MGMT 320 Tod UW

Stakeholder Analysis — 4 questions

1. Who are the key stakeholders? 2. What do they want? 3. What power do they have? 4. Do they form coalitions?

Purpose of Stakeholder Analysis

Identify stakeholders, understand their interests, assess their power, and determine whether they may form coalitions.

Stakeholder

A person or group that affects or is affected by the actions of a business.

Market stakeholder

A stakeholder that engages in an economic transaction or exchange with the business.

Examples of market stakeholders

Owners/shareholders, customers/consumers, employees, and other groups involved in economic exchanges with the firm.

Non-market stakeholder

A stakeholder that affects or is affected by the business without necessarily engaging in a direct economic transaction with it.

Stakeholder Analysis Step 1: Who?

Identify the company's key market and non-market stakeholders.

Stakeholder Analysis Step 2: What do they want?

Identify each stakeholder's actual interests, concerns, and motivations.

Why can identifying stakeholder interests be difficult?

A stakeholder's real concern may not be obvious, so businesses sometimes must look beyond surface-level demands.

Boeing strike example

Workers were concerned about pensions and Boeing expanding production to nonunion South Carolina.

Screen actors/writers strike example

Workers were concerned about AI replacing or reducing their jobs.

Port workers strike example

Workers were concerned about automation eliminating jobs.

Stakeholder Analysis Step 3: Power

Determine what the stakeholder is capable of doing to influence the business.

Voting power

Power exercised through voting, such as shareholders voting to influence a corporation.

Economic power

Power exercised economically, such as consumers boycotting a company's products.

Political power

Power to influence government or laws through methods such as voting, initiatives, or government action.

Legal power

Power exercised through the courts to obtain a desired result.

Informational power

Power created by information/publicity, such as using social media to embarrass a company and damage its reputation.

Stakeholder Analysis Step 4: Coalitions

Determine whether stakeholders may combine their power because they want the same outcome on an issue.

Stakeholder coalition

Two or more stakeholders joining together because they want the same outcome, even if their underlying motivations differ.

Employee + environmentalist coalition example

Both may oppose overseas production: employees fear job losses while environmentalists have environmental concerns.

Ownership Theory of the Firm

The traditional view associated with Milton Friedman that a business should maximize profits for owners while staying within the rules of the game.

Friedman vs. Stakeholder Model

Friedman emphasizes profits for owners; stakeholder theory says businesses must consider the interests of multiple stakeholders.

Pluralist / Countervailing Forces Model

Society contains many shifting centers of power and coalitions, with no single force consistently dominating business and society.

Stakeholder Model

Businesses operate among numerous stakeholders whose interests and power must be considered.

Changing Social Expectations

Society's expectations of businesses change over time, such as increasing expectations of corporate social responsibility.

Chance/Luck as a dynamic force

Circumstances outside a company's control can contribute to its success or failure.

IBM chance/luck example

IBM's early PC decisions and outsourcing of its operating system to Microsoft show how decisions and circumstances can reshape companies.

Income inequality and social mobility

Business operates within continuing tensions involving differences in income and people's ability to move economically or socially.

Gini Index

A measure of income inequality; a higher Gini score means greater inequality.

Three types of public issues

Strategic, political, and social.

Strategic public issue

An internal issue related to business strategy and decision-making.

Political public issue

An external issue involving government/politics that may produce government intervention if not handled properly; can also be international.

Social public issue

An external issue involving cultural shifts and changing social expectations.

Why must businesses prioritize public issues?

Stakeholders may demand things a business cannot all deliver, requiring the business to decide which issues deserve the most attention.

Stakeholder Salience

A framework for prioritizing stakeholders/issues using power, legitimacy, and urgency.

Three components of Stakeholder Salience

Power, legitimacy, and urgency.

Stakeholder Salience — Power

What can the stakeholder actually do to influence the company or situation?

Stakeholder Salience — Legitimacy

How legitimate is the stakeholder or claim, including how it is perceived by the public?

