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  1. 1. Organizational Theory, Design, and Change Sixth Edition Gareth R. Jones Chapter 2 Stakeholders, Managers, and Ethics
  2. 2. Organizational Stakeholders <ul><li>Stakeholders: people who have an interest, claim, or stake in an organization </li></ul><ul><li>Inducements: rewards such as money, power, and organizational status </li></ul><ul><li>Contributions: the skills, knowledge, and expertise that organizations require of their members during task performance </li></ul>
  3. 3. Inside Stakeholders <ul><li>People who are closest to an organization and have the strongest and most direct claim on organizational resources </li></ul><ul><ul><li>Shareholders: the owners of the organization </li></ul></ul><ul><ul><li>Managers: the employees who are responsible for coordinating organizational resources and ensuring that an organization’s goals are successfully met </li></ul></ul><ul><ul><li>The workforce: all non-managerial employees </li></ul></ul>
  4. 4. Outside Stakeholders <ul><li>People who do not own the organization, are not employed by it, but do have some interest in it </li></ul><ul><ul><li>Customers: an organization’s largest outside stakeholder group </li></ul></ul><ul><ul><li>Suppliers: provide reliable raw materials and component parts to organizations </li></ul></ul><ul><ul><li>The government </li></ul></ul><ul><ul><ul><li>Wants companies to obey the rules of fair competition </li></ul></ul></ul><ul><ul><ul><li>Wants companies to obey rules and laws concerning the treatment of employees and other social and economic issues </li></ul></ul></ul>
  5. 5. Outside Stakeholders (cont.) <ul><ul><li>Trade unions: relationships with companies can be one of conflict or cooperation </li></ul></ul><ul><ul><li>Local communities: their general economic well-being is strongly affected by the success or failure of local businesses </li></ul></ul><ul><ul><li>The general public </li></ul></ul><ul><ul><ul><li>Wants local businesses to do well against overseas competition </li></ul></ul></ul><ul><ul><ul><li>Wants corporations to act in socially responsible way </li></ul></ul></ul>
  6. 6. Table 2.1: Inducements and Contributions of Stakeholders
  7. 7. Organizational Effectiveness: Satisfying Stakeholders’ Goals and Interests <ul><li>An organization is used simultaneously by various stakeholders to achieve their goals </li></ul><ul><li>Each stakeholder group is motivated to contribute to the organization </li></ul><ul><li>Each group evaluates the effectiveness of the organization by judging how well it meets the group’s goals </li></ul><ul><li>For an organization to be viable, the dominant coalition of stakeholders has to control sufficient inducements to obtain the contributions required of other stakeholder groups </li></ul>
  8. 9. Stakeholder Goals <ul><ul><li>Shareholders: return on their investment </li></ul></ul><ul><ul><li>Customers: product reliability and product value </li></ul></ul><ul><ul><li>Employees: compensation, working conditions, career prospects </li></ul></ul>
  9. 10. Competing Goals <ul><li>Organizations exist to satisfy stakeholders’ goals </li></ul><ul><li>But which stakeholder group’s goal is most important? </li></ul><ul><li>In the U.S., the shareholders have first claim in the value created by the organization </li></ul><ul><li>However, managers control organizations and may further their own interests instead of those of shareholders </li></ul><ul><li>Goals of managers and shareholders may be incompatible </li></ul>
  10. 11. Allocating Rewards <ul><li>Managers must decide how to allocate inducements to provide at least minimal satisfaction of the various stakeholder groups </li></ul><ul><li>Managers must also determine how to distribute “extra” rewards </li></ul><ul><li>Inducements offered to shareholders affect their motivation to contribute to the organization </li></ul><ul><li>The allocation of reward is an important component of organizational effectiveness </li></ul>
  11. 12. Top Managers and Organizational Authority <ul><li>Authority: the power to hold people accountable for their actions and to make decisions concerning the use of organizational resources </li></ul><ul><li>Shareholders: the ultimate authority over the use of a corporation’s resources </li></ul><ul><ul><li>They own the company </li></ul></ul><ul><ul><li>They exercise control over it through their representatives </li></ul></ul>
