Business & Society Business & Society Ethics, Sustainability, and Stakeholder Management Eighth Edition Archie B. Carroll Ann K. Buchholtz © 2012 South-Western, a part of Cengage Learning 1

Chapter 3 The Stakeholder Approach to Business, Society, and Ethics © 2012 South-Western, a part of Cengage Learning 2

Learning Outcomes © 2012 South-Western, a part of Cengage Learning 1.Define stake and stakeholder and describe the origins of these concepts. 2.Differentiate among production, managerial, and stakeholder views of the firm. 3.Differentiate among the three values of the stakeholder model. 4.Explain the concept of stakeholder management. 5.Identify and discuss the five major questions that capture the essence of stakeholder management. 6.Identify the three levels of stakeholder management capability (SMC). 7.What are the key principles of stakeholder management? 3

Chapter Outline Origins of the Stakeholder Concept Who Are Business’s Stakeholders? Strategic, Multifiduciary, and Synthesis Approaches Three Values of the Stakeholder Model Key Questions in Stakeholder Management Effective Stakeholder Management Developing a Stakeholder Culture Stakeholder Management Capability The Stakeholder Corporation Principles of Stakeholder Management Strategic Steps Toward Successful Stakeholder Management Summary Key Terms Discussion Questions © 2012 South-Western, a part of Cengage Learning4

Origins of the Stakeholder Concept Stake An interest or a share in an undertaking. Can be categorized as: 5 © 2012 South-Western, a part of Cengage Learning 5 5 An Interest A Right Ownership Legal Right Moral Right

Stakeholders Stakeholder Any individual or group who can affect or is affected by the actions, decisions, policies, practices, or goals of the organization. Stakeholder is a variant of the concept of stockholder– an investor/owner of businesses. © 2012 South-Western, a part of Cengage Learning 6

Who are Business Stakeholders? 7 7 Business Stakeholder Groups MediaSuppliers Special-Interest Groups Society General Public CompetitorsCustomersCommunity StockholdersEmployees

Three Views of the Firm © 2012 South-Western, a part of Cengage Learning 8

Production and Managerial Views of the Firm © 2012 South-Western, a part of Cengage Learning 9

Stakeholder View of the Firm © 2012 South-Western, a part of Cengage Learning 10

Who are Business Stakeholders? Primary stakeholders Have a direct stake in the organization and its success. Secondary stakeholders Have a public or special interest stake in the organization that is more indirect. 11 © 2012 South-Western, a part of Cengage Learning

Social Stakeholders 12 © 2012 South-Western, a part of Cengage Learning Primary social stakeholders Secondary social stakeholders Shareholders and investorsGovernment regulators Employees and managersCivic institutions CustomersSocial pressure groups Local communitiesMedia and academic commentators Suppliers and other business partners Trade bodies Competitors

Nonsocial Stakeholders 13 © 2012 South-Western, a part of Cengage Learning Primary nonsocial stakeholders Secondary nonsocial stakeholders Natural environmentEnvironmental interest groups Future generationsAnimal welfare organizations Nonhuman species

A Typology of Stakeholder Attributes Legitimacy Refers to the perceived validity or appropriateness of the stakeholder’s claim to a stake. Power Refers to the ability or capacity of a stakeholder to produce an effect. Urgency Refers to the degree to which the stakeholder’s claim demands immediate attention or response. Proximity The spatial distance between the organization and its stakeholders. 14 © 2012 South-Western, a part of Cengage Learning

Stakeholder Typology 15 © 2012 South-Western, a part of Cengage Learning

Strategic, Multifiduciary, and Synthesis Views Strategic approach Views stakeholders primarily as factors managers should manage in pursuit of shareholder profits. Multifiduciary approach Views stakeholders as a group to which management has a fiduciary responsibility. Stakeholder synthesis approach Considers stakeholders as a group to whom management owes an ethical, but not a fiduciary, obligation. 16 © 2012 South-Western, a part of Cengage Learning

Three Values of the Stakeholder Model 17 © 2012 South-Western, a part of Cengage Learning

Key Questions in Stakeholder Management 1.Who are our stakeholders? 2.What are our stakeholders’ stakes? 3.What opportunities and challenges do our stakeholders present to the firm? 4.What economic, legal, ethical, and philanthropic responsibilities does the firm have to its stakeholders? 5.What strategies or actions should the firm take to best address stakeholder challenges and opportunities? 18 © 2012 South-Western, a part of Cengage Learning

