Lecture 3 Doing Well.. - Personal web pages for people of Metropolia

Metropolia Business School International Project Week (IPW) 2013
Dr Denise Dollimore
University of Hertfordshire, UK
Following this session students should be able to:
• Discuss Stakeholder theory and its links to business ethics
and CSR
• Identify important stakeholders for an organisation and
discuss how managers balance the interests of various
• Explain the paradox of profitability vs responsibility and
evaluate cases using competing theoretical perspectives
Stakeholder Theory
Edward Freeman 1984
Strategic Management: A Stakeholder Approach
on business ethics, from a social justice
(deontological) viewpoint, and argues that business
actions should be fair.
Draws on notion of corporate social responsibility,
and argues stakeholder approach is good for business
Good corporate citizenship - a way to differentiate
(Readings pp 23-28)
How can CEOs Change company values?
How can organizations become good corporate citizens?
A perspective which stresses the responsibilities that
corporations have towards society and other
(King and Lawley, 2013)
CSR requires two principles*:
The charitable principle, where the more fortunate
help the less fortunate
The stewardship principle, where the rich hold the
wealth ‘in trust’ for the rest of society
The belief that these principles, combined with the belief that
acting appropriately, result in limited government
intervention (rules & regulations) has given CSR
considerable credence in business circles (Freeman &
Liedtka, 1991)
*Traced back to philanthropists of 1930s
Now widely agreed that business have obligations beyond
their legal and economic obligations towards society
Moving beyond compliance with laws to establish new standards
Ethical Capitalism* (AKA stakeholder approach)
A business approach which seeks to integrate CSR as central to the
purpose and activity of an organization
Business benefits include
 Enhanced reputation with consumers
 Improve human rights, workforce welfare and ecological
 Improved relationships with governments
 positive contribution to national economic and social development
*King & Lawley (2013) in Readings
Edward Freeman 1984
‘stakeholder values’
Milton Friedman1970
‘shareholder values’
Evaluating corporate responsibility using Carroll’s
(1991) pyramid [illustrates levels of CSR]
Traditionally, CEOs and strategy writers see only forces of
competition in operational environment, however…
Competitive / operating environment includes numerous
stakeholders (Stakeholder Theory, Freeman 1984)
Stakeholders can be become allies (affect & affected by firm)
They can provide information about changes in the broad
environment (social attitudes / trends)
They can co-operate in finding new ways forwardand achieve
competitive advantage
Challenge for firms is to define stakeholders
and decide how much to privilege them
Key question…
Should a business prioritise shareholder value or
stakeholder needs?
Shareholders own the business
 Primarily for financial gain
Stakeholders are affected by the decisions and operational
activities of the business
 Financial, non-financial and personal benefits
n.b., the ‘social contract’ between business and
society is constantly evolving (Waddock 2010)
To be an attractive
investment, a firm must
earn a higher return on
the shareholders’ equity
than could be realized
at a bank.
Acting in the interest of
others, even when there
is no legal imperative.
Unilever? Johnson and Johnson?
Primart? Starbucks?
Profitability versus Responsibility
The shareholder value perspective
Milton Friedman (1970)*
‘The Social Responsibility of Business is to Increase it
Profits’ NYT
The stakeholder values perspective
Edward Freeman (1984)
Strategic Management: A Stakeholder Approach
p. 36 Readings
Business Ethics and corporate social responsibility
View of the Firm
A network of relationships among the firm and its
Approach to Strategy Formulation
Analysis of the economic power, political influence,
rights and demands of various stakeholders (Mendelow
Source of Competitive Advantage
Through superior linkages with stakeholders leading to
trust, goodwill, reduced uncertainty, improved business
dealings, and ultimately higher firm performance
(think Porter’s Value Network analysis)
Be committed – at top management level
 Develop a written code of ethics to communicate
values to employees
 Involve middle managers - establish ethics
committees to settle disputes
 Ask line managers to train employees
 Fire people who violate the code
 Protect whistle-blowers
 Withdraw from countries or industries where you
cannot act with integrity
Social Enterprise: now recognised as the ‘third sector’
(alongside public sector and private business sector)
Voluntary, not-for-profit, charitable organisations
Forum for the Future (UK, USA): help organisations innovate the
products, services and business models needed for a
sustainable future (‘philosophy of sustainability’)
Can find common interests with responsive businesses:
◦ those creating more sustainable business models,
e.g. M&S, Unilever
◦ those serving customers in emerging economies
Angus describes the way he has successfully embedded
Engaged Ethics as a core value of his business and used these
ethical initiatives as a powerful differentiator to capture the
hearts and minds of all those who touch the brand.
Exclusive branded chocolatier, having since become a cocoa
grower and built a luxury hotel in St Lucia, CEO, Angus
Thirlwell offers insight into how he has achieved growth
without compromise of the business’s core values.
A ‘socially contributive’ organization
Freeman, E. 1984. Strategic Management: A Stakeholder Approach.
Boston: Pitman.
Freeman and Liedtka. 1991. ‘Stockholders and stakeholders: A New
Perspective on Corporate Governance’ Reprinted from California
Management Review (1982)
King and Lawley. 2013. Organizational Behaviour. Oxford.
Waddock, S. (2010) ‘The Social Contract of Business in Society’ in Aras
and Crowther eds. A Handbook of Corporate Governance and Social
Responsibility 2010 pp. 69-82
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