Business Ethics Chapter 4 Stakeholders Copyright 2018 Taylor

Preview Business Ethics Insight • Read Preview Business Ethics Insight • Describe briefly the BP oil spill in the Gulf of Mexico • Which groups were affected by the oil spill? • Which groups were most affected? • What lessons does the oil spill provide regarding who is affected by a company’s actions? © 2019 Taylor & Francis

What Are Stakeholders? • Stakeholder: any group or individual that “can affect or is affected by the achievement of an organization’s objectives” • Examples – employees, customers, suppliers, etc. © 2019 Taylor & Francis

Exhibit 4. 1 Typical Stakeholders and Their Needs Stakeholders Ethical Issues Customers Product safety Truth in advertising Fair price Shareholders Fair return on investment Adequate management of company Accurate financial reporting Employees Discrimination Sexual harassment Child labor and sweatshops Employee safety © 2019 Taylor & Francis

Exhibit 4. 1 (cont. ) Typical Stakeholders and Their Needs Stakeholders Ethical Issues Suppliers Impact of suppliers on environment Exploitation of labor Supply chain management NGOs Environmental performance Labor relations Supplier sourcing issues Host Country Following local laws Respecting local environment Use of local labor Government Lobbying Regulation © 2019 Taylor & Francis

Stakeholder Categorization and Attributes • Primary stakeholders: typically directly linked to a company’s survival and are either impacted or impact companies directly • E. g. , customers, suppliers, employees, and shareholders • Secondary stakeholders: tend to be less directly linked to the company’s survival • E. g. , media, trade associations, and specialinterest groups • Which stakeholder group do you believe is most important? Why? © 2019 Taylor & Francis

Exhibit 4. 2 Primary and Secondary Stakeholders Primary Stakeholders Shareholders and investors Employees Suppliers Local community Secondary Stakeholders Media Special-interest groups Non-governmental organizations Labor unions © 2019 Taylor & Francis

Shareholder Attributes: Power, Legitimacy, and Urgency • Stakeholder power: refers to the ability of a stakeholder to exert pressures to force a company to make changes to accommodate such pressures • Coercive power: involves the use of force, violence or other restraint to force a company to accommodate or respond to their needs • E. g. , militant groups in the Niger Delta to force oil companies to stop their abusive practices © 2019 Taylor & Francis

Forms of Stakeholder Power • Utilitarian power: refers to the use of financial or other monetary means to force a company to accommodate a particular stakeholder need • Government lawsuit against tobacco companies • Normative power: refers to the use of symbolic and other resources to force a company to accommodate stakeholder needs • Use of the Internet to launch campaigns against companies © 2019 Taylor & Francis

Shareholder Attributes: Power, Legitimacy, and Urgency • Legitimacy: a company behaves legitimately if it conducts itself in such a way that is consistent with widely held values and beliefs • When a company behaves legitimately, it is more likely to be supported by society © 2019 Taylor & Francis

Shareholder Attributes: Power, Legitimacy, and Urgency • Urgency: refers to the degree to which a company needs to respond to stakeholder demands • The more urgent the needs, the more quickly a company needs to respond © 2019 Taylor & Francis

Discussion Questions • Read Strategic Ethics Insight on Uber • Which group is most affected by Uber? • What forms of stakeholder attributes do they possess? • Power? • Legitimacy? • Urgency? © 2019 Taylor & Francis

Stakeholder Management • Stakeholder management: refers to the deliberate and purposeful process a company has devised to work with its stakeholders • There are five steps of the stakeholder management process © 2019 Taylor & Francis

Steps of the Stakeholder Management Process • Step 1: Stakeholder Identification • Step 2: Stakeholder Prioritization • Step 3: Stakeholder Visualization/Mapping • Step 4: Stakeholder Engagement • Step 5: Stakeholder Monitoring © 2019 Taylor & Francis

Step 1: Stakeholder Identification • Stakeholder identification: where the main focus is to properly identify stakeholders • Primary vs. secondary classification may not always work • Need to carefully identify stakeholders © 2019 Taylor & Francis

Exhibit 4. 5 Stakeholder Categorization for Construction Industry Explicit Stakeholders Project financiers Equity holders Sponsors Implicit Stakeholders Suppliers Regulators Users Consumers Implicit Recognized Stakeholders Community Government Local Government NGOs Unions Unknown Stakeholders Trade associations Overseas government Public-interest groups © 2019 Taylor & Francis

Step 2: Stakeholder Prioritization • Salience: provides information on the degree to which managers need to give priority to competing stakeholder demands and claims. • The more salient a stakeholder is, the more likely the stakeholder has potential to affect the company and the more priority the stakeholder needs • How can you determine salience? • Look at attributes and combination of attributes discussed earlier © 2019 Taylor & Francis

Exhibit 4. 7 Combination of Attributes © 2019 Taylor & Francis

Stakeholder Attributes • Latent stakeholders: those that possess only one of the three attributes and thus represent low salience • Dormant stakeholders: those that possess power but have no legitimate claims or urgency • Discretionary stakeholders: those that have legitimacy but no power or urgency • Demanding stakeholders: have urgency but do not have power or legitimacy © 2019 Taylor & Francis

Stakeholder Management • Expectant stakeholders: those that possess two of the attributes • Such stakeholders are considered to have moderate salience • Dominant stakeholders: represents stakeholders that are both powerful and legitimate • Dependent stakeholders: those stakeholders that have urgency and legitimacy • Dangerous stakeholders: have power and urgency but no legitimacy © 2019 Taylor & Francis

Stakeholder Management • Definitive stakeholders: have power, urgency, and are legitimate • Most salient

Step 3: Stakeholder Visualization and Mapping • To determine the extent of claims, rights, and expectations stakeholders have and the appropriate response to these needs • Company can use a variety of techniques • Can combine power and urgency • Can construct ethical responsibility matrix © 2019 Taylor & Francis

Step 4: Stakeholder Engagement • Refers to the deliberate attempt of a company to actively seek its stakeholders’ inputs to better deal with their needs and also improve their operations • Involves actively engaging with shareholders • Need to tailor system to develop dialogue and ongoing communication with stakeholders • Stakeholder engagement brings many advantages © 2019 Taylor & Francis

Exhibit 4. 9 Stakeholder Management Advantages of Stakeholder Engagement • Increased relationships with stakeholders • Increase in process and organizational efficiency • Stronger market positioning • Reduced conflict with stakeholders and smaller risk of getting sued • Better service to customers and other end-users • Increased ability to identify new business potential • Better ability to forecast future stakeholder demands • Better organizational learning © 2019 Taylor & Francis

Step 5: Stakeholder Monitoring • Company is interested in finding out how stakeholders are responding to stakeholder management issues and if further actions are necessary • Need to hold regular meetings with affected stakeholders • Focus is on whether needs are being satisfied • Need for corrective action © 2019 Taylor & Francis

Conclusion • Stakeholders are key entities that can impact or be impacted by a company • Ethical companies are the ones that can appropriately manage their stakeholders • Strong need to follow the appropriate stakeholder management practices © 2019 Taylor & Francis