SOLUTION: BM 327 Monmouth University Corporate Responsibility Executive Summary

BM 327
Lecture 2
Chapter 2
Stakeholder Relationships, Social
Responsibility, And Corporate Governance
© 2019 Cengage. All rights reserved.
Learning Objectives (1 of 2)

Identify stakeholders’ roles in business ethics
Define social responsibility
Examine the relationship between stakeholder
orientation and social responsibility
Delineate a stakeholder orientation in creating
corporate social responsibility
© 2019 Cengage. All rights reserved.
Learning Objectives (2 of 2)

Explore the role of corporate governance in
structuring ethics and social responsibility in
List the steps involved in implementing a
stakeholder perspective in social responsibility
and business ethics
© 2019 Cengage. All rights reserved.
Relationships and Business (1 of 2)

Relationships are associated with both
organizational success and misconduct.

Businesses exist because of organizational
relationships between employees, customers,
shareholders, and the community.
© 2019 Cengage. All rights reserved.
Relationships and Business (2 of 2)

Stakeholder framework identifies the internal and
external stakeholders who agree, collaborate,
and engage in confrontations on ethical issues.

Allows organizations to identify, monitor, and
respond to the needs and expectations of
stakeholder groups.
© 2019 Cengage. All rights reserved.
Stakeholders Define Ethical
Issues in Business (1 of 3)

Approaches to stakeholder theory:
1. Normative: Identifies ethical guidelines that dictate
how firms should treat stakeholders.
2. Descriptive: Focuses on the firm’s behavior;
addresses how decisions are made for
stakeholder relationships.
3. Instrumental: Describes what happens if firms
behave in a particular way.
© 2019 Cengage. All rights reserved.
Stakeholders Define Ethical
Issues in Business (2 of 3)

Primary stakeholders

Those whose continued association and
resources are absolutely necessary for a firm’s
survival (customers, shareholders, employees,
Secondary stakeholders

Those who are not typically engaged directly in
transactions with a company and are therefore not
essential to its survival (government agencies and
© 2019 Cengage. All rights reserved.
Stakeholders Define Ethical
Issues in Business (3 of 3)

Other stakeholders

Others who have a “stake” or claim in some
aspect of a company’s products, operations,
markets, industry, and outcomes are known as
© 2019 Cengage. All rights reserved.
Stakeholder Interaction Model

Reciprocal relationships between the firm and a
host of stakeholders.
Recognizes other stakeholders; explicitly
acknowledges dialogue exists between a firm’s
internal and external environments.
© 2019 Cengage. All rights reserved.
Stakeholder Orientation (1 of 2)

Activities to address stakeholder demands:
1. Organization-wide generation of data about
stakeholder groups and assessment of the firm’s
effects on these groups;
2. Distribution of this information throughout the firm;
3. Responsiveness of the organization as a whole to
this information.
© 2019 Cengage. All rights reserved.
Stakeholder Orientation (2 of 2)

Can be viewed as a continuum.

To gauge a firm’s stakeholder orientation:

Firms likely to adopt the concept to varying
Evaluate the extent the firm adopts behaviors that
typify the generation.
An organization may generate and disseminate
more intelligence about some stakeholder
communities than others.
© 2019 Cengage. All rights reserved.
Social Responsibility and
Business Ethics

Social responsibility: An organization’s obligation
to maximize its positive impact on stakeholders
and minimize its negative impact.
Four levels of social responsibility:
© 2019 Cengage. All rights reserved.
Corporate Citizenship

The extent to which businesses strategically meet the
economic, legal, ethical, and philanthropic responsibilities
placed on them by various stakeholders.
Four interrelated dimensions:
Strong sustained economic performance.
Rigorous compliance.
Ethical actions beyond what the law requires.
Voluntary contributions that advance the reputation and
stakeholder commitment of the organization.

Reputation is one of an organization’s greatest intangible
assets with tangible value.
© 2019 Cengage. All rights reserved.
Corporate Governance Provides Formalized
Responsibility to Stakeholders

The stakeholder model places the board of
directors in the position of balancing the interests
and conflicts of a company’s various
External control of the corporation resides not
only with government regulators but also with key
stakeholders which exert pressure for
responsible conduct.
Social responsibility activities have a positive
impact on consumer identification.
© 2019 Cengage. All rights reserved.
Views of Corporate Governance

Classic agency problem: Ownership (investors)
and control (managers) are separate.

