MODULE 2
STAKEHOLDER RELATIONSHIPS, SOCIAL RESPONSIBILITY AND CORPORATE GOVERNANCE
Session Topic:
1. Identifying Stakeholders
2. Stakeholder Orientation
3. Social Responsibility and Ethics
4. Issues in Social Responsibility
5. Social Responsibility and the Importance of a Stakeholder Orientation
6. Corporate Governance
Learning Objectives:
The following specific learning objectives are expected to be realized at the end of the session:
1. Identify stakeholders’ roles in business ethics
2. Define social responsibility
3. Examine the relationship between stakeholder orientation and social responsibility
4. Delineate a stakeholder orientation in creating corporate social responsibility
5. Explore the role of corporate governance in structuring ethics and social responsibility in
business
6. List the steps involved in implementing a stakeholder perspective in social responsibility and
business ethics
Key Points:
Stakeholder Corporate citizenship
Stakeholder orientation Primary and secondary stakeholders
Social responsibility Sustainability
Corporate governance Consumer protection
Core Content:
Introduction
A business exists because of relationships between employees, customers, shareholders or investors,
suppliers, and managers who develop strategies to attain success. In addition, an organization usually
has a governing authority, often called a board of directors, that provides oversight and direction to assure
the organization stays focused on its objectives in an ethical, legal, and socially responsible manner.
Understanding stakeholder relationships is important because organizational success as well as
organizational misconduct happened because of this relationships. This module will explore the role of
stakeholders in business and the obligations of business to its stakeholders. It will give an overview of
business social responsibility and corporate governance along business ethics perspective. The concept
of stakeholders and how a stakeholder framework helps us understand organizational ethics will be given
primary focus .
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In-text Activities
STAKEHOLDERS
They are customers, investors and shareholders, employees, suppliers, government agencies,
communities, and many others who have a “stake” or claim in some aspect of a company’s products,
operations, markets, industry, and outcomes.
Type of Stakeholders
• Primary stakeholders
- those whose continued association is absolutely necessary for a firm’s survival (employees,
customers, investors, and shareholders)
• Secondary stakeholders
- do not typically engage in transactions with a company and therefore not essential to its survival
(media, trade associations and special interest groups)
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Interactions Between a Company and Its Primary and Secondary Stakeholders
In stakeholder interaction model as shown in the diagram, there are reciprocal relationships between the
firm and a host of stakeholders. In addition to the fundamental input of investors, employees, and
suppliers, this approach recognizes other stakeholders and explicitly acknowledges that dialogue exists
between a firm’s internal and external environments. Corporate social responsibility actions that put
employees at the center of activities gain the support of both external and internal stakeholders.
STAKEHOLDER RELATIONSHIPS
Business influences stakeholders groups, but these groups also have the ability to influence business;
thus, the relationship between companies and their stakeholders is a two-way street.
The Power of Stakeholders
Stakeholders provide resources critical to a firm’s long-term success. These resources may be tangible
and intangible:
Shareholders - supply capital; suppliers offer material resources or intangible knowledge;
Employees and managers - grant expertise, leadership, and commitment
Customers - generate revenue and provide loyalty with word-of-mouth promotion
Local communities - provide infrastructure
Media- transmits positive corporate images
In a spirit of reciprocity, stakeholders should be fair, loyal, and treat the corporation in a responsible way.
When individual stakeholders share expectations about desirable business conduct, they may choose to
establish or join formal communities dedicated to defining and advocating these values and expectations.
Stakeholders’ abilities to withdraw these needed resources gives them power over businesses.
STAKEHOLDER ORIENTATION
• The degree to which a firm understands and addresses stakeholders demands .
Three sets of activities:
1. the organization-wide generation of data about stakeholder groups and assessment of the firm’s
effects on these groups
2. the distribution of this information throughout the firm
3. the responsiveness of the organizations as a whole to the information
SOCIAL RESPONSIBILITY
Social responsibility is defined as an organization’s obligation to maximize its positive impact on
stakeholders and minimize its negative impact.
