2- Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 1 Organizational Theory, Design, and Change Sixth Edition Gareth R. Jones Chapter 2 Stakeholders, Managers, and Ethics
Nov 01, 2014
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Organizational Theory, Design, and Change
Sixth EditionGareth R. Jones
Chapter 2
Stakeholders, Managers, and
Ethics
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Organizational Stakeholders Stakeholders: people who have
an interest, claim, or stake in an organization
Inducements: rewards such as money, power, and organizational status
Contributions: the skills, knowledge, and expertise that organizations require of their members during task performance
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Inside StakeholdersPeople who are closest to an
organization and have the strongest and most direct claim on organizational resources Shareholders: the owners of the
organization Managers: the employees who are
responsible for coordinating organizational resources and ensuring that an organization’s goals are successfully met
The workforce: all non-managerial employees
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Outside StakeholdersPeople who do not own the
organization, are not employed by it, but do have some interest in it Customers: an organization’s largest
outside stakeholder group Suppliers: provide reliable raw
materials and component parts to organizations
The government Wants companies to obey the rules of fair
competition Wants companies to obey rules and laws
concerning the treatment of employees and other social and economic issues
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Outside Stakeholders (cont.)
Trade unions: relationships with companies can be one of conflict or cooperation
Local communities: their general economic well-being is strongly affected by the success or failure of local businesses
The general public Wants local businesses to do well against
overseas competition Wants corporations to act in socially
responsible way
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Table 2.1: Inducements and Contributions of Stakeholders
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Organizational Effectiveness: Satisfying Stakeholders’ Goals and InterestsAn organization is used simultaneously
by various stakeholders to achieve their goals
Each stakeholder group is motivated to contribute to the organization
Each group evaluates the effectiveness of the organization by judging how well it meets the group’s goals
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
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Stakeholder Goals Shareholders: return on their investment
Customers: product reliability and product value
Employees: compensation, working conditions, career prospects
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Competing Goals Organizations exist to satisfy stakeholders’
goals But which stakeholder group’s goal is most
important? In the U.S., the shareholders have first
claim in the value created by the organization
However, managers control organizations and may further their own interests instead of those of shareholders
Goals of managers and shareholders may be incompatible
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Allocating Rewards Managers must decide how to allocate
inducements to provide at least minimal satisfaction of the various stakeholder groups
Managers must also determine how to distribute “extra” rewards
Inducements offered to shareholders affect their motivation to contribute to the organization
The allocation of reward is an important component of organizational effectiveness
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Top Managers and Organizational Authority Authority: the power to hold people
accountable for their actions and to make decisions concerning the use of organizational resources
Shareholders: the ultimate authority over the use of a corporation’s resources They own the company They exercise control over it through their
representatives
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Top Managers and Organizational Authority (cont.) The board of directors: monitors
corporate managers’ activities and rewards corporate managers who pursue activities that satisfy stakeholder goals Inside directors: hold offices in a
company’s formal hierarchy Outside directors: not full-time
employees Corporate-level management: the
inside stakeholder group that has ultimate responsibility for setting company goals and allocating organizational resources
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The Chief Executive Officer’s (CEO) Role in Influencing EffectivenessResponsible for setting
organizational goals and designing its structure
Selects key executives to occupy the topmost levels of the managerial hierarchy
Determines top management’s rewards and incentives
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The CEO’s Role in Influencing Organizational Effectiveness (cont.)
Controls the allocation of scarce resources such as money and decision-making power among the organization’s functional areas or business divisions
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
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Top Management RolesCEO—Often has primary
responsibility for managing the organization’s relationship with external stakeholders
COO—Responsible for managing the organization’s internal operations
Exec. Vice Presidents—Oversees and manages the company’s most significant line and staff roles
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To be included, a CEO had to have assumed the job no earlier than January 1995 and no later than December 2007
On average, the top 50 CEOs increased the wealth of their shareholders by $48 million.
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The Top-Management TeamLine-role: managers who have
direct responsibility for the production of goods and services
Staff-role: managers who are in charge of a specific organizational function such as sales or research and development (R&D) Are advisory only
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The Top-Management Team (cont.)
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
Corporate managers: the members of top-management team whose responsibility is to set strategy for the corporation as a whole
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Other ManagersDivisional managers: managers
who set policy only for the division they head
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
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Figure 2.1: The Top-Management Hierarchy
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An Agency Theory Perspective Agency theory suggests a way
to understand the conflict that often arises between shareholder goals and top managers’ goals
Agency relation occurs when one person (the principle, i.e. shareholders) delegates decision-making authority to another (the agent, i.e. managers)
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Agency Problem There is a problem in determining
managerial accountability that arises when delegating authority to managers
Shareholders are at information disadvantage compared to top managers
It takes considerable time to see the effectiveness of decisions managers may make
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The Moral Hazard Problem A moral hazard problem exists when
agents have the opportunity and incentive to pursue their own interests
Very difficult to evaluate how well the agent has performed because the agent possesses an information advantage over the principal
Self-dealing describes the conduct of corporate managers who take advantage of their position in an organization to act in their own interests