Chapter 2:
Stakeholder Relationships,
Social Responsibility, and
Corporate Governance
Part One:
An Overview of Business Ethics
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1
Relationships and Business
Building relationships is one of the most
important areas of business today
 Strong relationships associated with organizational
success
 Stakeholder framework
 Helps identify internal and external stakeholders
 Helps monitor and respond to needs, values, and
expectations of stakeholder groups
Corporate governance: The formal system
of accountability and control of ethical and
socially responsible behavior
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2
Stakeholders Define Ethical Issues
in Business
Stakeholders: Those who have a stake or
claim in some aspect of a company’s
products, operations, markets, industry, and
outcomes
Customers
Employees
Government agencies
Investors
Suppliers
Communities
Stakeholders can influence and are
influenced by businesses
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Identifying 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
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The Stakeholder Interaction Model
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A Stakeholder Orientation
The degree to which a firm understands
and addresses stakeholder demands
 Three activities
 Generation of data about stakeholder groups
 Distribution of the information throughout the firm
 Organization’s responsiveness to this intelligence
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Best Corporate Citizens
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Social Responsibility
An organization’s obligation to maximize its
positive impact on stakeholders and
minimize its negative impact
 Four levels of social responsibility




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Economic
Legal
Ethical
Philanthropic
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The Importance of a Stakeholder
Orientation
Social responsibility cannot be reactive
 Must be part of business strategy
 Is associated with
 Increased profits
 Increased employee commitment
 Greater customer loyalty
Business ethics involves carefully thoughtout rules of conduct that guide decision
making
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The Steps of Social Responsibility
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Corporate Citizenship
The extent to which businesses strategically
meet their economic, legal, ethical, and
philanthropic responsibilities
 Four interrelated dimensions




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Strong sustained economic performance
Rigorous compliance
Ethical actions beyond what is legally required
Voluntary contributions to advance reputation and
stakeholder commitment
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Reputation
Reputation is one of an organization’s
greatest intangible assets with tangible
value
 Difficult to quantify
 Very important
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The World’s Most Ethical Companies
Trader Joe’s
Aflac
Xerox
Nike
Dow Corning
Corporation
Ford Motor Company
General Electric
PepsiCo
General Mills
Best Buy
Starbucks
Whole Foods Market
Target
Salesforce.com, Inc.
Barrett Jackson
Auction Co.
Patagonia
Source: “2010 World’s Most Ethical Companies,” Ethisphere, Q4, 30–31.
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Corporate Governance
Formal systems of accountability, oversight,
and control
 Accountability
 How closely workplace decisions align with a firm’s
strategic direction
 Oversight
 A system of checks and balances to minimize
opportunities for misconduct
 Control
 The process of auditing and improving
organizational decisions and actions
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Corporate Governance Topics
Source: “Corporate Alert: Top 10 Topics for Directors in 2011,” December 6, 2010,
http://
Source: www.corpgov.deloitte.com/binary/com.epicentric.contentmanagement.servlet.ContentDeliveryServlet/USEng/Documents/
Board%20Governance/Top%2010%20Topics%20for%20Directors%20in%202011_Akin_120610.pdf
(accessed February 15, 2011).
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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 stakeholders
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Board of Directors
Holds final responsibility for its firm’s
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 is a growing concern
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Demands for Accountability and
Transparency
Stakeholders demand that boards are
answerable for their actions and
transparent
 Directors chosen for expertise, competence,
and diverse perspectives
 Qualified, knowledgeable, unbiased boards can
prevent misconduct
Interlocking directorate: Board members
linked to more than one company
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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?
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Changes in Corporate Governance
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Implementing a Stakeholder Perspective
1.
2.
3.
4.
Assessing the corporate culture
Identifying stakeholder groups
Identifying stakeholder issues
Assessing organizational commitment to social
responsibility
5. Identifying resources and determining urgency
6. Gaining stakeholder feedback
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