Chapter 3
The Stakeholder Approach to Business, Society, and Ethics
LEARNING OUTCOMES
After studying this chapter, you should be able to:
1.
2.
3.
4.
5.
6.
7.
Define stake and stakeholder, and describe the origins of these concepts.
Differentiate among the production, managerial, and stakeholder views of the firm.
Differentiate among the three values of the stakeholder model.
Explain the concept of stakeholder management.
Identify and describe the five major questions that capture the essence of stakeholder
management.
Identify the three levels of stakeholder management capability (SMC).
Describe the key principles of stakeholder management.
TEACHING SUGGESTIONS
INTRODUCTION – In the face of increasingly complex business environments and operations,
the models by which businesses are managed are also becoming more complex. Perhaps the
principle reason for this increasing complexity is the fact that business organizations are no
longer viewed as the sole property or interest of the owners. Recognition of various
stakeholders’ interests in the firm requires management models that are capable of identifying
and addressing those interests. The stakeholder concept is one such model.
KEY TALKING POINTS – The primacy of ownership interest in business organizations is still
very much the norm in the United States. When students are asked why shareholders should
normatively receive the profits of a business, their standard answer is that the shareholders own
the company. The idea that an ownership position entitles privileged treatment is almost
universal among U. S. residents. Realization that other groups also have legitimate claims on the
corporation is a nearly foreign concept for some students. Introduction of the stakeholder model
of the firm is an excellent opportunity to make a significant difference in how students think
about the firm and its responsibilities. Students should begin to think of the corporation in a
different light, with claims on it from many different constituencies. In addition to introducing
stakeholder theory, the instructor should be able to make many connections with the previous
chapter on corporate social responsibility, responsiveness, and performance. The concepts are
virtually opposite sides of the same coin—stakeholder theory shows that there are many groups
with legitimate claims on the firm, and corporate social responsibility makes the case why the
firm has obligations to those groups. A key element in stakeholder theory that should probably
be emphasized more in the chapter is the question of what stakeholder management truly means.
If it is interpreted to mean managing the various stakeholder groups to the advantage of the firm
(the strategic approach), the real point of stakeholder theory is lost. All that would mean is that
managers have a broader group to manage, but their end is still the same—benefit the firm.
Conversely, if managers see stakeholders as groups that have a claim on the firm, and recognize
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Chapter Notes
that the firm should provide benefits to them as well as the owners (the multifiduciary approach),
the true power of the stakeholder model will be released.
PEDAGOGICAL DEVICES – In this chapter, instructors may utilize a combination of:
Cases:
Wal-Mart: The Main Street Merchant of Doom
The Body Shop International PLC (1998-2010)
The Benefit Corporation: Making a Difference while Making Money
Using Ex-Cons to Teach Business Ethics
Goldman Sachs and Greece
Firestone and Ford: The Tire Tread Separation Tragedy
McDonald's: The Coffee Spill Heard ‘Round the World
The Betaseron® Decision (A)
The BP Oil Spill and Mental Health
Felony Franks: Home of the Misdemeanor Weiner
Goodbye, Indiana- Hello, Mexico: The Whirlpool Plant Closing
A Moral Dilemma: Head Versus Heart
Ethics in Practice Cases:
Are Plants Stakeholders? Do Flora Have Rights?
“Taxing” Questions for this Preparer
Spotlight on Sustainability:
Walmart’s “Sustainability 360” Initiative
Power Point slides:
Visit http://academic.cengage.com/management/carroll for slides related to this and other
chapters.
LECTURE OUTLINE
I.
ORIGINS OF THE STAKEHOLDER CONCEPT
A. What is the Stake in Stakeholder?
B. What is a Stakeholder?
II.
WHO ARE BUSINESS’S STAKEHOLDERS?
A. Three Views of the Firm: Production, Managerial, and Stakeholder
B. Primary and Secondary Stakeholders
C. A Typology of Stakeholder Attributes: Legitimacy, Power, Urgency
III.
S TAKEHOLDER APPROACHES: STRATEGIC, MULTIFIDUCIARY, AND
SYNTHESIS APPROACHES
A. Strategic Approach
B. Multifiduciary Approach
C. Stakeholder Synthesis Approach
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IV.
THREE VALUES OF THE STAKEHOLDER MODEL
A. Descriptive Value
B. Instrumental Value
C. Normative Value
V.
KEY QUESTIONS IN STAKEHOLDER MANAGEMENT
A. Who Are Our Stakeholders?
1. McDonald’s Experience
2. Wool Industry Under Fire
B. What Are Our Stakeholders’ Stakes?
1. Identifying the Nature or Legitimacy of a Group’s Stakes
2. Identifying the Power of a Group’s Stakes
3. Identifying Specific Groups within a Generic Group
C. What Opportunities and Challenges Do Our Stakeholders Present?
D. What Responsibilities Does a Firm Have toward Its Stakeholders?
E.
What Strategies or Actions Should Management Take?
1. Type 1: The Supportive Stakeholder
2. Type 2: The Marginal Stakeholder
3. Type 3: The Nonsupportive Stakeholder
4. Type 4: The Mixed-Blessing Stakeholder
5. Tapping Expertise of Stakeholders
VI.
EFFECTIVE STAKEHOLDER MANAGEMENT
A. Stakeholder Thinking
Chapter Notes
VII. DEVELOPING A STAKEHOLDER CULTURE
VIII. STAKEHOLDER MANAGEMENT CAPABILITY
A. Level 1: Rational Level
B. Level 2: Process Level
C. Level 3: Transactional Level
D. Stakeholder Engagement
IX.
THE STAKEHOLDER CORPORATION
X.
PRINCIPLES OF STAKEHOLDER MANAGEMENT
XI.
