Stakeholder Expectations and Organisational Purposes

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Stakeholder Expectations and Organisational
Purposes
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Learning Outcomes
At the end of this session you should be able to

• Explain the influences on organisational purposes
• Define and list stakeholders of an organisation
• Assess the power of stakeholders
• Describe different types of ethical stance and
  corporate social responsibility

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Figure 5.1 Influences on organisational purposes
Business Ethics
Corporate Governance

Who should the organisation serve?
Which purposes should be prioritised?
How should purposes be determined?
Why?
Organisational purposes
Mission
Objectives
Stakeholders
Cultural context
Whom does the organisation serve?
Which purposes are prioritised?
Why?
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Corporate Governance
The governance framework determines whom the
organisation is there to serve and how the
purposes and priorities of the organisation
should be decided
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Figure 5.2 The Chain of Corporate Governance
Typical Reporting Structure
Reports received
Beneficiaries
Limited reports
Trustees
Limited investment performance reports
Investment managers
Accounts Analysts' reports Company briefings
Board
Budgets/qualitative reporting
Executive directors
Budgets/qualitative reporting
Senior executives
Budgets/other operating reports
Managers
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Corporate Governance and Stakeholders

• Shareholders
• widespread or close?
• institutional intermediaries?
• bankers?
• cross-shareholding?
• Employees
• Co-determination, shareholders or employees?
• Lenders
• partners or contractors?
• Customers
• Caveat Emptor, market pressure or regulation?

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Figure 5.3 Some Common Conflicts of Expectations

• In order to grow, short-term profitability, cash
  flow and pay levels may need to be sacrificed
• Short-termism may suit managerial career
  aspirations but preclude investment in long-term
  projects
• When family businesses grow, the owners may lose
  control if they need to appoint professional
  managers
• New developments may require additional funding
  through share issue or loans. In either case,
  financial independence may be sacrificed

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Fig 5.3 Some Common Conflicts of Expectations

• Public ownership of shares will require more
  openness and accountability from the management
• Cost efficiency through capital investment can
  mean job losses
• Extending into mass markets may require a decline
  in quality standards
• In public services, a common conflict is between
  mass provision and specialist services (e.g.
  preventive dentistry or heart transplants)
• In public services, savings in one area (e.g.
  social security benefits) may result in increases
  elsewhere (e.g. school meals, medical care)

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Fig 5.5 Stakeholder mapping the power/interest
matrix
LEVEL OF INTEREST
Low
High
B
A
Low
Keep informed
Minimal effort
POWER
C
D
Keep satisfied
Key players
High
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Power
is the extent to which individuals or groups are
able to persuade, induce or coerce others
into following certain courses of action
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Sources of Power
(a) Within organisations
(b) For external stakeholders

• Hierarchy (formal power), e.g. autocratic
  decision making
• Influence (informal power), e.g. charismatic
  leadership
• Control of strategic resources, e.g. strategic
  products
• Possession of knowledge/skills, e.g. computer
  specialists
• Control of the environment, e.g. negotiating
  skills
• Involvement in strategy implementation, e.g. by
  exercising discretion

• Control of strategic resources, e.g. materials,
  labour, money
• Involvement in strategy implementation, e.g.
  distribution outlets, agents
• Possession of knowledge (skills), e.g.
  subcontractors
• Through internal links, e.g. informal influence

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Indicators of Power
(a) Within organisations
(b) For external stakeholders

• Status
• Claim on resources
• Representation
• Symbols

• Status
• Resource dependence
• Negotiating arrangements
• Symbols

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Business Ethics

• Organisational purposes are concerned with the
  expectations of stakeholders
• Which purposes are regarded as more important
  than others and why?
• Two related issues
• the ethical context
• the cultural context

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Ethical Stance

• Corporate governance arrangements determine the
  minimum obligations of an organisation towards
  its various stakeholders
• Ethical stance is the extent to which an
  organisation will exceed its minimum obligations
  to stakeholders
• Ethical stance is a key strategic issue

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Figure 5.7 Four possible ethical stances
Short-term shareholder interests

Longer-term shareholder interests
Multiple stakeholder obligations
Shaper of society
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Corporate Social Responsibility

• Detailed issues on which an organisation exceeds
  its minimum requirements to stakeholders

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Some Questions of Corporate Social Responsibility
Should organisations be responsible for....
Employee welfare
...providing medical care, assistance with
mortgages, extended sickness leave, assistance
for dependents etc.
Working conditions
...enhancing working surroundings, social and
sporting clubs, above minimum safety standards,
etc.?
Job design
...designing jobs to increase satisfaction of
workers rather than economic efficiency?
INTERNAL ASPECTS
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Some Questions of Corporate Social Responsibility
Should organisations be responsible for....
Green issues
...reducing pollution below legal standards if
competitors are not doing so? ...energy
conservation?
Products
...danger arising from the careless use of
product by consumers?
Markets and marketing
...deciding not to sell in some
markets? ...advertising standards?
EXTERNAL ASPECTS
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Some Questions of Corporate Social Responsibility
Should organisations be responsible for....
Suppliers
...fair terms of trade? ...blacklisting
suppliers?
Employment
...positive discrimination in favour of
minorities? ...maintaining jobs?
Community activity
...sponsoring local events and supporting local
good works?
EXTERNAL ASPECTS