Corporate Social Responsibility

& Governance
MASROOR ALI SOOMRO
Sukkur IBA University
Scenario:
You have been working for a Multinational
company and recently your company has
taken an initiative on establishing a CSR
department in Pakistan. You have been
given this task. Your job is to design and
structure this department.

What kind of different activities/initiative

can you consider to start this department?
1 The Corporation and
Its Stakeholders
 Business and Society
 The Stakeholder Theory of the Firm
 Stakeholder Analysis and Engagement
 The Dynamic Environment of Business
 Figure 1.1
Business and society: An interactive system

Society

Business

McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

 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 organization’s 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
 Figure 1.2
Market stakeholders of business

Distributors, Employees
Wholesalers, Stockholders
Retailers

Business
firm

Customers Creditors

Suppliers
 Nonmarket Stakeholders

People or groups who—although they do not engage in

direct economic exchange with the firm—are affected
by or can affect its actions.
 Communities
 Activist Groups
 Media
 Business Support Groups
 Governments
 The General Public
 Figure 1.3
Nonmarket stakeholders of business

Communities
General Governments
Public

Business
firm
Business
Activist
Support
Groups
Groups
Media
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 Stakeholder Wishes To:

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 Stakeholder Wishes To:

Suppliers Receive regular orders for goods
Be paid promptly for supplies delivered

Retailers/  Receive quality goods in a timely fashion at reasonable

cost
Wholesalers
 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 Stakeholder Influences Company by:

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 Stakeholder Influences Company by:
Suppliers  Refusing to meet orders if conditions of contract are
breached
 Supplying to competitors

Retailers/  Buying from other suppliers if terms of contract are

unsatisfactory
Wholesalers
 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 Stakeholder Wishes To:

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 public’s 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 Stakeholder Wishes to:
Business  Provide research and information which will help the
Support Groups company or industry perform in a changing
environment
Governments  Promote economic development
 Encourage social improvements
 Raise revenues through taxes

The General  Protect social values

Public  Minimize risks
 Achieve prosperity for society
 Exhibit 1.Bg
Nonmarket stakeholders: Nature of power

Stakeholder Stakeholder Influences Company by:

Communities  Refusing to extend additional credit
 Issuing or restricting operating licenses and permits
 Lobbying government for regulation of the company’s
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 Stakeholder Influences Company by:
Business  Using its staff and resources to assist company in
Support Groups 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  Supporting activists

Public  Pressing government to act
 Condemning or praising individual companies
 Figure 1.4
Forces that shape the
business and society relationship
Evolving
Government
Growing
Regulation Globalization
Emphasis on
of
Ethical Values
Business

Business
and its
Changing
Stakeholders
Explosion
Societal
of New
Expectations
Technology
Dynamic
Natural
Environment
 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