STRATEGIC STEPS TOWARD SUCCESSFUL STAKEHOLDER MANGAEMENT
A.
Implementation
XII. SUMMARY
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Chapter Notes
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
Students should recognize that their answers to these discussion questions should be well
reasoned and supported with evidence. Although some answers will be more correct than others,
students should be aware that simplistic answers to complex questions, problems, or issues such
as these will never be “good” answers.
1.
As college students, the people in class may have a widely varied list of stakes and
stakeholders. Stakeholders may include parents, a spouse or significant other, possibly
children, classmates, the instructor, employers or employees, and many others. The stakes
held by each of these groups or individuals will be equally varied, from the pride parents
may take in seeing their offspring graduate from college, to a spouse who can benefit from
the student’s greater earning capacity, to the employer who will have a better qualified
employee (and may have to pay more for that person).
2.
The production view of the firm was the earliest, most simplistic model. In it, the only
groups considered were those who dealt directly with the firm in a business capacity, either
supplying factors of production or buying the firm’s products. As business firms became
more complex and management functions separated from ownership, a more sophisticated
model, the managerial view of the firm, was developed. In addition to the stakeholders
recognized in the production view, the managerial view acknowledged other major
constituents such as employees and owners. The current stakeholder view of the firm
recognizes all of the groups previously mentioned, as well as a myriad of other
stakeholders that can affect or be affected by the company. These include, among others,
government, community members, and the natural environment. Another significant
difference between the stakeholder view of the firm and its predecessors is that benefits of
the firm’s operations are seen as accruing to all stakeholders (in one form or another),
whereas before, the firm itself was the central figure in that calculus.
3.
Primary stakeholders are those groups or persons who have a direct stake in the
organization. Secondary stakeholders have more public or special interests in the firm,
rather than direct stakes. Social stakeholders appear to encompass entities that humans
consider human-related, i.e., individuals and groups of individuals. Nonsocial stakeholders
seem to be non-human entities, such as wildlife, the natural environment, or future
generations, or groups of humans who represent the interests of those non-humans. If we
look at a large manufacturer like Ford Motor Company, its stakeholders might include: (1)
primary social stakeholders—customers and employees; (2) secondary social
stakeholders—General Motors and the National Highway Safety Board; (3) primary
nonsocial stakeholders—polar bears whose natural habitat is being damaged by climate
change, and (4) secondary nonsocial stakeholders—citizen groups that support clean air
initiatives.
4.
By balancing its economic, legal, ethical and philanthropic responsibilities to various
stakeholder groups, a company is more likely to develop sustainable practices. Companies
also can work with relevant stakeholder groups (employees, communities, customers,
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Chapter Notes
suppliers, shareholders and others) to create sustainable products and practices and to
mitigate the environmental, health and safety impacts of its products.
5.
There are two primary differences between Level 1 and Level 3 of SMC. The first is
actively learning about stakeholders and including their stakes in the planning process.
The second step is to actually engage the stakeholders and develop transactions or a
relationship with them. Although the textbook does not specify this, perhaps the most
important step in moving from Level 1 to Level 3 is for senior managers to care enough
about other stakeholders that they are willing to initiate these steps. Much more is
accomplished through internal motivation than through coercion.
6.
A cynic would look at the current business climate and declare that the stakeholder
corporation is an impractical dream that will not come to fruition any time soon. Recent
failures in the financial services and automotive industries (among others) and the
continuing disparity in CEO and worker pay provide much evidence that primary
consideration is given to enriching those in control of the organization at the expense of all
others. However, this ignores the groundswell of support for stakeholder inclusion by
many, both inside and outside of corporations. This support, along with the complexity of
business operations and relationships, will almost require that firms recognize and give
credence to the claims their various stakeholders hold on them. There is a paradox at work
here, just as there is in the centralization/decentralization question in the management of a
firm. As the operating environment becomes more complex, the initial reaction to gaining
control is to centralize decision-making. However, the sheer complexity soon makes
centralization impossible—the few decision makers are overwhelmed. Thus,
decentralization becomes the only way to deal with complexity. In a similar manner, the
sheer complexity and strength of stakeholder demands will soon mandate that firms
recognize them and deal with them.
GROUP ACTIVITY
Divide students into groups of four to five students. Have each group review the corporate social
responsibility report of a different company. Ask the students to determine the stakeholders
addressed by the company’s CSR report. Students should then select one stakeholder group and
determine how the company addressed the five key questions of stakeholder management with
regards to the selected stakeholder: (1) Who Are Our Stakeholders? (Students should indicate
the selected stakeholder group here); (2) What Are Our Stakeholders’ Stakes?; (3) What
Opportunities and Challenges Do Our Stakeholders Present?; (4) What Responsibilities Does the
Firm Have to Its Stakeholders? and (5) What Strategies or Actions Should Management Take?
Each group should make a poster that succinctly addresses the five questions for their company.
Students should be encouraged to review the poster presentations of other groups. The instructor
may want to quiz the entire class regarding the poster presentations.
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Chapter Notes
INDIVIDUAL ASSIGNMENT
Have students read the following scenario and use the five key questions in stakeholder
management to determine how Starbuck’s should handle this stakeholder.
A few years ago, Starbucks identified three areas in which government could impact the
company’s ability to maximize profits in its Corporate Social Responsibility Report: (1) U.S.
Tax Policy, (2) U.S. Trade Policy and (3) U.S. Healthcare Policy. Starbucks notes that (1) sound
tax policy is critical to its continued competiveness, (2) bilateral and multilateral trade
agreements help to create opportunities for corporate investment in emerging markets, and (3)
rising healthcare costs could make it more difficult for the company to continue to provide
healthcare benefits to its employees.