Chapter 5
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Chapter 5

Course Number: BUS 101, Spring 2008

College/University: Miami University

Word Count: 1022

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Chapter 5 An Introduction to Stakeholders Origins of the Stakeholder Concept The stakeholder concept has become central to understanding business and society relationships. The term stakeholder is a variant of the more familiar and traditional concept of stockholders--the investors in or owners of businesses. What is the stake in stakeholder? o A stake is an interest or share in an undertaking. o A stake may also...

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5 Chapter An Introduction to Stakeholders Origins of the Stakeholder Concept The stakeholder concept has become central to understanding business and society relationships. The term stakeholder is a variant of the more familiar and traditional concept of stockholders--the investors in or owners of businesses. What is the stake in stakeholder? o A stake is an interest or share in an undertaking. o A stake may also be a claim. A claim is a demand for something due or believed to be due. o The idea of a stake can range from simply an interest in an undertaking at one extreme to a legal claim of ownership at the other extreme. In between these two extremes is a "right" to something. This right might be a legal right to certain treatment rather than a legal claim of ownership, such as that or a shareholder. What is a stakeholder? o A stakeholder is an individual or group that has one or more of the various kinds of stakes in a business. Just as stakeholders may be affected by the actions, decisions, policies, or practices of the business firm, these stakeholders also may affect the organization's actions, decisions, policies, or practices. In short, a stakeholder may be thought of as "any individual or group who can affect or is affected by the actions, decisions, policies, practices, or goals of the organization. Who are businesses stakeholders? o The production, managerial, and stakeholder views of the firm o Primary and secondary stakeholders o Core, strategic, and environmental stakeholders o A typology of stakeholder attributes: legitimacy, power, urgency Strategic, Multifiduciary, and synthesis views o Strategic approach The strategic approach views stakeholders primarily as factors to be taken into consideration and managed while the firm is pursuing profits for its shareholders. o Multifiduciary approach The Multifiduciary approach views stakeholders as more than just individuals or groups who can wield economic or legal power. This view holds that management has a fiduciary responsibility to stakeholders just as it has this same responsibility to stakeholders. In this approach, management's traditional fiduciary, or trust, duty is expanded to embrace stakeholders on roughly equal footing with shareholders. Thus, shareholders are no longer of exclusive importance as they were under the strategic approach. o Stakeholder synthesis approach A new, stakeholder synthesis approach is advocated by Goodpaster rather than the two previous approaches. This new view holds that business does have moral responsibilities to stakeholders but that they should not be seen as part of a fiduciary obligation. Thus, management's basic fiduciary responsibility to shareholders is kept intact, but it is also expected to be implemented within a context of ethical responsibility. Three values of the stakeholder model o Descriptive The stakeholder model provides language and concepts to effectively describe the corporation or organization. o Instrumental The stakeholder model has value because it is instrumental. It is useful in establishing the connections between the practice of stakeholder management and the resulting achievement of corporate performance goals. o Normative The stakeholder model has value because it is normative. In the normative perspective, stakeholders are identified by their interest in the organization or whether not the organization has any corresponding interest in them. Thus, the interest of all stakeholders is of intrinsic value. Key questions in stakeholder management o Stakeholder management has become important, as managers have discovered the many groups that have to be relatively satisfied for the firm to meet its objectives. Without question, we still recognize the significance and necessity of profits as a return on the stockholders' investments, but we also perceive and understand the growing claims of other stakeholder groups and success they have had in getting what they want. o The challenge of stakeholder management is to see to it that the firm's primary stakeholders achieve their objectives and that other stakeholders are dealt with ethically and are also relatively satisfied. At the same time, the firm is expected to be profitable. o The important functions of stakeholder management are to describe, to understand, to analyze, and, finally, to manage. o Five major questions may be asked if we are to capture the essential information we need for stakeholder management: Who are stakeholders? What are our stakeholders' stakes? What opportunities and challenges do our stakeholders present to the firm? What responsibilities does the firm have to its stakeholders? What strategies or actions should the firm take to best address stakeholder challenges and opportunities? Who are our stakeholders? o Management must identify not only generic stakeholder groups but also specific subgroups. A generic stakeholder group is simply a broad grouping, such as employees, shareholders, environmental groups, or consumers. Within each of these generic categories there may be a few or many specific subgroups. What are our stakeholders' stakes? o Identifying the nature/legitimacy of a group's stakes Subgroups among the ownership population Institutional owners (trusts, foundations, churches, universities) Large mutual fund organizations Board of director members who own shares Members of management who own shares Hundreds of thousands of small, individual shareholders o Identifying the power of a group's stakes Powerful stakeholders are: The institutional owners and mutual fund organizations, because of the sheer magnitude of their investments The board and management shareholders, because of their dual roles of ownership and management (control). o Identifying specific groups within a generic group It would require some degree of care to identify the nature, legitimacy, power, and urgency of each of these specific groups. What opportunities and challenges do our stakeholders present to the firm? o The opportunities and challenges represent opposite sides of the coin when it comes to stakeholders. The opportunities are to build decent, productive working relationships with the stakeholders. Challenges, on the other hand, usually present themselves in such a way that the firm must handle the stakeholders acceptably or be hurt in some way--financially or in terms of its public image or reputation in the community. What responsibilities does the firm have to its stakeholders? o Because most of the firm's economic responsibilities are principally to it, the analysis needs to turn to legal, ethical, and philanthropic questions. The most pressing threats are typically presented as legal and ethical questions.

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