
• Types of stakeholders
• Stakeholder analysis- stakeholder interests,
stakeholder power, and stakeholder coalitions
• Stakeholder activism
• Managing key stakeholder issues - CSR in the
marketplace, CSR in the workplace, CSR in the
community, and CSR in the ecological
environment
• Making trade-offs
• Creating a win-win situation between business and
society
 Business and its Stakeholders
Concept
• The term ‘Stakeholder’ refers to persons and
groups that affect, or are affected by, an
organization’s decisions, policies, and operations.
• The word stake, in this context, means an interest
in—or claim on—a business enterprise
• Those with a stake in the firm’s actions include
such
diverse groups as customers, employees,
stockholders, the media, governments, professional
and trade associations, social and environmental
activists, and nongovernmental organizations
 Business and its Stakeholders
Concept
•The term stakeholder is not the same as stockholder,
although the words sound similar. Stockholders—
individuals or organizations that own shares of a
company’s stock—are one of several kinds of
stakeholders
•Business organizations are embedded in networks
involving many participants –
- Each of these participants has a relationship with
the firm, based on ongoing interactions
- Each of them shares, to some degree, in both the
risks and rewards of the firm’s activities
 Business and its Stakeholders
Concept
- Each has some kind of claim on the firm’s
resources and attention, based on law, moral
right, or both.
•The number of these stakeholders and the variety of
their interests can be large, making a company’s
decisions very complex
• Managers make good decisions when they pay
attention to the effects of their decisions on
stakeholders, as well as stakeholders’ effects on the
company
Business and its Stakeholders
Concept
•On the positive side, strong relationships between a
corporation and its stakeholders are an asset that
adds value
• On the negative side, some companies disregard
stakeholders’ interests- either out of the belief that
the stakeholder is wrong or out of the misguided
notion that an unhappy customer, employee, or
regulator does not matter
•Today, for example, companies know that they
cannot locate a factory or store in a community that
strongly objects
• They also know that making a product that is perceived
as unsafe invites lawsuits and jeopardizes market share
Business and its Stakeholders
Types of Stakeholders
A.Market and Non Market 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.
(For this reason, market stakeholders are also sometimes
called primary stakeholders.)
•Each relationship is based on a unique transaction, or
two-way exchange
•Stockholders invest in the firm and in return receive the
potential for dividends and capital gains. Creditors loan
money and collect payments of interest
Business and its Stakeholders
Types of Stakeholders
A.Market and Non Market Stakeholders
•Employees contribute their skills and knowledge in
exchange for wages, benefits, and the opportunity for
personal satisfaction and professional development
•In return for payment, suppliers provide raw materials,
energy, services, and other inputs
•Wholesalers, distributors, and retailers engage in market
transactions with the firm as they help move the product
from plant to sales outlets to customers
• All businesses need customers who are willing to buy
their products or services
•These are the fundamental market interactions every
business has with society.
Market Stakeholders

Employees
Distributors
Wholesalers
Retailers Stockholders

Business
Firm

Customers
Creditors

Suppliers
Types of Stakeholders
A. Market and Non Market 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 actions
(also called secondary stakeholders by some
theorists)
• Nonmarket stakeholders include the community,
various levels of government, activist groups and
nongovernmental organizations, the media,
business support groups, and the general public
Types of Stakeholders
A. Market and Non Market Stakeholders
• The natural environment is generally not
considered a stakeholder, because it is not a social
group, but is represented by activists, who include
environmentalists
• The classification of government as a nonmarket,
or secondary, stakeholder has been controversial in
stakeholder theory
- Most theorists say that government is a
nonmarket stakeholder because it does not
normally conduct any direct market exchanges
(buying and selling) with business
Types of Stakeholders

A. Market and Non Market Stakeholders

- However, money often flows from business to
government in the form of taxes and fees and
sometimes from government to business in the
form of subsidies or incentives
- Some businesses do sell directly to the government
and receive payment for goods and services
rendered. For this reason, a few theorists have
called government a market stakeholder of business
• Nonmarket stakeholders are not necessarily less
important than others, simply because they do not
engage in direct economic exchange with a business
Nonmarket Stakeholders