Who Are Our Stakeholders? 19 © 2012 South-Western, a part of Cengage Learning

What Are Our Stakeholders’ Stakes?  Identify the nature/legitimacy of a group’s stakes.  Identify the power of a group’s stakes.  Identify specific groups within a generic group. 20 © 2012 South-Western, a part of Cengage Learning

What Opportunities and Challenges do Stakeholders Present? 21 © 2012 South-Western, a part of Cengage Learning

What Responsibilities Does a Firm Have to its Stakeholders? What responsibilities does a firm have in its relationships with all stakeholders? Responsibilities are Economic Legal Ethical Philanthropic 22 © 2012 South-Western, a part of Cengage Learning

The Stakeholder/Responsibility Matrix 23 © 2012 South-Western, a part of Cengage Learning

What Strategies or Actions Should Management Take? Do we deal directly or indirectly with stakeholders? Do we take the offense or the defense in dealing with stakeholders? Do we accommodate, negotiate, manipulate, or resist stakeholder overtures? Do we employ a combination of the above strategies or pursue a singular course of action? 24 © 2012 South-Western, a part of Cengage Learning

Diagnostic Typology of Organizational Stakeholders 25 © 2012 South-Western, a part of Cengage Learning Stakeholder Type  Mixed Blessing Strategy: Collaborate Stakeholder Type  Mixed Blessing Strategy: Collaborate Stakeholder Type  Nonsupportive Strategy: Defend Stakeholder Type  Nonsupportive Strategy: Defend Stakeholder Type  Supportive Strategy: Involve Stakeholder Type  Supportive Strategy: Involve Stakeholder Type  Marginal Strategy: Monitor Stakeholder Type  Marginal Strategy: Monitor High Low Stakeholder’s Potential for Cooperation with Organization HighLow Stakeholder’s Potential for Threat to Organization ?

Summary of Four Stakeholder Types Managers should attempt to satisfy minimally the needs of marginal stakeholders and to satisfy maximally the needs of supportive and mixed blessing stakeholders, enhancing the latter’s support for the organization. 26 © 2012 South-Western, a part of Cengage Learning

Stakeholder Management Stakeholder thinking The process of always reasoning in stakeholder terms throughout the management process. Can be complex and time-consuming. Is facilitated by Stakeholder culture Stakeholder management capability Stakeholder corporation model Principles of stakeholder management 27 © 2012 South-Western, a part of Cengage Learning

Developing a Stakeholder Culture 28 © 2012 South-Western, a part of Cengage Learning MoralistAltruistInstrumentalistCorporate egoistAgency Little concern for stakeholders Great concern for stakeholders Stakeholder Culture embraces the believes, values and practices that organizations have developed for addressing stakeholder issues and relationships.

Stakeholder Management Capability 29 © 2012 South-Western, a part of Cengage Learning Transactional level Process Level Rational Level

Stakeholder Engagement An approach by which companies implement the transactional level of strategic management capability. A ladder of stakeholder engagement which depicts a continuum from low engagement to high engagement.  Sustainability is the latest emphasis on engaging stakeholders. 30 © 2012 South-Western, a part of Cengage Learning

The Stakeholder Corporation 31 © 2012 South-Western, a part of Cengage Learning Stakeholder symbiosis Stakeholder inclusiveness

Principles of Stakeholder Management Also known as the “Clarkson Principles” Key words Acknowledge Monitor Listen Communicate Adopt Recognize Work Avoid Acknowledge conflicts 32 © 2012 South-Western, a part of Cengage Learning

The “Clarkson Principles” of Stakeholder Management 33 © 2012 South-Western, a part of Cengage Learning

Strategic Steps Toward Successful Stakeholder Management 34 © 2012 South-Western, a part of Cengage Learning

Implementation 35 © 2012 South-Western, a part of Cengage Learning Implementation is the key to successful stakeholder management.

Key Terms Core stakeholders Environmental stakeholders Legitimacy Managerial view of the firm Power Primary social Stakeholders Principles of stakeholder Management Process level Production view of the firm Rational level Secondary social stakeholders Stake Stakeholder Stakeholder corporation Stakeholder engagement Stakeholder inclusiveness Stakeholder management capability Stakeholder symbiosis Stakeholder thinking Stakeholder view of the firm Strategic stakeholders Transactional level Urgency © 2012 South-Western, a part of Cengage Learning 36