Managers act as agents for investors, whose
primary goal is increasing the value of the stock.
Investors and managers are distinct parties with
unique insights, goals, and values.
Corporate governance mechanisms are needed
to align investor and management interests.
© 2019 Cengage. All rights reserved.
Board of Director
Responsibilities (1 of 3)

Greater demands for accountability and
transparency. Ensure the corporations are run in
an ethical manner.
Duty of loyalty. All decisions should be in the best
interests of the corporation.

Knowledge about the investments, business
ventures, and stock market information of a
company creates issues that could violate their
duty of loyalty.
© 2019 Cengage. All rights reserved.
Board of Director
Responsibilities (2 of 3)

Executive compensation. Avoid the opportunity to
vote for others’ compensation in return for their
own increased compensation.
Organizational ethics. Receive training to
increase competency in ethics program
Audit committee. Address issues such as whistleblower claims, cyber security, and bribery.
© 2019 Cengage. All rights reserved.
Board of Director
Responsibilities (3 of 3)

Accountability. Oversight for system of checks
and balances that limit employees’ and
managers’ opportunities to deviate from policies
and strategies aimed at preventing unethical and
illegal activities.
© 2019 Cengage. All rights reserved.
Demand for Accountability and

Directors chosen for expertise, competence, and
ability to bring diverse perspectives.

Outside directors do not have vested interest.
Interlocking directorate: Board members linked
to more than one company.

Legal unless it involves a direct competitor.
© 2019 Cengage. All rights reserved.
Executive Compensation

Compensation paid to top executives of the
Ratio of the salaries of the highest-paid
executives to the median employee wage should
be less.
Stakeholders support high level of compensation
only when it is linked to strong company
© 2019 Cengage. All rights reserved.
Implementing a Stakeholder
Perspective (1 of 4)
Step 1: Assessing the Corporate Culture
• Identify the organizational mission, values,
norms, and behavior likely to have implications
for social responsibility.
Step 2: Identifying Stakeholder Groups
• Recognize stakeholder needs, wants, and
Step 3: Identifying Stakeholder Issues
© 2019 Cengage. All rights reserved.
Implementing a Stakeholder
Perspective (2 of 4)
Step 4: Assessing Organizational Commitment to
Stakeholders and Social Responsibility
• Used to evaluate current practices and to select
concrete social responsibility initiatives.
• Social responsibility disclosures in company
annual reports are directly related to the quality
of corporate governance.
© 2019 Cengage. All rights reserved.
Implementing a Stakeholder
Perspective (3 of 4)
Step 5: Identifying Resources and Determining
• Two main criteria: Level of financial and
organizational investments required by different
actions and urgency when prioritizing social
responsibility challenges.
• When the challenge under consideration is
viewed as significant and stakeholder pressures
on the issue can be expected, the challenge is
considered urgent.
© 2019 Cengage. All rights reserved.
Implementing a Stakeholder
Perspective (4 of 4)
Step 6: Gaining Stakeholder Feedback
• General assessment of a firm and its practices
can be obtained through satisfaction or
reputation surveys.
• To gauge stakeholders’ perceptions of a firm’s
contributions to specific issues, stakeholdergenerated media such as blogs, websites,
podcasts, and newsletters can be assessed.
• Formal research may be conducted using focus
groups, observation, and surveys.
© 2019 Cengage. All rights reserved.
Corporate Governance
• Group 1: DISNEY
• Group 2: Apple
• Group 3: JP Morgan
© 2019 Cengage. All rights reserved.
Board of Directors
• Group 1: Disney
• Group 2: Apple
• Group 3: JP Morgan
How to Create a Better Board of Directors [Video]
© 2019 Cengage. All rights reserved.
Current Topics in Governance

Executive compensation
Board composition and structure
CEO selection, termination, and succession
Compliance with government regulation and
Organizational ethics programs
Social Responsibility
© 2019 Cengage. All rights reserved.

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