BECG 14 15 Corporate Social Responsibility Stakeholders

7/31/2019 BECG 14 15 Corporate Social Responsibility Stakeholders

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Stakeholder Theory of the Modern

CorporationR. Edward Freeman

Management has a fiduciaryresponsibility tostakeholders

Corporations a tool forimmortality

SecondaryPrimary

All groups affectedby a corporations

decision and policy


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Primary Stakeholder

Business

Employees(union)

ShareholderWholesaler

Retailer

Competitor Creditor

SupplierCustomer

Skill

Material

Lend Money

Distribution

Compete

Money

Capital


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Nature of Interest and Power

Interest Power

Shareholder - Return/Dividend - Exercising voting right- Capital Gain - Exercising right to inspect

book and record

Employee - Stable employment - Strike- Fair pay - Union bargaining power

- Safe and comfortable - PublicityCreditor - Repayment of loan - Calling in loan

- Interest -Take over loans collateral

Supplier - Regular order - Refusing to meet order- Paid promptly - Supplying to com[etitor

Distributor - Good product quality - Buying from competitor- High reliable product - Boycotting company

Customer - Fair exchange - Purchasing from competitor- Safe & reliable product - Boycotting company

Competitor - Be profitable -Forcing tokeepup- Gain a larger market - Charge lower price


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Secondary Stakeholder

Business

LocalCommunities

Central/Local

Govt.General

Public

Business

SupportForeign Govt.

Social ActivistMedia

Skill,Environmen

t

Social

Demand

Friendly

Hostile

Opinion

Services

Image,

Publicity

RegulationTax


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According to Freeman and Reed, stakeholders may be:

Any group of people, who have stake in the business.

Those, who are vital to the survival and success of theorganization

Any group that is affected by the activities of the

organization.

Earlier, objective of most business was toenhance the shareholder value

But now, the focus is on satisfying allstakeholders by allowing them to share in the

profits of the corporation


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Based on their relationship with the organization, stakeholders can be classified as:

Internal stakeholders ( shareholders, employees and management)- anydecision taken by the management has direct impact on them

External stakeholders individual and groups, who have some claim on thecompany (consumers, suppliers, creditors, competitors and community)

All stakeholders play a crucial role in the success of a corporation


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Identify stakeholders most critical to survival:

Identify which stakeholders The stakeholders interests and concerns

Claims stakeholders are likely to make onon the organization

Stakeholders who are most important tothe organizations perspective

Identify the resulting strategic challenges

Usually the most important:

Customers Employees Stockholders

Companies must identify the most importantstakeholders and give highest priority to

pursuing strategies that satisfy their needs.


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Risk capital

No guarantee to the stockholders that: They will recoup their investment Or earn a decent return

ESOPsEmployee Stock Option PlansEmployees may also be shareholders

Stockholders are a companys legal ownersand the provider of risk capital, a majorsource of capital to operate a business.

Maximizing long-run profitability & profit growth isthe route to maximizing returns to shareholders, aswell as satisfying the claims of most other stakeholder

groups.


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1. Participating in a market that is growing

2. Taking market share away from competitors3. Consolidating the industry via horizontal integration

4. Developing new markets through: Diversification Vertical Integration International Expansion

To grow profits, companies must be doing oneor more of the following:

Stockholders receive their returns as: Dividend payments

Capital appreciation in market value of shares


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Shareholders

Employees

Management


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G


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MANAGEMENT

at one hand, they are employees with some kind ofexplicit or implicit employment contract

On the other hand: management is entrusted withduties of safeguarding the welfare of the corporation

Role of management involves in Balancing themultiple claims of different stakeholdersoOwners want higher financial returnsoCustomer want more money spent on R&D

oEmployees want higher wages and better benefits

oLocal community expect environment friendly

equipment

According to stakeholder theory, organization should

not give preferential treatment to any stakeholdergroup

Task of the management is to Keep the

relationship among the stakeholders in balance- if

these relationships become imbalanced, survival

of the firm is in jeopardy

Any decision taken by management has an impact on the stakeholders


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Consumers

Suppliers

Creditors

Competitors


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CONSUMERS

Exchange resources for the product of the firmand in return receive the benefits of the product

Provide life blood of the firm, in the form ofrevenue

Corporations re-invest earnings

Indirectly customers pay for new productdevelopment and services

Attention to customer needs automaticallyaddress the need of suppliers and owners


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The right qualityRight quantityRight time

Right placeRight price

= Producing as per specific need of consumers, as per theirpurchasing power

= Quality goods at reasonable prices

= Prompt and adequate services= Improving standards of living by producing goods and

services of high quality= Treating customers fairly in all aspects of business

transactions= Ensuring health and Safety of Customers.

5Rs,


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- raw materials, what they supply, will determine finalproduct quality and price

Must seek fairness and truthfulness in all activitiesincluding pricing and licensing

Ensure activities are free from coercion andunnecessary litigation.

Ensure long term stability in supplier relationshipin return of value, quality

Share information with the suppliers and integratethem in the planning process

Ensure timely payments.