Communities
General
Public
Government

Business
Firm
Business
Support
Activists
Groups
Group

Media
Types of Stakeholders
A. Market and Non Market Stakeholders
• Diagrams of market (primary) and nonmarket
(secondary) illustrate the firm’s relationship to
each stakeholder, but not stakeholders’
relationships with each other
• Some theorists have suggested that a more
accurate way to visualize the relationship is to
show the business firm embedded in a complex
network of stakeholders, many of which have
independent relationships with each other
• Some individuals or groups may play multiple
stakeholder roles
Business and Stakeholders

Stakeholders

Business Stakeholders
Firms

Stakeholders Stakeholders
Types of Stakeholders
B. Internal Vs External Stakeholders
• Internal stakeholders are those, such as
employees and managers who are employed by the
firm
• They are “inside” in the firm, in the sense that they
usually contribute their skills and efforts usually at
a company worksite
• External stakeholders, although may have
important transactions with the firm- are not
directly employed by it
Types of Stakeholders
C. Voluntary Vs Involuntary Stakeholders
• Voluntary Stakeholders can choose whether or
not to be a stakeholder to an orgnaisation where as
Involuntary Stakeholders cannot
• Employee can choose to leave the employment of
the organisation and therefore is voluntary
stakeholder
• Local society or community are not able to make
its choice and therefore be considered to be
involuntary stakeholders
Stakeholder Analysis
A. Identifying stakeholders
• Number of ways to identify and often use more than one will
yield best result
1. Brainstorming: Get together with people in
organizations, officials, and others already involved in or
informed about the and start making categories and names
2. Collect categories and names from informants in the
community: particularly members of populations or
residents of geographical areas of concerns
3. Consult with organizations that either are to have been
involved in the similar efforts, or that work with the
population of the areas of concern
4. If appropriate, advertise
5. More ideas from stakeholders as they get identified in
the process itself
Stakeholder Analysis
B. Stakeholders Interests
• Each stakeholder have unique relationship with the
organization, and managers must respond accordingly
• Stockholders , for t heir part , have an ownership
interest in the firm and in exchange for their
investment, stockholders expect to receive dividends
and , over time , capital appreciation
• The economic health of the corporation affects these
people & they may also seek social objectives through
their choice of investments
• Customers , for t heir part , are most interested in
gaining f air value and quality in exchange for t he
purchase price of goods and services
Stakeholder Analysis
B. Stakeholders interests
• Suppliers , likewise , wish to receive fair
compensation for products and services they provide
• Employees , in exchange f or their time and effort ,
want to receive fair compensation and an opportunity f
or professional development
• Governments , public interest groups , and local
communities have another sort of relationship with
the company. In general, their stake is broader than
financial stake of owners, customers , and suppliers.
They may wish to protect t he environment , assure
human rights , or advance other broad social interest
Stakeholder Analysis
C. Stakeholders power
• 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
1. Voting power
• It means that the stakeholder has a legitimate right to cast a
vote.
• Stockholders typically have voting power as per the
percentage of the company’s stock he or she owns.
Stockholders typically have an opportunity to vote on such
major decisions as mergers and acquisitions, as well as
various social issues that may come before the annual
meeting
Stakeholder Analysis
2. Economic Power
• Customers, suppliers, and retailers have economic power
with the company
 Suppliers can withhold supplies or refuse to fill orders
if a company fails to meet its contractual
responsibilities
 Customers may refuse to buy a company’s products or
services if the company acts improperly and even can
boycott products if they believe the goods are too
expensive, poorly made, or unsafe
 Employees, for their part, can refuse to work under
certain conditions, a form of economic power known
as a strike or slowdown
 Economic power often depends on how well organized
a stakeholder group is
Stakeholder Analysis
3. Political power
• Governments exercise political power through
legislation, regulations, or lawsuits.
• Other stakeholders use their political power
indirectly by urging government to use its powers by
passing new laws or enacting regulations
• Citizens may also a different kind of voting power &
vote for candidates that support their views with
respect to government laws and regulations affecting
business
• Stakeholders may also exercise political power
directly, as when social, environmental, or community
activists organize to protest a particular corporate
action
Stakeholder Analysis
4. Legal power
• Stakeholders have legal power when they bring suit
against a company for damages, based on harm caused
by the firm
• Lawsuits brought by customers for damages caused by
defective products, brought by employees for damages
caused by workplace injury, or brought by
environmentalists for damages caused by pollution or
harm to species or habitat
 Stakeholders stand out to managers when they have
