1. C H A P T E R 2
Stakeholder Relationships, Social Responsibility, and Corporate Governance

2. What Is a Stakeholder? (ما هو من أصحاب المصلحة)
Stakeholders--
are those who have a stake (حصة)or claim in some aspect of a company’s products, operations, markets, industry and outcomes
Customers – Investors
Employees – Suppliers
Government agencies – Communities
Stakeholders can influence and are influenced by businesses

3. Kinds of Stakeholders
Primary stakeholders: Those whose continued association is necessary for a firm’s survival
Employees, customers, investors, governments and communities
Secondary stakeholders: Are not essential to a company’s survival
Media, trade associations, and special interest groups

4. Relationships and Business
Building relationships is one of most important areas in business today
Can be associated with organizational success and misconduct
Stakeholder framework
Helps identify internal and external stakeholders
Helps monitor and respond to needs, values, and expectations of stakeholder groups

5. The Stakeholder Interaction Model

6. Characteristics of Stakeholders
Owners and Shareholders (المالكين والمساهمين)
The number of owners and the roles they carry out differ according to the size of the firm
In small businesses there may be only one owner (sole trader) or perhaps a small number of partners (partnership)
In large firms there are often thousands of shareholders, who each own a small part of the business

7. Characteristics of Stakeholders
Managers:
Organize
Make decisions
Plan
Control
Are accountable to the owner(s)

8. Characteristics of Stakeholders
Employees or Staff: (موظف أو موظفين)
A business needs staff or employees to carry out its activities
Employees agree to work a certain number of hours in return for a wage or salary
Pay levels vary with skills, qualifications, age, location, types of work and industry and other factors

9. Characteristics of Stakeholders
Customers:
Customers buy the goods or services produced by firms
They may be individuals or other businesses
Firms must understand and meet the needs of their customers, otherwise they will fail to make a profit or, indeed, survive

10. Characteristics of Stakeholders
Suppliers:
Firms get the resources they need to produce goods and services from suppliers
Businesses should have effective relationships with their suppliers in order to get quality resources at reasonable prices
This is a two-way process, as suppliers depend on the firms they supply

11. Characteristics of Stakeholders
Community: (المجتمع)
Firms and the communities they exist in are also in a two-way relationship
The local community may often provide many of the firm’s staff and customers
The business often supplies goods and services vital to the local area
But at times the community can feel aggrieved by some aspects of what a firm does

12. Characteristics of Stakeholders
Government:
Economic policies affect firms’ costs (through taxation and interest rates)
Legislation regulates what business can do in areas such as the environment and occupational safety and health
Successful firms are good for governments as they create wealth and employment

13. Responsibility of the Business Towards The Stake Holder
Social Responsibility
Ethics

14. Social Responsibility
Is an organization’s obligation to maximize its positive impact on stakeholders and minimize its negative impact
Four levels of social responsibility:
Economic
Legal
Ethical
Philanthropic (الخيرية)
Source: Nancy Ney

15. Social Responsibility
Stake Holders
Examples
Share Holders
Good Return on Investment
Employee
Fair Pay & Working Conditions
Supplier
Regular Business & Prompt Payment
Customer
Fair Price & Safe Product
Local Community
Community Jobs
Government
Employment for Local Community
Environment
Less Pollution

16. Understanding the Four Components
Responsibility
Societal Expectation
Examples
Economic
Required
Be profitable. Maximize sales, minimize costs, etc.
Legal
Obey laws and regulations.
Ethical
Expected
Do what is right, fair and just.
Discretionary
(Philanthropic)
Be a good corporate citizen.

17. The Steps of Social Responsibility

18. Pyramid of CSR
Philanthropic Responsibilities Be a good corporate citizen.
Ethical Responsibilities Be ethical.
Legal Responsibilities Obey the law.
Economic Responsibilities Be profitable.
Source: Archie B. Carroll, “The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders,” Business Horizons (July-August 1981). © 1991 by the Foundation for the School of Business at Indiana University.

19. Economic Responsibilities...
how resources for the production of goods and services are distributed within the social system
Efficient operation to satisfy economic needs of the society and generation of surplus for rewarding the investors and further development.

20. Legal Responsibilities...
Refers to obeying governmental laws and regulations
civil law: Rights & Duties of individuals and organizations
criminal law: prohibits specific actions and imposes fines and/or imprisonment as punishment for breaking the law

21. Ethical Responsibilities...
behaviors and activities that are expected or prohibited by organizational members, the community, and society (not codified into law)
standards, norms, or expectations that reflect the concern of major stakeholders
For Example- a company should not resort to bribing, adulteration, unfair competitive practices etc.

22. Philanthropic Responsibilities...
Voluntary contributions of business to the society like involvement in community development or other social programmes

23. Social Responsibility and the Importance of Stakeholder Orientation
From a social responsibility perspective, business ethics embodies standards, norms, and expectations that reflect concerns of major stakeholders
Social responsibility is associated with:
Increased profits
Increased employee commitment
Greater customer loyalty

24. Best and Worst Companies for Social Responsibility

25. Social Responsibility and Ethics
Social responsibility can be viewed as a contract with society
Business ethics involves carefully thought-out rules (heuristics) of conduct that guide decision making

26. Corporate Citizenship
The extent to which businesses strategically meet their economic, legal, ethical, and philanthropic responsibilities
Four interrelated dimensions:
Strong sustained economic performance
Rigorous compliance
Ethical actions beyond what is required by the law
Voluntary contributions that advance reputation and stakeholder commitment

27. The World’s Most Ethical Companies

28. Corporate Governance
Formal systems of accountability, oversight, and control
Accountability
Refers to how closely workplace decisions are aligned with a firm’s stated strategic direction
Oversight
Provides a system of checks and balances that limits employees and minimizes opportunities for misconduct
Control
The process of auditing and improving organizational decisions and actions

29. Common Corporate Governance Issues

30. Corporate Governance Models
Shareholder model
Founded in classic economic precepts
The maximization of wealth for investors and owners
Stakeholder model
A broader view of the purpose of business
Includes satisfying concerns of a variety of stakeholders

31. Boards of Directors
Hold final responsibility for their firms’ success, failure, and ethicality of actions
Increased demands for accountability/ transparency
Trend toward “outside directors” chosen for expertise, competence, and strategic decision making
Executive compensation a large and growing concern

32. Executive Compensation
Many boards spend more time discussing compensation than ensuring integrity of financial reporting systems
How closely linked is executive compensation to company performance?
Does performance-linked compensation encourage executives to focus on short-term performance at the expense of long-term growth?

33. Percentage of U.S. Workforce Who Feel Executive Compensation Is Appropriate, Based on Ethics Cultural Strength
It is clear from this figure that employee satisfaction over executive pay greatly improves as the strength of ethical culture improves. This is perhaps because incidences of ethical misconduct decrease in corporations with strong ethical cultures, making employees more satisfied and secure in their jobs.
Source: 2009 National Business Ethics Survey, Ethics Resource Center, p. 27 33

34. The Reactive-Accommodative-Proactive Scale
Rating
Strategy
Performance
Reactive
Deny Responsibility
Doing less than required
Defensive
Admit responsibility, but fight it
Doing the least that is required
Accommodative
Accept responsibility
Doing what is required
Proactive
Anticipate Responsibility
Doing more than is required
This model provides a method for assessing a company’s strategy and performance with each stakeholder group. 34

35. Implementing a Stakeholder Perspective
Assessing the corporate culture
Identifying stakeholder groups
Identifying stakeholder issues
Assessing organizational commitment to social responsibility
Identifying resources and determining urgency
Gaining stakeholder feedback