GEB 4455 Chapter 2: Ch 2 notes

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GEB 4455
William A Christiansen

Ch 2 notes • Building effective relationships is considered one of the most important areas of business today • The formal system of accountability and control of ethical and socially responsible behavior is corporate governance Stakeholders define ethical issues in business • In a business context, customers, shareholder, employees, suppliers, government agencies, communities, and many others who have a stake or claim in some aspect of a company’s products, operations, markets, industry, and outcomes are known as stakeholders • Businesses engage and influence these groups, but these groups also have the ability to engage and influence businesses • There are three approaches to stakeholder theory: normative, descriptive, and instrumental approaches o The normative approach identifies ethical guidelines that dictate how firms should treat stakeholders o Normative stakeholder theory affirms that stakeholders have legitimacy and a right to engage organizations o The descriptive approach focuses on the actual behavior of the firm and usually addresses how decisions and strategies are made for stakeholder relationships o The instrumental approach to stakeholder theory describes what happens if firms behave in a particular way • Ethical misconduct and decisions that damage stakeholders generally impact the companys reputation in terms of both investor and consumer confidence • Lowest level of trust: the media, banks, and financial services; the most trusted: technology, consumer electronics, and automotive • Identifying stakeholders o We can identify two types of stakeholders o Primary stakeholders are those whose continued association and resources are absolutely necessary for a firms survival ex: employees, customers, and shareholders o Secondary stakeholders do not typically engage directly in transactions with a company and are therefore not essential to its survival ex: the media, trade associations, and special interest groups o Sometimes a secondary stakeholder can have as much- if not more- power to influence outcomes than a primary stakeholder o In this stakeholder interaction model, there are reciprocal relationships between the firm and a host of stakeholders. This approach recognizes other stakeholders and explicitly acknowledges that dialogue exists between a firms internal and external environment • A stakeholder orientation o The degree to which a firm understands and addresses stakeholder demands can be referred to as a stakeholder orientation o A stakeholder orientation involves “activities and processes within a system of social institutions that facilitate and maintain value through exchange relationships with multiple stakeholders” o This orientation comprises three sets of activities: 1) the organization wide generation of data about stakeholder groups and assessment of the firms effects on these groups; 2) the distribution of this information throughout the firm; and 3) the responsiveness of the organization as a whole to this information o Given the variety of employees involved in the generation of information about stakeholders, it is essential the information gathered by circulated throughout the firm o A stakeholder orientation is not complete without including activities that address stakeholder issues Social responsibility and business ethics • Social responsibility is an organizations obligation to maximize its positive impact on stakeholders and minimize its negative impact • There are 4 levels of social responsibility- economic, legal, ethical, and philanthropic • Philanthropic responsibility refers to activities that are not required of businesses but that contribute to human welfare or goodwill • The term corporate citizenship is often used to express the extent to which businesses strategically meet the economic, legal, ethical, and philanthropic responsibilities placed on them by various stakeholders o Corporate citizenship has 4 interrelated dimensions: strong sustained economic performance, rigorous compliance, ethical actions beyond what the law requires, and voluntary contributions that advance the reputation and stakeholder commitment of the organization o A firms commitment to corporate citizenship indicates a strategic focus on fulfilling the social responsibilities its stakeholders expect • Reputation is one of an organization’s greatest intangible assets with tangible value • The value of a positive reputation is difficult to quantify, but it is important Issues in social responsibility • Social responsibility rests on a stakeholder orientation • There is strong evidence that an overemphasis on profit maximization is counter productive • Social issues are associated with the common good. The common good is the idea that because people live in a community, social rules should benefit the community • A major social issue gaining prominence involves loss of privacy for marketing purposes, using cookies and other mechanisms to track their online activities • The second major issue is consumer protection, which often occurs in the forms of laws passed to protect consumers from unfair and deceptive business practices • The third major issue is sustainability. Sustainability is the potential for the long term well being of the natural environment, including all biological entities • Corporate governance is the 4 major issue of corporate social responsibility • Corporate governance involves the development of formal systems of accountability, oversight, and control o Strong corporate governance mechanisms remove the opportunity for employees to make unethical decisions Social responsibility and the importance of a stakeholder orientation • Many business people and scholars question the role of ethics and social responsibility in business. Legal and economic responsibilities are generally accepted as the most important determinants of performance • A stakeholder orientation perspective would advocate managers take into account both the perfect and imperfect rights of stakeholders • Evidenc
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