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Chapter 2
Stakeholders Relationships, Social
Responsibility, And Corporate
Governance

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Learning Objectives
• Identify stakeholders’ roles in business ethics
• Define social responsibility
• Examine the relationship between stakeholder
orientation and social responsibility
• Define a stakeholder orientation in creating
corporate social responsibility
• Explore the role of corporate governance in
structuring ethics and social responsibility in
business.

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Relationships and Business (1 of 2)

• Relationships are associated with both
organizational success and misconduct.
• Businesses exist because of
organizational relationships between
employees, customers, shareholders, and
the community.

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Relationships and Business (2 of 2)

• Stakeholder framework identifies the internal
and external stakeholders who agree,
collaborate, and engage in conflicts ethical
issues.
• Allows organizations to identify, monitor, and
respond to the needs and expectations of
stakeholder groups.

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Stakeholders Define Ethical

Issues in Business (1 of 2)
• Approaches to stakeholder theory:

1. Normative: Identifies ethical guidelines that dictate

how firms should treat stakeholders.

2. Descriptive: Focuses on the firm’s behavior;

addresses how decisions are made for stakeholder
relationships.

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Stakeholders Define Ethical

Issues in Business (2 of 2)
• Primary stakeholders
• Those whose continued association and resources
are absolutely necessary for a firm’s survival
(customers, shareholders, employees, suppliers).
• Secondary stakeholders
• Those who are not typically engaged directly in
transactions with a company and are therefore not
essential to its survival (government agencies and
communities).

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Stakeholder Orientation
• Activities to address stakeholder demands:
1. Organization-wide generation of data about
stakeholder groups and assessment of the firm’s
effects on these groups;
2. Distribution of this information throughout the firm;
and
3. Responsiveness of the organization as a whole to
this information.

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Stakeholder Orientation
• Can be viewed as a continuum.
• Firms likely to adopt the concept to varying
degrees.
• To measure a firm’s stakeholder orientation:
• Evaluate the extent the firm adopts behaviors that
characterize the generation.
• An organization may generate and disseminate
more information about some stakeholder
communities than others.

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Social Responsibility and

Business Ethics
• Social responsibility: An organization’s obligation
to maximize its positive impact on stakeholders
and minimize its negative impact.
• Four levels of social responsibility:
1. Economic
2. Legal
3. Ethical
4. Philanthropic

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Carroll’s Four-Part Definition of CSR

• In 1991, Carroll first presented his CSR model as

a pyramid. It was suggested that, although the
components are not exclusive, it “helps the
manager to see that the different types of
obligations are in a continual tension with one
another”.
• Carroll’s model of CSR includes the economic,
legal, ethical and discretionary (philanthropic)
expectations that society has of organizations at a
given point in time.

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Economic Responsibilities
+
Total
Legal Responsibilities
= Corporate
+
Ethical Responsibilities
CSR
+
Philanthropic Responsibilities

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Corporate Citizenship
 The extent to which businesses strategically
meet the economic, legal, ethical, and
philanthropic responsibilities placed on them by
various stakeholders.

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Corporate Citizenship
• Four interrelated dimensions:
1. Strong sustained economic performance. Profits
2. Rough compliance. Legal
3. Ethical actions beyond what the law requires.
4. Voluntary contributions that advance the
reputation and stakeholder commitment of the
organization.
• Reputation is one of an organization’s greatest
intangible assets with tangible value.

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Corporate Governance Provides Formalized

Responsibility to Stakeholders

• The stakeholder model places the board of

directors in the position of balancing the interests
and conflicts of a company’s various
communities.
• External control of the corporation belong to not
only with government regulators but also with key
stakeholders which apply pressure for
responsible conduct.

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Board of Director
Responsibilities (1 of 2)
• Executive compensations. Avoid the
opportunity to vote for others’ compensation in
return for their own increased compensation.
• Organizational ethics. Receive training to
increase competency in ethics program
development.
• Audit committee. Address issues such as
whistle-blower claims, cyber security, and bribery.

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Board of Director
Responsibilities (2 of 2)
• Accountability. Supervision for system of
checks and balances that limit employees’
and managers’ opportunities to move away
from policies and strategies aimed at
preventing unethical and illegal activities.
• Interlocking directorate: Board members linked to
more than one company.
• Legal unless it involves a direct competitor.

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Executive Compensation

• Compensation paid to top executives of the

company.

• Stakeholders support high level of

compensation only when it is linked to strong
company performance.

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Implementing a Stakeholder
Perspective (1 of 4)
Step 1: Assessing the Corporate Culture
• Identify the organizational mission, values, norms,
and behavior likely to have implications for social
responsibility.
Step 2: Identifying Stakeholder Groups.
• Recognize stakeholder needs, wants, and desires.
Step 3: Identifying Stakeholder Issues

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Implementing a Stakeholder
Perspective (2 of 4)
Step 4: Assessing Organizational Commitment to
Stakeholders and Social Responsibility.
• Used to evaluate current practices and to select
real social responsibility initiatives.
• Social responsibility disclosures in company
annual reports are directly related to the quality
of corporate governance.

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Implementing a Stakeholder
Perspective (3 of 4)
Step 5: Identifying Resources and Determining
Urgency
• Two main criteria: Level of financial and
organizational investments required by different
actions and urgency when prioritizing social
responsibility challenges.
• When the challenge under consideration is
viewed as significant and stakeholder pressures
on the issue can be expected, the challenge is
considered urgent.

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Implementing a Stakeholder
Perspective (4 of 4)
Step 6: Gaining Stakeholder Feedback.
• General assessment of a firm and its practices
can be obtained through satisfaction or reputation
surveys.
• To measure stakeholders’ perceptions of a firm’s
contributions to specific issues, stakeholder-
generated media such as blogs, websites,
podcasts, and newsletters can be assessed.
• Formal research may be conducted using focus
groups, observation, and surveys.
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