Ethical Issues in Business

BUSS8010
Session 2: Stakeholder And Issues Management Approach

Prepared by: Sanjukta Choudhury Kaul, Ph.D

skaul@binus.edu
 Stakeholder vs. Stockholder
Approach to Ethics
• The stakeholder approach is based on the
view that all stakeholders should be treated
fairly, resulting in better performance in the
marketplace.
• act in the best interests of and for the benefit of customers, employees,
suppliers, and stockholders
• respect and fulfill these stakeholders’ rights

• The stockholder approach focuses solely on

financial and economic relationships, with
stockholders/owners as primary
beneficiaries of managerial decisions.
 Criticisms of Stakeholder Theory

1. negates and weakens fiduciary duties managers owe to stockholders

2. weakens the influence and power of stakeholder groups
3. weakens the firm
4. changes the long-term character of the capitalist system

How do you counter these arguments? What arguments exist in support

of stakeholder theory?
 Three Assumptions of Stakeholder
Theory
1. Profit maximization is constrained by justice
2. Regard for individual rights should be
extended to ALL constituencies that have a
stake in the affairs of a business
3. Organizations are not simply or only economic
in nature but can and do act in socially
responsible ways, not only because it is the
right thing to do, but also to ensure their
legitimacy
 Stakeholder Management Approach

• Identifying and understanding multiple and

often competing claims of many
constituencies
• Uses analytical methods for identifying,
mapping, and evaluating corporate strategy
with stakeholders
• Based on the theory that certain ethical
principles can result in competitive advantage
• GOAL: Win/Win vs. Zero Sum
 Primary Stakeholders

Owners

Suppliers Organization Customers

Employees
 Secondary Stakeholders

• Local community groups

• Special Interest groups
• Consumer groups
• Environmental groups
• Media
• Society-at-large
• American Civil Liberties groups
• ETC

• Should managers pay attention to the needs of these groups? What

priority should they have?
 How To Conduct a
Stakeholder Analysis
The stakeholder analysis is a series of steps,
conducted from an objective, third-party point of
view:
1.Mapping stakeholder relationships
2.Mapping stakeholder coalitions
3.Assessing the nature of each stakeholder’s interest
4.Assessing the nature of each stakeholder’s power
5.Constructing a matrix of stakeholder moral
responsibilities
6.Developing specific strategies and tactics
7.Monitoring shifting coalitions
 Questions for Stakeholder Review

(Do these in Step 1 of S.A.)

1. Who are our current stakeholders?
2. Who are our potential stakeholders?
3. How does each stakeholder affect us?
4. How do we affect each stakeholder?
5. For each division and business, who are the stakeholders?
 Questions for Stakeholder Review
(con’t)
(Do these in subsequent steps in S.A.)
6. What assumptions does our current strategy
make about each important stakeholder (at each
level)?
7. What are the current “environmental variables”
that affect us and our stakeholders?
8. How do we measure each of these variables and
their impact on us and our stakeholders?
9. How do we keep score with our stakeholders?
Figure 2.2: Sample Stakeholder
Map for a Large Corporation
 Steps 2, 3 and 4: Assessing
Coalitions, Interests and Power
• Map any stakeholder coalitions that may help or
hinder your strategy or decision
• Assess the nature of each stakeholder’s interest
• Assess the nature of each stakeholder’s power
• Voting power
• Political power
• Economic power
• Technological
• Legal
• Environmental
• Cultural
• Power over target individuals and/or groups
Figure 2.3: Step 5 - Stakeholder Moral
Responsibility Matrix
 Step 6: Develop Specific Strategies
and Tactics
1. Consider whether to approach each
stakeholder directly or indirectly
2. Decide to do nothing, monitor, taken an
offensive or a defensive position with the
stakeholder
3. Decide to accommodate, negotiate,
manipulate, resist, avoid, or take a ‘wait and
see’ approach
4. Decide which combination of strategies will
work best with each stakeholder
Figure 2.4: Stakeholder Strategies
 Step 7: Monitor Shifting
Coalitions

Use the matrix from Step 6 to routinely monitor progress and the
evolution of issues and actions by stakeholders (e.g., do they move from
a ‘Marginal’ to a ‘Non-supporter’, or from a ‘Supporter’ to a
‘Marginal’?)
Figure 2.6: Stakeholder Dispute
Resolution Methods
 Resolving Stakeholder Disputes
Integrative/Relational Distributive/Power-based
• Problems: Win-win • Problems: Zero-sum
• Resources: Expandable • Resources: Fixed (divide up the
• “Value creating” ‘pie’)
• Accommodate as many interests • “Value claiming”
as possible • Splitting the difference

• Relationship-building • Competition-focused
• Dialogical • Authoritative
• Respect dignity and build • “Winning”
understanding
 Fry and Ury’s Four Principles of
Negotiation

1. Separate the people from the problem

2. Focus on interests rather than positions
3. Generate a variety of options before settling on an
agreement
4. Insist that the agreement be based on objective criteria
 Functional Managers’
Moral Responsibilities

• Marketing and Sales professionals/managers

• R & D and Engineering professionals/managers
• Accounting and Finance professionals/managers
• Public Relations professionals/managers
• Human Resource professionals/managers
 Issues Management

• A formal process used to anticipate and take

appropriate action to respond to emerging
trends, concerns, or issues that can affect an
organization or its stakeholders
• Detects and addresses issues that may cause
problems or harm
• Helps to contain or resolve issues that could become
potentially damaging crises
• May be used as a complementary approach to
stakeholder analysis (who is involved in the issue?)
• Three frameworks
 Issues Management and Stakeholder
Analysis
• Insert your issues management approach as the first
step of your Stakeholder Analysis
• Enhance the Stakeholder Analysis by asking:
• Which stakeholders are affected by this issue?
• Who has an interest in this issue?
• Who is in a position to exert influence on the issue?
• Who has expressed an opinion on the issue?
 Two Issues Management Approaches

• 6-Step Issue Management Process

• Most straightforward
• More appropriate for companies or
groups trying to understand, manage,
and control their internal
environments
• Organization-specific
Figure 2.8: 6-Step Issues
Management Approach
 Two Issues Management Approaches

• 7-Phase Issue Development Process

• Issues are believed to follow a developmental life cycle
(Steven Fink)
• Life-cycle stages suggested for tracking an issue:
• A felt need arises
• Media coverage is developed
• Interest group development gains momentum
• Policies are adopted by leading political jurisdictions
• The federal government gives attention to the issue
• Issues and policies evolve into legislation and regulation
• Issues and policies enter litigation
Figure 2.9: 7-Phase Issue
Development Process
 A Related Model

• 4-Stage Issue Life Cycle (Thomas Marx):

• Issues evolve from social expectations
to social control through the following
steps:
• Social expectations
• Political issues
• Legislation
• Social control
Figure 2.10: 4-Stage Issue Life
Cycle
Two Crisis Management Approaches:
Figure 2.11
Two Crisis Management Approaches:
Figure 2.12
 Suggested Corporate Actions
during Crises

• Face the problem

• Take your lumps
• Recognize that there is no such thing as a
secret or private crisis
• Stage war games
• Use the firm’s philosophy, motto, or mission
statement
• Use the firm’s closeness to customers and end
users for early feedback
 Prerequisites for Issues/Crises
Management Success
• Top management is supportive and participates
• Involvement is cross-departmental
• The issues management unit fits with the firm’s
culture
• Output, instead of process, is the focus