The Corporation And Its Stakeholders

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The Corporation And Its Stakeholders

  1. 1. The Corporation and Its Stakeholders The Corporation and Its Stakeholders Professor Hector R Rodriguez School of Business Mount Ida College Business, Society & Environment
  2. 2. <ul><li>Society </li></ul><ul><ul><li>The Corporation and Its Stakeholders </li></ul></ul><ul><ul><li>People for the Ethical Treatment of Animals </li></ul></ul><ul><ul><li>Corporate Citizenship </li></ul></ul><ul><ul><li>The Social Responsibility of Business </li></ul></ul><ul><ul><li>The Shareholder Primacy Norm </li></ul></ul><ul><ul><li>CSR, Citizenship and Sustainability Reporting </li></ul></ul><ul><ul><li>Responsible Investing </li></ul></ul><ul><ul><li>The Community and the Corporation </li></ul></ul><ul><ul><li>Taxation and Corporate Citizenship </li></ul></ul><ul><ul><li>Corporate Philanthropy Programs </li></ul></ul><ul><ul><li>Employees and the Corporation </li></ul></ul><ul><ul><li>Managing a Diverse Workforce </li></ul></ul><ul><li>Environment </li></ul><ul><ul><li>A Balanced Look at Climate Change </li></ul></ul><ul><ul><li>Non-anthropogenic Causes of Climate Change </li></ul></ul><ul><ul><li>Sulfates, Urban Warming and Permafrost </li></ul></ul><ul><ul><li>Conventional Energy </li></ul></ul><ul><ul><li>The Kyoto Protocol </li></ul></ul><ul><ul><li>Green Building </li></ul></ul><ul><ul><li>Green Information Technology </li></ul></ul><ul><ul><li>Transportation, Electric Vehicles and the Environment </li></ul></ul><ul><ul><li>Geo-Engineering </li></ul></ul><ul><ul><li>Carbon Capture and Storage </li></ul></ul><ul><ul><li>Renewable Energy </li></ul></ul><ul><ul><li>Solid, Toxic and Hazardous Waste </li></ul></ul><ul><ul><li>Forests, Paper and Carbon Sinks </li></ul></ul><ul><ul><li>Life Cycle Analysis </li></ul></ul><ul><ul><li>Water Use and Management </li></ul></ul><ul><ul><li>Water Pollution </li></ul></ul>Course Map – Topics Covered in Course
  3. 3. First a quick refresher… Business, Society & Environment Economic Capital Social Capital Environmental Capital Bearable Equitable Viable Sustainable Concept of Sustainable Development
  4. 4. <ul><li>Sustainability </li></ul><ul><li>Corporate Social Responsibility (CSR) </li></ul><ul><li>Corporate Citizenship (CC) </li></ul><ul><li>These terms mean different things to different people, sometimes they mean the same thing. </li></ul><ul><li>For purposes of this course Sustainability encompasses all elements linking business, society and the environment, while CSR / CC the more narrow societal aspects, without addressing environmental concerns. </li></ul>A Quick Word on Terminology
  5. 5. Sustainability Management – Where to Begin? One of the first steps - Find out what’s important to those with an interest in your business (stakeholders)
  6. 6. <ul><li>A stakeholder refers to persons or groups that affect, or are affected by, an organization’s decisions, policies, and operations </li></ul><ul><li>Note: Term stakeholder is NOT the same as stockholder </li></ul>What is a Stakeholder?
  7. 7. <ul><li>Business – an organization that is engaged in making a product or providing a service for a profit </li></ul><ul><li>Society – Human beings and the social structures they collectively create </li></ul>Society Business Why Talk About Stakeholders? Business & Society are Highly Interdependent
  8. 8. <ul><li>Two critical questions: </li></ul><ul><ul><li>What is the purpose of the modern corporation? </li></ul></ul><ul><ul><li>To whom, or what, should the firm be responsible? </li></ul></ul>Firm Theory Ownership Theory of a Firm Two Contrasting Views Stakeholder Theory of a Firm
  9. 9. <ul><li>Ownership theory of the firm </li></ul><ul><ul><li>Firm is the property of its owners </li></ul></ul><ul><ul><li>Purpose is to maximize returns to shareholders </li></ul></ul><ul><ul><li>Shareholders interests are paramount and take precedence over all others </li></ul></ul><ul><li>Stakeholder theory of the firm </li></ul><ul><ul><li>Argues the corporation serves a broader purpose, to create value for society </li></ul></ul><ul><ul><li>Must make profit for owners to survive, however, creates other sources of value too </li></ul></ul><ul><ul><li>Corporations have multiple obligations, all “stakeholder groups” must be taken into account </li></ul></ul>Current Views
  10. 10. <ul><li>Descriptive - More realistic description of how companies really work </li></ul><ul><li>Instrumental - More effective corporate strategy </li></ul><ul><li>Normative - Stakeholder management is the right thing to do </li></ul>Core Arguments for Stakeholder Theory of the Firm