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= include supplies org. buy goods on creditfrom suppliers

= They may cease to fill orders, if a company isunable to pay the amounts due, or takes

too long in making payments= Creditors and suppliers, who supply goods to

the debtor / company as demanded

= Debtor though in a position to paychooses the last possible moment (un-ethical)


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Fair economic competition is one of basic requirements for

increasing the wealth of nations.Responsibility of organization towards competition

Foster open markets for trade and investmentCompetitive behavior that is socially andenvironmentally beneficial and demonstratemutual respect among competitorsRefrain from seeking or participating in

questionable payments or favors to securecompetitive advantageRespect both tangible and intangible propertyrights.

Refuse to acquire commercial information bydishonest or unethical means such asindustrial espionage


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Community gives business, the right to build or rent facilities, benefitsfrom the tax revenues raised in the form of local services infrastructureetc.

Firms Responsibilities towards Society Respect human rights and democratic institutions

Support public policies and practices that promote human

development through harmonious relations between business and

other segments of society Collaborating with such activities that aim at improving the standards

of health, education, workplace safety and economic well being

Promoting and stimulating sustainable development and playing a

leading role in promoting and enhancing the physical environment and

conserving the earths resources Supporting peace, security, diversity and social integration

respecting the integrity of local cultures

Encouraging charitable donations, educational and cultural

contributions, and employee participation in community and civil affairs


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Indirectly through growth;

Business operations influence the extent towhich growth is equitable;

Directly through the incomes and jobs they generate producing products that serve the needs of the

society

the opportunities they provide for increasing incomesthrough their marketing and purchasingarrangements, employment and training policies

their contribution to local communities through theprovision of social services and infrastructure.


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Expected to be starting block in an issue like business,

ethics & corp. governance Role of legislator and promoter of human rights to start with Through legislation : improvement in business practices, in

the areas of environment and management, human resourcemanagement and labor rights

Crucial role to play in creating and managing forums for

dialogues among business, its stakeholders and society atlarge

Sound environment policies and in fighting corruption andfraud .

Role of Corporate

= Legislature provide moral minimum

= Civic societys role in voicing their opinion


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Two Opposing Views of Social Responsibility

Classical view- managements only socialresponsibility is to maximize profits

Milton Friedman- managers primary responsibility is toserve the interests of the stockholders

doing social good adds to the cost of doing business

costs have to be passed on to consumers

What Is Social Responsibility?


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Socioeconomic view-businesses are notjust economic institutions

managements social responsibility goes beyond

making profits to include protecting andimproving societys welfare

businesses have responsibility to a society that:

endorses their creation through laws and regulations

supports them by buying their products/services

more organizations around the world have

increased their social responsibility


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Social Responsibility Of Managers

Early 1900, mission of business wasexclusively economical

Partly due to interdependence of manygroups, social involvement of business hasincreased

Many stakeholders or claimants

What social responsibility is really?

Social responsibility of business, now beingposed with reference to government, nonprofit foundations, charitable organizationseven religious institutions


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Role Of Government

Social changes can beimplemented by enactment of

legislation in many instances Contributing to social problems

does not always involve net

expense


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Social Audit How social performance be evaluated?

Social Audit first proposed by Howard R. Brown in 1950s

Social audit defined as :-

A commitment to systematic assessment of and

reporting on some meaningful , definable domain ofthe companys activities that have social impact

o one required by government and involves pollution control,product performance requirements and equal employmentstandards

o otherconcerns a great variety of voluntary socialprograms

S i l R ibilit A d


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Social Responsibility AndSocial Responsiveness

Social responsibilityidea considered in early part of 20th

.Century.

1953-social responsibility of businessman by Howard R

Brown-business should consider social responsibility of their

decisions Corporate social responsibilityis seriously considered

the impact of companys actions on society

Social responsivenessthe ability of a corporation to relate

its operations and policies to the social environment in waysthat are mutually beneficial to the company and society

Social responsiveness implies actions and the how of

enterprises responses


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Social Responsibility versusSocial Responsiveness

SocialResponsiveness

Pragmatic

Means

Responses

Medium and

short term

SocialResponsibility

Ethical

Ends

Obligation

Long term

Major consideration

FocusEmphasis

Decision framework


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Social Responsibility And Economic

Performance

Most Research Shows a Positive Relationshipmethodological questions associated with trying to

measure social responsibility and economic

performance

issue of causationEvaluation of Socially Conscious Mutual Stock

Funds

social screening - applying social criteria to investment

these funds often outperform the market average

Conclusion

a companys socially responsible actions do not hurt its

long-term economic performance


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Stage 3- expand responsibilities to other

stakeholdersactions include providing fair prices, high-

quality products and services, safe products,

and good supplier relations Stage 4- managers feel responsibility to

society as a whole

try to advance the public goodpromote social justice, preserve the

environment, and support social and cultural

activities


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To Whom Is ManagementResponsible?

Stage 1

Owners and

Management

Stage 2

Employees

Stage 3

Constituents in the

Specific Environment

Stage 4

Broader

Society

Social ResponsibilityLesser Greater


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Socially responsible investment (SRI)

Corporate social responsibility.

Corporate citizenship.

Corporate governance.

BECG 14 15 Corporate Social Responsibility Stakeholders

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