Chapter 2: Stakeholder Relationships, Social Responsibility, and Corporate Governance
Building effective relationships is one of the most important areas of business. Relationships
between employees, customers, shareholders or investors, suppliers, managers, and the
community who develop strategies to attain success. Relationships are associated with
organizational success and organizational misconduct.
Stakeholders define ethical issues in business
Stakeholders are customers, employees, suppliers, government agencies, communities, and
many others who have a “stake” or claim in some aspect of a company’s products,
operations, markets, industry, and outcomes. The relationship between companies and
their stakeholders is a two-way street. Stakeholders provide resources critical to a firm’s
long-term success.
Three approaches to stakeholder theory: 1. normative – stakeholders have legitimacy and a
right to engage organizations, principles, and values provide direction 2. descriptive –
focuses on the firm’s behavior and addresses how decisions and strategies are made for
stakeholder relationships 3. instrumental – what happens if firms behave in a particular way
To maintain the trust and confidence of its stakeholders, CEOs and other top managers are
expected to act in a transparent and responsible manner. Industries with the lowest level of
trust are energy, pharmaceuticals, and financial services. The most trusted industries are
technology, food and beverage, and consumer package goods.
Þ Identifying stakeholders
Primary stakeholders: their continued association and resources are absolutely necessary
for a firm’s survival, including employees, customers, shareholders, governments, and
communities that provide necessary infrastructure.
Secondary stakeholders: do not typically engage directly in transactions with a company
and are therefore not essential to its survival, including the media, trade associations, and
special interest groups.
Both primary and secondary stakeholders embrace specific values and standards that
dictate acceptable and unacceptable corporate behaviors. Corporate social responsibility
actions that put employees at the center of activities gain the support of both external and
internal stakeholders.
Þ A stakeholder orientation
Stakeholder orientation: the degree to which a firm understands and addresses stakeholder
demands. It involves activities and processes within a system of social institutions that
facilitate and maintain value through exchange relationships with multiple stakeholders.
The three sets of activities: 1. the organization-wide generation of data about stakeholder
groups and assessment of the firm’s effects on these groups 2. the distribution of this
information throughout the firm 3. the responsiveness of the organization to this
information
Generating data about stakeholders: identifying stakeholders relevant to the firm,
identifying the concerns about the business that are relevant to each stakeholder group,
Building effective relationships is one of the most important areas of business. Relationships
between employees, customers, shareholders or investors, suppliers, managers, and the
community who develop strategies to attain success. Relationships are associated with
organizational success and organizational misconduct.
Stakeholders define ethical issues in business
Stakeholders are customers, employees, suppliers, government agencies, communities, and
many others who have a “stake” or claim in some aspect of a company’s products,
operations, markets, industry, and outcomes. The relationship between companies and
their stakeholders is a two-way street. Stakeholders provide resources critical to a firm’s
long-term success.
Three approaches to stakeholder theory: 1. normative – stakeholders have legitimacy and a
right to engage organizations, principles, and values provide direction 2. descriptive –
focuses on the firm’s behavior and addresses how decisions and strategies are made for
stakeholder relationships 3. instrumental – what happens if firms behave in a particular way
To maintain the trust and confidence of its stakeholders, CEOs and other top managers are
expected to act in a transparent and responsible manner. Industries with the lowest level of
trust are energy, pharmaceuticals, and financial services. The most trusted industries are
technology, food and beverage, and consumer package goods.
Þ Identifying stakeholders
Primary stakeholders: their continued association and resources are absolutely necessary
for a firm’s survival, including employees, customers, shareholders, governments, and
communities that provide necessary infrastructure.
Secondary stakeholders: do not typically engage directly in transactions with a company
and are therefore not essential to its survival, including the media, trade associations, and
special interest groups.
Both primary and secondary stakeholders embrace specific values and standards that
dictate acceptable and unacceptable corporate behaviors. Corporate social responsibility
actions that put employees at the center of activities gain the support of both external and
internal stakeholders.
Þ A stakeholder orientation
Stakeholder orientation: the degree to which a firm understands and addresses stakeholder
demands. It involves activities and processes within a system of social institutions that
facilitate and maintain value through exchange relationships with multiple stakeholders.
The three sets of activities: 1. the organization-wide generation of data about stakeholder
groups and assessment of the firm’s effects on these groups 2. the distribution of this
information throughout the firm 3. the responsiveness of the organization to this
information
Generating data about stakeholders: identifying stakeholders relevant to the firm,
identifying the concerns about the business that are relevant to each stakeholder group,
