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The Corporation and

Its Stakeholders
Business and Society
The Stakeholder Theory of the Firm
Stakeholder Analysis and Engagement
The Dynamic Environment of Business

Chapter
1
McGraw-Hill
2005 The McGraw-Hill Companies, Inc. All rights reserved.
Figure 1.1
Business and society: An interactive system

Business
Society
Arguments for the stakeholder theory
of the firm
Descriptive
Says that the stakeholder view is simply a more realistic
description of how companies really work.
Instrumental
Says that stakeholder management is more effective as a
corporate strategy.
Normative
Says that stakeholder management is simply the right
thing to do.
The Stakeholder Concept
A stakeholder refers to persons or groups that affect, or
are affected by, an organizations decisions, policies,
and operations.
Two types of stakeholders
Market stakeholders
Nonmarket stakeholders
Market Stakeholders
Those that engage in economic transactions with the
company as it carries out its primary purpose of
providing society with goods and services.
Employees
Stockholders
Customers
Suppliers
Retailers/Wholesalers
Creditors
Market stakeholders of business
Business
firm
Distributors,
Wholesalers,
Retailers
Creditors Customers
Stockholders
Employees

Suppliers
Figure 1.2
Nonmarket Stakeholders
People or groups whoalthough they do not engage in
direct economic exchange with the firmare affected
by or can affect its actions.
Communities
Activist Groups
Media
Business Support Groups
Governments
The General Public

Nonmarket stakeholders of business
Business
firm
General
Public
Activist
Groups
Business
Support
Groups
Governments
Communities

Media
Figure 1.3
Stakeholder analysis asks four questions:
Who are the relevant stakeholders?
What are the interests of each stakeholder?
What is the power of each stakeholder?
How are coalitions likely to form?
Exhibit 1.Ba
Market stakeholders: Nature of interest
Stakeholder Wishes To:
Stakeholder
Employees
Maintain stable employment in firm
Receive fair pay for work
Work in safe, comfortable environment
Stockholders
Receive a satisfactory return on investments
Realize appreciation in stock value over time
Customers
Receive fair exchange: value and quality for money
spent
Receive safe, reliable products
Exhibit 1.Bb
Market stakeholders: Nature of interest
Stakeholder Wishes To:
Stakeholder
Suppliers
Receive regular orders for goods
Be paid promptly for supplies delivered
Retailers/
Wholesalers
Receive quality goods in a timely fashion at reasonable
cost
Offer reliable products that consumers trust and value
Creditors
Receive repayment of loans
Collect debts and interest
Exhibit 1.Bc
Market stakeholders: Nature of power
Stakeholder Influences Company by:
Stakeholder
Employees
Union bargaining power
Work actions or strikes
Publicity
Stockholders
Exercising voting rights based on share ownership
Exercising rights to inspect company books and
records
Customers
Purchasing goods from competitors
Boycotting companies whose products are
unsatisfactory or whose policies are unacceptable
Exhibit 1.Bd
Market stakeholders: Nature of power
Stakeholder Influences Company by:
Stakeholder
Suppliers
Refusing to meet orders if conditions of contract are
breached
Supplying to competitors
Retailers/
Wholesalers
Buying from other suppliers if terms of contract are
unsatisfactory
Boycotting companies whose goods or policies are
unsatisfactory

Creditors
Calling in loans if payments are not made
Utilizing legal authorities to repossess or take over
property if loan payments are severely delinquent
Exhibit 1.Be
Nonmarket stakeholders: Nature of interest
Stakeholder Wishes To:
Stakeholder
Communities
Employ local residents in the company
Ensure that the local environment is protected
Ensure that the local area is developed
Activist Groups
Monitor company actions and policies to ensure that
they conform to legal and ethical standards, and that
they protect the publics safety
Media
Keep the public informed on all issues relevant to their
health, well-being, and economic status
Monitor company actions
Exhibit 1.Bf
Nonmarket stakeholders: Nature of interest
Stakeholder Wishes to:
Stakeholder
Business
Support Groups
Provide research and information which will help the
company or industry perform in a changing
environment
Governments
Promote economic development
Encourage social improvements
Raise revenues through taxes

The General
Public
Protect social values
Minimize risks
Achieve prosperity for society
Exhibit 1.Bg
Nonmarket stakeholders: Nature of power
Stakeholder Influences Company by:
Stakeholder
Communities
Refusing to extend additional credit
Issuing or restricting operating licenses and permits
Lobbying government for regulation of the companys
policies or methods of land use and waste disposal
Activist Groups
Gaining broad public support through publicizing the
issue
Lobbying government for regulation of the company
Media
Publicizing events that affect the public, especially
those that have negative effects
Exhibit 1.Bh
Nonmarket stakeholders: Nature of power
Stakeholder Influences Company by:
Stakeholder
Business
Support Groups
Using its staff and resources to assist company in
business endeavors and development efforts
Providing legal or group political support beyond that
which an individual company can provide for itself
Governments
Adopting regulations and laws
Issuing licenses and permits
Allowing or disallowing industrial activity

The General
Public
Supporting activists
Pressing government to act
Condemning or praising individual companies
Forces that shape the
business and society relationship
Figure 1.4





Business
and its
Stakeholders

Growing
Emphasis on
Ethical Values
Evolving
Government
Regulation
of
Business
Globalization
Dynamic
Natural
Environment
Explosion
of New
Technology
Changing
Societal
Expectations
The relationship of business to its
stakeholders has changed over time:
Inactive
Companies ignore stakeholder concerns.
Reactive
Companies act only when forced to do so.
Proactive
Companies try to anticipate stakeholder concerns.
Interactive
Companies actively engage with stakeholders in an ongoing
relationship of mutual respect, openness, and trust.
Inactive
Reactive Proactive Interactive