power, legitimacy, and urgency and stakeholders
possessing all three attributes are called definitive
stakeholders; those possessing two attributes are
called expectant stakeholders
Stakeholder Nature of Interest and Power
Stakehol- Nature of interest-
der Stakeholder wishes to
Employees -Maintain stable
employment in firm
- Receive fair pay for work
-Work in safe, comfortable
environment
Stockhold- -Receive satisfactory return
ers on investments (dividends)
- Realize appreciation in
stock value over time
Nature of Power-
Stakeholders
influences company
by
-Union bargaining
power
-Work actions or strikes
-Publicity
-Exercising voting
rights based on share
ownership
--Exercising rights to
inspect company's
books and records
Stakeholder Nature of Interest and Power
Stakehol- Nature of interest- Nature of Power-
der Stakeholder wishes to Stakeholders
influences company by
Customers -Receive fair exchange: - Purchasing goods from
value and quality for competitors
money exchange - Boycotting companies
- Receive safe, reliable whose products are
product unsatisfactory or whose
policies are unacceptable
Suppliers - Receive regular order -Refusing to meet orders
for goods if conditions of contract
-Be paid promptly for are breached
supplies delivered - Supplying to
competitors
Stakeholder Nature of Interest and Power
Stakehol- Nature of interest- Nature of Power-
der Stakeholder wishes to Stakeholders influences
company by
Retailers / -Receive quality goods in -Buying from other
Wholesalers timely fashion at suppliers if terms of
reasonable cost contracts are not satisfactory
- Offer reliable goods and - Boycotting companies
services tat consumer whose goods / services or
trust and value policies are unsatisfactory
Creditors -Receive payments of - Calling in loans if
loans payments are not made
- Collect debts and -Calling legal authorities to
interests repossess or take over
property if loan payments
are severely delinquent
Stakeholder Nature of Interest and Power
Stakehol- Nature of interest- Nature of Power-
der Stakeholder wishes to Stakeholders influences
company by
Communities -Employ local residents -Issuing or restricting
in the company operating license and
- Ensure the local permits
environment is protected - Lobbying government for
- Ensure that local area is regulations of company`s
developed policies or methods of land
use and waste disposal
Activist - Monitor company`s - Gaining broad public
Groups actions and policies to support through publicizing
ensure that they confirm to the issue
legal and ethical standards, - Lobbying government for
and they protect public regulations of the company
safety
Stakeholder Nature of Interest and Power
Stakehol- Nature of interest- Nature of Power-
der Stakeholder wishes Stakeholders influences
to company by
Media -Keep the public -Publicizing the events that
informed on all issues effects the public, especially
relevant to their those that have negative effect
health, well-being and
economic status
Business -Provide research and -Using its staffs and resources to
Support information which will assist the company in business
Groups help the company or endeavours and development
(trade industry perform in a efforts
associatio changing environment -Providing legal or “group”
ns etc.) political support beyond that which
an individual company can provide
for itself
Stakeholder Nature of Interest and Power
Stakehol- Nature of interest- Nature of Power-
der Stakeholder wishes to Stakeholders influences
company by
Governments -Promote economic -Adopting regulations and
development laws
- Encourage social - Issuing license and
improvements permits
- Raise revenues through - Allowing or disallowing
taxes industrial activity
The General - Protect social values - Supporting activists
Public - Minimise risks - Pressing government to act
-Achieve prosperity for -Condemning or praising
society individual companies
Stakeholder Analysis
Stakeholder Coalitions
• Temporary alliances among company’s stakeholders to
pursue a common interest
• Stakeholder coalitions are not static. Groups that are
highly involved with a company today may be less
involved tomorrow
• Issues that are controversial at one time may be
uncontroversial later
• Stakeholders that are dependent on an organization at one
time may be less so at another
• Stakeholders involved with one part of a large company
often have little or nothing to do with other parts of the
organization
Stakeholder Analysis
Stakeholder Coalitions
• Groups are always changing their relationships to one
another in society. Stakeholder coalitions are the
temporary unions of stakeholders groups that come
together and share a common point of view on a particular
issue or problem
• In recent years, coalitions of stakeholders have become
increasingly international in scope
• Communications technology has enabled like-minded
people to come together quickly, even across political
boundaries and many miles of separation. Wireless
telephones, the Internet, and fax machines have become
powerful tools
Stakeholder Analysis
Stakeholder Mapping
• Stakeholder analysis (stakeholder mapping) is a
way
of determining who among stakeholders can have the
most positive or negative influence on an effort, who is
likely to be most affected by the effort, and how you
should work with stakeholders with different levels of
interest and influence
• Both influence and interest can be either positive or
negative, depending on the perspectives of the
stakeholders in question
Stakeholder Analysis
Stakeholder Mapping
High