There are four levels of social responsibility—economic, legal, ethical, and philanthropic as shown by
figure below. At the most basic level, companies have a responsibility to be profitable at an acceptable
level to meet the objectives of shareholders and create value
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Business ethics, as previously defined, comprises principles and values that meet the expectations of
stakeholders. Philanthropic responsibility refers to activities that are not required of businesses but that
contribute to human welfare or goodwill. Ethics, then, is one dimension of social responsibility. Ethical
decisions by individuals and groups drive appropriate decisions and are interrelated with all of the levels
of social responsibility. For example, the economic level can have ethical consequences when making
managerial decisions.
The term corporate citizenship is often used to express the extent to which businesses strategically
meet the economic, legal, ethical, and philanthropic responsibilities placed on them by various
stakeholders.
Corporate citizenship has four interrelated dimensions:
1. strong sustained economic performance
2. rigorous compliance
3. ethical actions beyond what the law requires and
4. voluntary contributions that advance the reputation and stakeholder commitment of the
organization
ISSUES IN SOCIAL RESPONSIBILITY
1. Social issues
Social issues are associated with the common good. It deals with concerns affecting large
segments of society and the welfare of the entire society. It may encompass indirectly related
issues such as jobs lost through outsourcing, abortion, gun rights, and poverty and the directly
related to business include obesity, smoking, and exploiting vulnerable or impoverished
populations, as well as a number of other issues.
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2. Consumer protection
Often occurs in the form of laws passed to protect consumers from unfair and deceptive business
practices. Issues involving consumer protection usually have an immediate impact on the
consumer after a purchase. Major areas of concern include advertising, disclosure, financial
practices, and product safety.
3. Sustainability
We define sustainability as the potential for the long-term well-being of the natural environment,
including all biological entities, as well as the mutually beneficial interactions among nature and
individuals, organizations, and business strategies. With major environmental challenges such as
global warming and the passage of new environmental legislation, businesses can no longer
afford to ignore the natural environment as a stakeholder.
4. Corporate governance
Corporate governance involves the development of formal systems of accountability, oversight,
and control. Strong corporate governance mechanisms remove the opportunity for employees to
make unethical decisions.
Issues in Corporate Governance
1. The role of the board of directors
For public corporations, boards of directors hold the ultimate responsibility for their firms’ success
or failure, as well as the ethics of their actions.
The members of a company’s board of directors assume legal responsibility for the firm’s
resources and decisions, and they appoint its top executive officers. Board members have a
fiduciary duty, meaning they have assumed a position of trust and confidence that entails certain
responsibilities, including acting in the best interests of those they serve. Thus, board
membership is not intended as a vehicle for personal financial gain; rather, it provides the
intangible benefit of ensuring the success of both the organization and the people involved in the
fiduciary arrangement.
2. Greater demands for accountability and transparency
Just as improved ethical decision making requires more of employees and executives, boards of
directors are also experiencing a greater demand for accountability and transparency. In the past,
board members were often retired company executives or friends of current executives, but the
trend today is toward “outside directors” who have little vested interest in the firm before
assuming the director role.
3. Executive compensation
Many people believe no executive is worth millions of dollars in annual salary and stock options,
even if he or she brings great financial return to investors. Their concerns often center on the
relationship between the highest-paid executives and median employee wages in the company. If
this ratio is perceived as too large, critics believe employees are not being compensated fairly or
high executive salaries represent an improper use of company resources.
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Summary
Business ethics, issues, and conflicts revolve around relationships. Customers, investors and
shareholders, employees, suppliers, government agencies, communities, and many others who have a
stake or claim in an aspect of a company’s products, operations, markets, industry, and outcomes are
known as stakeholders. Stakeholders are influenced by and have the ability to affect businesses.
Stakeholders provide both tangible and intangible resources that are critical to a firm’s long-term
success, and their relative ability to withdraw these resources gives them power. Stakeholders define
significant ethical issues in business.
An organization that develops effective corporate governance and understands the importance of
business ethics and social responsibility in achieving success should develop a process for managing
these important concerns. Although there are different approaches, steps have been identified that have
been found effective in utilizing the stakeholder framework to manage responsibility and business ethics.
Assessment/Evaluation
1. Case study
2. End of lesson quiz
References
( Please refer to the course syllabus)
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