  12. 13. Top Managers and Organizational Authority (cont.) <ul><li>The board of directors: monitors corporate managers’ activities and rewards corporate managers who pursue activities that satisfy stakeholder goals </li></ul><ul><ul><li>Inside directors: hold offices in a company’s formal hierarchy </li></ul></ul><ul><ul><li>Outside directors: not full-time employees </li></ul></ul><ul><li>Corporate-level management: the inside stakeholder group that has ultimate responsibility for setting company goals and allocating organizational resources </li></ul>
  13. 14. The Chief Executive Officer’s (CEO) Role in Influencing Effectiveness <ul><li>Responsible for setting organizational goals and designing its structure </li></ul><ul><li>Selects key executives to occupy the topmost levels of the managerial hierarchy </li></ul><ul><li>Determines top management’s rewards and incentives </li></ul>
  14. 15. The CEO’s Role in Influencing Organizational Effectiveness (cont.) <ul><li>Controls the allocation of scarce resources such as money and decision-making power among the organization’s functional areas or business divisions </li></ul><ul><li>The CEO’s actions and reputation have a major impact on inside and outside stakeholders’ views of the organization and affect the organization’s ability to attract resources from its environment </li></ul>
  15. 16. Top Management Roles <ul><li>CEO—Often has primary responsibility for managing the organization’s relationship with external stakeholders </li></ul><ul><li>COO—Responsible for managing the organization’s internal operations </li></ul><ul><li>Exec. Vice Presidents—Oversees and manages the company’s most significant line and staff roles </li></ul>
  16. 18. <ul><li>To be included, a CEO had to have assumed the job no earlier than January 1995 and no later than December 2007 </li></ul><ul><li>On average, the top 50 CEOs increased the wealth of their shareholders by $ 48 million. </li></ul>
  17. 20. The Top-Management Team <ul><li>Line-role: managers who have direct responsibility for the production of goods and services </li></ul><ul><li>Staff-role: managers who are in charge of a specific organizational function such as sales or research and development (R&D) </li></ul><ul><ul><li>Are advisory only </li></ul></ul>
  18. 21. The Top-Management Team (cont.) <ul><li>Top-management team: a group of managers who report to the CEO and COO and help the CEO set the company’s strategy and its long-term goals and objectives </li></ul><ul><li>Corporate managers: the members of top-management team whose responsibility is to set strategy for the corporation as a whole </li></ul>
  19. 22. Other Managers <ul><li>Divisional managers: managers who set policy only for the division they head </li></ul><ul><li>Functional managers: managers who are responsible for developing the functional skills and capabilities that collectively provide the core competences that give the organization its competitive advantage </li></ul>
  20. 23. Figure 2.1: The Top-Management Hierarchy
  21. 24. An Agency Theory Perspective <ul><li>Agency theory suggests a way to understand the conflict that often arises between shareholder goals and top managers’ goals </li></ul><ul><li>Agency relation occurs when one person (the principle, i.e. shareholders) delegates decision-making authority to another (the agent, i.e. managers) </li></ul>
  22. 25. Agency Problem <ul><li>There is a problem in determining managerial accountability that arises when delegating authority to managers </li></ul><ul><li>Shareholders are at information disadvantage compared to top managers </li></ul><ul><li>It takes considerable time to see the effectiveness of decisions managers may make </li></ul>
  23. 26. The Moral Hazard Problem <ul><li>A moral hazard problem exists when agents have the opportunity and incentive to pursue their own interests </li></ul><ul><ul><li>Very difficult to evaluate how well the agent has performed because the agent possesses an information advantage over the principal </li></ul></ul><ul><ul><li>Self-dealing describes the conduct of corporate managers who take advantage of their position in an organization to act in their own interests </li></ul></ul>