Latents Promoters
Influence

Keep satisfied Manage closely

   

Apathetics Defenders
Monitor Keep informed
Low

   

Low High
Interest
Stakeholder Analysis
Stakeholder Mapping
• Interest means one or both of the two things – 1) that the
individual, organisation, or group is interested
intellectually or philosophically 2) he or she is affected
by it
• Influence can be interpreted in several ways
 Government official can wiled official power in
some way
 Administrator, board member, or funder as an
individual or group has some power over
organisation conducting the effort
 “Community leader” – a college president, CEO,
bank president etc. & these people are listened to as
a result of their position
Stakeholder Analysis
Stakeholder Mapping

 Great influence can be exercised by people (or,

occasionally, organizations) that are simply
respected in the community for their intelligence,
integrity, concern for others and the common good,
and objectivity.
 People and organizations exercise influence through
economics (largest employer in a community can
exert considerable control over its workforce, for
example, or even over the community as a whole,
using a combination of threats and reward)
Stakeholder Analysis
Stakeholder Mapping

 Great influence can be exercised by people (or,

occasionally, organizations) that are simply
respected in the community for their intelligence,
integrity, concern for others and the common good,
and objectivity.
 People and organizations exercise influence through
economics (largest employer in a community can
exert considerable control over its workforce, for
example, or even over the community as a whole,
using a combination of threats and reward)
Stakeholder Analysis
Stakeholder management
• The promoters – high influence/ high interest
• the most important
• If they’re positive, they need to be cultivated and
involved- find jobs for them (not just tasks) that
they’ll enjoy
• Pay attention to their opinions, and accede to them
where it’s appropriate
• If their ideas aren’t acted on, make sure they know
why, and why an alternative seems like the better
course
• As much as possible, make them integral parts of the
team
Stakeholder Analysis
Stakeholder management
• The latent - high influence/low interest
•People and organizations largely unaffected
by the effort that could potentially be extremely
helpful, if they could be convinced that the effort is
important either to their own self-interest or to the
greater good
• Approach and inform them, and to keep contact
with them over time
• If you can shift them over to the promoter category,
you’ve gained valuable allies
• If they are negative then the best is not to stir a
sleeping dragon
Stakeholder Analysis
Stakeholder management
•The apathetics – low influence / low interest
•Need little or no management.
•Sporadically inform by newsletter or some similar
device, and don’t offend
Stakeholder Analysis
Stakeholder management
• The defenders – low influence/high interest
•In the business model, since these people and
organizations can’t help
•Simply keep them informed and not worry too much

about involving them further

•These are often the foot soldiers who stuff envelopes,
make phone calls, and otherwise make an initiative
possible.
•The apathetics – low influence / low interest
•People and organizations simply don’t care about
your
effort one way or the other
Stakeholder Activism
• Stakeholder activism encompasses a variety of tactics
through which stockowners communicate concerns to
the management of corporations
• Socially responsible investors use these tactics
primarily to raise sustainability, economic justice, and
corporate governance issues
• Each year in United States and Canada, religious
groups, socially responsible investors, union and public
pension funds, and others file hundreds of shareholder
resolutions on issues such as environment, human
rights, racial and gender discrimination, militarism, and
corporate governance
Stakeholder Activism
•Shareholder activism consists primarily of dialogue
between investors- or increasingly, coalitions of
investors- and corporations on specific issues, and is
often regards as engagement
• Carbon Disclosure Project is a worldwide coalition of
institutional investors pressing major corporations to
disclose their carbon emissions
• Most recently, public interest, NGOs and institutional
investors have increasingly turned to shareholder
activism
• NGOs often partner with social investors in raising
social and environmental issues
 Stakeholders Activism
Four Basic Strategies of Response to Stakeholder Issues
Inactive Activism Stakeholder Expectations Business Does Not Changes
(Changes)
(Inactive Strategy)

