Stakeholder approach to Corporate governance Jana Klokočníková Jiří Brejcha FSV IES 2007

Content Bit of Definitions Historical development of the stakeholder approach Classification and Division of stakeholders Core questions when applying the stakeholder model Conclusion

Bit of Definitions Stake = an interest or a share in an undertaking (i.e. legal right, moral right, ownership) Stakeholder = A group or an individual, that has either a material or immaterial stake in the corporation (R. Freeman (1984): Strategic Management. A Stakeholder Approach)

Historical development of the stakeholder approach Production view of the firm resources or bought products or services Managerial view of the firm ownership vs. control Stakeholder approach shareholders vs. stakeholders

Corporation SuppliersCustomers The production view of the firm

The managerial view of the firm Employees Corporation Shareholders SuppliersCustomers

The stakeholder view of the firm Enviromental groups Local communities CreditorsGovernment Suppliers Customers Employees Corporation Shareholders

Classification and Division of stakeholders Classification Generic groups of stakeholders Specific groups of stakeholders Division Internal vs. External stakeholders Primary vs. Secondary stakeholders

Internal vs. External stakeholders Enviromental groups Local communities CreditorsGovernment Suppliers Customers Employees Corporation Shareholders

Enviromental groups Local communities CreditorsGovernment Suppliers Customers Primary vs. Secondary stakeholder groups Employees Corporation Shareholders

Core questions when applying the stakeholder model Who are our stakeholders? What are their stakes? What opportunities and challenges are presented to our firm? What responsibilities does our firm have to all its stakeholders? What strategies or actions should our firm take to best deal with stakeholder challenges and opportunities?

Employees Stake  livelihood in the present day  pensions ensured by the company’s pension scheme whistle-blowing procedures training programs, working conditions, equal opportunities, employees share scheme trade unions

Creditors Stake  the company’s ability to repay their debts to maintain the confidence of these providers

Suppliers Stake  to be paid in a timely fashion for the goods and services they supplied interest in the continuance of the company treat their suppliers with understanding and ensure that they settle their debts on time

Local communities Stake - in the companies which operate in their region  in the interest of sustained employment levels  act in an environmentally friendly way

Environmental groups Stake  the companies operate to both national and international environmental standards (CERES Principles and the Global Reporting Initiative (GRI) Sustainability Guidelines) environmentally responsible company will not subject its workers to potentially hazardous processes without adequate protection, will not pollute the environment, and will, where possible, use recyclable materials or engage in a recycling process

Government Stake  to make sure the companies act in a socially responsible way taking account of socially, ethical and environmental considerations  to analyze corporate trends for various purposes such as employment levels, monetary policy, and market supply and demand of goods and services  looking at various aspects to do with fiscal policy such as capital allowances, incentives for investing in various industries or various parts of the country, and of course the taxation raised from companies

Conclusion Three values of the stakeholder model  Descriptive  Instrumental  Normative

Conclusion the involvement of shareholders and/or stakeholders depends on national laws and customs ‘…directors as a board are responsible for relations with stakeholders; but they are accountable to shareholders…’ (Hampel, R. (1998): Committee on Corporate governance: Final report,Gee & Co. Ltd.)

References Carroll, A.B.: Business and society. Ethics and stakeholder management. South-western publishing Co. 1989, Ohio. Colley, J.L., Doyle, J.L., Logan, G.W., Stettinius, W.: Corporate governance. The McGraw-Hill Companies, Inc. 2003, the United States of America.