Unit 3: Defining and Prioritizing Stakeholders
If you were operating as a US company executive in a country where the practice of stoning still existed, and you were forced to attend such an event or risk the loss of a major deal for your company, would you attend the stoning? That is a real-life scenario that happened to a female executive negotiating an agreement in a foreign country. Stoning would be considered a human rights violation in the US. However, in that particular country, the practice of stoning is entirely legal, and failure to attend could be viewed as an insult, thereby jeopardizing the deal. This is just one example of a situation, particularly as we find ourselves expanding in the global marketplace, where legal compliance and ethical decision-making aren't black and white issues. In this unit, you will learn about stakeholder orientation and claims, ethical decision-making, and corporate social responsibility as it relates to corporate law, the environment, and the public and private sectors.
Completing this unit should take you approximately 3 hours.
Upon successful completion of this unit, you will be able to:
- examine business and economic concepts from an ethical perspective;
- describe ethical conduct in a business context;
- discuss the conflict between shareholder primacy and corporate social responsibility;
- evaluate the claim that sustainability benefits both business and the environment;
- identify and describe initiatives that attempt to regulate pollution or encourage businesses to adopt clean energy sources; and
- compare constitutional arguments for and against government regulation of industry,
- examine business and economic concepts from an ethical perspective;
3.1: Adopting a Stakeholder Orientation
Have you ever had a stake in a decision someone else was making? Depending on your relationship with the person and your interest in the decision, you may have tried to ensure that the choice made was in your best interests. Understanding your somewhat similar role as a stakeholder in businesses large and small, local and global, will help you realize the value of prioritizing stakeholders in your own professional life and business decisions.
3.2: Weighing Stakeholder Claims
As we saw earlier, the law only partially captures the ethical obligations firms owe their stakeholders. A particular stakeholder claim (that is, any given stakeholder's interest in a business decision) may therefore challenge the ethical stance even of an organization that complies with the law. A related theme to recall is that even though all stakeholder claims are important for a company to acknowledge, not all claims are equally important. Most business leaders appreciate that a company's key stakeholders are essential to its efficient operation and growth, and that its overall mission, goals, and limited resources will force its managers to make choices by prioritizing stakeholders' needs. In this section, we look at ethical ways business managers can begin to make those decisions.
3.3: Ethical Decision-Making and Prioritizing Stakeholders
The first step in stakeholder management (accurately assessing stakeholder claims so an organization can manage them effectively) is defining and prioritizing significant stakeholders to the firm. Then, the firm must consider stakeholders' claims. Given that there are numerous types of stakeholders, how do managers balance these claims? Ethically, no group should be treated better than another, and managers should respond to as many stakeholders as possible. However, time and resource limitations require organizations to prioritize claims as stakeholder needs rise and fall.
3.4: Corporate Social Responsibility (CSR)
Thus far, we have discussed stakeholders primarily as individuals and groups outside the organization. This section focuses on the business firm as a stakeholder in its environment. It examines the concept of a corporation as a socially responsible entity conscious of its influences on society. We look at the role companies, and large corporations in particular, play as active stakeholders in communities.
3.5: Corporate Law and Corporate Responsibility
Corporate law, which enables businesses to take advantage of a legal structure that separates liability from ownership and control, was introduced in most states in the nineteenth century. The separation of ownership and liability means that, unlike sole proprietors and members of partnerships, owners of modern business corporations enjoy the advantage of limited liability for the corporation's debts and other financial obligations, a concept at the heart of a US economic system built on capitalism.
3.6: Sustainability
Public concern for the natural environment is a relatively new phenomenon, dating from the 1960s and Rachel Carson's seminal book Silent Spring, published in 1962. The preoccupation with business success through investment in corporations, in contrast, is a much older concept, dating back at least to the creation of the British East India Company in 1600 and the widespread emergence of the corporation in Europe in the 1700s. If you were a business owner, would you be willing to spend company resources on environmental issues, even if not required to do so by law? If so, would you be able to justify your actions to shareholders and investment analysts as smart business decisions?
3.7: Government and the Private Sector
Ideally, all levels of government – local, state, and federal – should work with each other and with private-sector businesses to accomplish a fair and rational balance between their respective roles in maintaining a just society. Rarely does one actor alone solve a problem; more often, it takes either a state-federal or a government-business partnership to make a significant impact on a social or economic challenge.
Unit 3 Assessment
- Receive a grade
Take this assessment to see how well you understood this unit.
- This assessment does not count towards your grade. It is just for practice!
- You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
- You can take this assessment as many times as you want, whenever you want.