Reactive Activism Stakeholder Expectations Business Resists,

(Reactive Strategy) (Changes First) then Responds to Stakeholders
   

Business Stakeholder Expectations and

Proactive Activism
(Initiates Changes) Relations are changing
(Proactive Strategy)

Business and Environment are Changing and there is an Effort to

Interactive Activism Adjust to one Another's Needs
(Interactive Strategy)

Business Stakeholders
 Managing key stakeholder issues

•CSR in the Workplace

 Employees right to the most professional training equipment
 Prepare employees for safe, ethical performance of their duties
and career growth
• CSR in the marketplace
 Companies need to positively contribute in promotion of
professional and ethical reputation of compliance and
enforcement
• CSR in the community
 Companies responsibility to support local community and make
positive difference to those who work for it
•CSR in the ecological environment
 Orgsnisations have a responsibility to minimize their
environmental impact and make most use of the resources
available
Managing Key Stakeholder Issues
Copyright: Lal Prasad Aryal
Stakeholder's Issues

CSR in Workplace CSR in Marketplace CSR in Community

(Employees)
•Proper Working
Conditions
•Financial Benefits
•Participation in Decision
Making Processes
•Training and Motivation
•Recognition of Employees
Rights
•Obey the Labor Laws
(Customers)
•Pollution-Free environment
•Provide Quality Goods
• Promotion of Artistic and
and Services
•Complete Information Cultural Activities
•Support Local Health-Care
•Customer Service
•Need based Product Programmes
•Employment Opportunities
and Services
•Optimum Utilization of
•Regular Supply of
Resources
goods
•Solve Social programmes
•Safety of Products

CSR in Ecological Environment

•Demonstrates a Commitment to the welfare of environment
•Demonstrates a Commitment to Sustainable Development
Top 20 Activities or Characteristics of Socially
Responsible Business

Source: Business and Society- Caroll et.al

 Making trade offs
• Stakeholder theory directs corporate managers to serve
‘many masters’ and companies ‘ embracing stakeholder theory
will experience managerial confusion, conflict , inefficiency
and perhaps even complete failure
• The value maximization , which includes not just that value
of equity but all financial claims on the firms- debt, warrants,
preferred stock of a firm- should be the value objective around
which the stakeholders theory works
• Value criteria would help organization to decide trade off
more effectively and efficiently
• Jenson in 2006- cautious that the stakeholder theory can ply
onto the hands of special interests groups who should
legitimize using resources for their needs under the guise of
the stakeholder welfare
 Making trade offs
• The danger would be that instead of increasing social
welfare , the stakeholder theory would reduce it
• The theory can be person dependent instead of process
dependent and fail to realize the actual aim – value
maximization should be guiding force
• Set up organisations so that managers and employees are
clearly motivated to seek value- to institute those changes and
strategies that are most likely to cause value to rise
 Making trade offs
Copyright: Lal Prasad Aryal

• Employment opportunities
Stakeholder's • Social Responsibility
Interest/Expectations • Quality Products and Services
• Job Security
(From the Business)
• Development Support
• Environment Protection etc.
Role of Managers
(Negotiations and Bargaining)
• Regular Supply of Materials
• Customer Loyalty
Business Interest/Expectations
• Supportive Environment
(From the Stakeholders)
• Information
• Competent and Skilled Manpower
• Political Stability etc.

[Source: Ferrell, O. C. and et al (2011). Business Ethics. Page. 32-

Creating A Win-Win Situations Between
Business and Society Copyright: Lal Prasad Aryal

1. Shared Value Approach

• Societal development without businesses
almost impossible and similarly, there is no
entity of any business without proper support
of society. Therefore, perspective should be of
societal based.
• Shared value thinking is a recognition that
major social problems often cannot be solved
without the engagement of the stakeholders
Creating A Win-Win Situations Between
Business and Society Copyright: Lal Prasad Aryal

1. Shared Value Approach

• It is about how companies can improve their
competitive positioning , improve their
profitability and growth prospects by addressing
social issues that constrain them , that hold
back their way , companies have to treat social
problems as if they are business problems
2. Partnering Approach
• Physical Involvement
• Emotional Involvement