  11. 11. <ul><li>Stakeholder groups can be divided into two categories: </li></ul><ul><ul><li>Market stakeholders </li></ul></ul><ul><ul><li>Nonmarket stakeholders </li></ul></ul><ul><li>Drawing “Maps” of stakeholder systems, with the business firm in the center, is one way to visualize the relationships between the firm and its stakeholders </li></ul>Market and Nonmarket Stakeholders
  12. 12. <ul><li>Market stakeholders are those that engage in economic transactions with the company as it carries out its primary purpose of providing society with goods and services </li></ul><ul><ul><li>Sometimes referred to as primary stakeholders </li></ul></ul>Market Stakeholder Employees Suppliers Customers Creditors Stockholders Distributors Firm
  13. 13. <ul><li>Nonmarket stakeholders are people or groups who, although they do not engage in direct economic exchange with the firm, are affected by or can affect its actions. </li></ul><ul><ul><li>Sometimes called secondary stakeholders </li></ul></ul>Nonmarket Stakeholders Communities Media Public Activists Government NGO’s Firm
  14. 14. <ul><li>Process to identify relevant stakeholders and to analyze their interest, influence and power </li></ul><ul><li>Asks 4 questions: </li></ul><ul><ul><li>Who are the relevant stakeholders? </li></ul></ul><ul><ul><li>What are the interests of each stakeholder? </li></ul></ul><ul><ul><li>What is the power of each stakeholder? (voting, political, legal, economic) </li></ul></ul><ul><ul><li>How are coalitions likely to form and what would they be? </li></ul></ul>Stakeholder Analysis
  15. 15. Mapping Stakeholder Landscapes, Boston College’s Center for Corporate Citizenship (Relevant)
  16. 16. <ul><li>The action component following stakeholder analysis </li></ul><ul><ul><li>Once you know who your stakeholders are, their interests, power, and any coalitions, do you take action to engage with these groups? </li></ul></ul><ul><li>Companies tend to follow a progression of stages in stakeholder engagement (next slide) </li></ul>Stakeholder Engagement
  17. 17. <ul><li>Inactive </li></ul><ul><ul><li>Companies ignore stakeholder concerns </li></ul></ul><ul><li>Reactive </li></ul><ul><ul><li>Companies act only when forced to do so </li></ul></ul><ul><li>Proactive </li></ul><ul><ul><li>Companies try to anticipate stakeholder concerns </li></ul></ul><ul><li>Interactive </li></ul><ul><ul><li>Companies actively engage with stakeholders in an ongoing relationship of mutual respect, openness, and trust </li></ul></ul>Stakeholder Engagement
  18. 18. <ul><li>Helps companies learn about societal expectations </li></ul><ul><li>Generates creative solutions to problems </li></ul><ul><li>Helps win stakeholder support for implementing solutions </li></ul><ul><li>Can neutralize critics </li></ul><ul><li>Can improve corporate reputation for taking constructive action </li></ul>Stakeholder Engagement and Dialogue Benefits
  19. 19. <ul><li>Stakeholder data is complex and dynamic </li></ul><ul><li>Need to develop and keep current </li></ul><ul><li>Stakeholders are disappearing into the web </li></ul><ul><li>X and Y generations have different attitudes, alliances and loyalties </li></ul><ul><li>Finding the ‘real’ stakeholders for your activities becoming more difficult </li></ul>Challenges in 2010
  20. 20. <ul><li>Find out what’s important to your stakeholders </li></ul><ul><li>Stakeholders should be considered because business and society are interdependent </li></ul><ul><li>We should evaluate market and non-market stakeholders </li></ul><ul><li>Formal process should identify relevant stakeholders </li></ul><ul><li>Stakeholders should be then engaged in order to identify expectations, create solutions and win support </li></ul>Summary - Stakeholders
  21. 21. <ul><li>In December 1996, in Humboldt County, California, Julia Hill climbed a redwood tree (which she dubbed Luna) to prevent Pacific Lumber from cutting down sequoias. </li></ul><ul><li>The company played into her hands by threatening to cut down Luna with Hill in it, even sending helicopters to threaten her perch. </li></ul><ul><li>By playing Goliath, the company transformed Hill into a heroic, media-beloved David. </li></ul><ul><li>She lived in Luna on a platform 150 feet above the ground for two years until Pacific Lumber agreed to preserve the tree and surrounding forest. </li></ul>Side Note: The Case of Julia Hill

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