Stakeholder Salience — Urgency

Does the issue demand immediate attention or action?

Effect of greater stakeholder salience

The greater the salience, the more attention the business should give the stakeholder or issue.

Stakeholder Materiality

How important or significant an issue is to the business; material issues warrant meaningful attention.

Government's general-welfare role

Government seeks to promote the general welfare, which can conflict with businesses' goal of making profits.

Basic regulatory tension

Too much regulation can burden business, while too little regulation may fail to protect the public/general welfare.

Why can regulation hurt competitiveness?

Regulatory costs can make domestic businesses less competitive relative to businesses operating under different regulatory environments.

Public Policy Framework

Inputs → Goals → Tools → Effects.

Public Policy — Inputs

External pressures that shape government policy decisions and strategies.

Public Policy — Goals

What the government is trying to accomplish through a policy.

Public Policy — Tools / Policy Instruments

The methods used to pursue policy goals, including penalties and incentives—the "stick and carrot."

Public Policy — Effects

The results of a policy, including both intended and unintended consequences.

Paid sick leave as a public-policy example

External pressure creates a policy goal; government uses tools such as requirements/fines; the resulting effects can then be evaluated.

Unintended consequences of regulation

A policy designed to achieve one result can produce additional effects policymakers did not intend.

Why do governments regulate?

Reasons include market failure, externalities, monopolies, promoting ethical conduct, limits of self-regulation/tort law, consumer protection, guardrails, and cost-benefit concerns.

Market Failure

A situation in which normal market forces do not function adequately, potentially creating a need for government intervention.

Guardianship example of market failure

A person under guardianship may be unable to bargain normally over a guardian's compensation, so ordinary market forces may not adequately control price.

Externality

An expense, cost, or byproduct of producing, distributing, or using a product/service that is borne by the public or others.

Pollution as an externality

Businesses and consumers can engage in an exchange while pollution imposes costs on people outside that exchange.

Government's 4 policy choices for externalities

1. Producer pays. 2. Consumer pays. 3. Public pays. 4. Ban the activity if the first three are impractical.

Producer-pays approach

Government makes the producer bear the external cost; the producer may pass some of the cost to consumers.

Consumer-pays approach

Government makes consumers bear the external cost, such as a garbage-disposal fee.

Public-pays approach

The public bears the external cost, such as paying to clean up pollution.

Ban approach

If allocating the external cost to producers, consumers, or the public is impractical, government can prohibit the activity.

Government-approved monopoly rationale

Duplicating certain infrastructure, such as electrical grids or sewer systems, may be inefficient, so government may permit a regulated monopoly.

Regulation and ethical conduct

Incentives and penalties can encourage desirable conduct and discourage unethical behavior.

Federal Sentencing Guidelines example

Cooperation and voluntary disclosure of misconduct can reduce penalties, creating incentives for ethical/compliant behavior.

Limits of self-regulation

Industries may not adequately police themselves, creating circumstances where government regulation is necessary.

Movie ratings as self-regulation

The movie rating system is an example of an industry regulating itself rather than relying entirely on government regulation.

Why can tort lawsuits be inadequate?

Compensation through lawsuits may be inadequate when a defendant lacks enough money or insurance to cover the harm.

Caveat Emptor

"Let the buyer beware"; consumer regulation can reduce the need for buyers to discover all risks/information themselves.

Regulation as a guardrail

Regulations can establish boundaries preventing harmful self-interested behavior.

Insider trading as a guardrail

Rules against insider trading protect market integrity by restricting people with special information from exploiting that advantage.

Cost-Benefit Analysis

Compare a regulation's costs and benefits to determine whether society receives a net benefit.

Regulatory Impact Analysis (RIA)

An analysis of the expected costs and benefits of major federal regulations; class notes discussed rules with predicted annual impacts over $100 million.

Direct costs of regulation

Costs directly associated with administering or complying with regulation, such as additional government personnel.

Indirect costs of regulation

Costs caused by regulation beyond government's direct administrative expenses.

Regulation and small businesses

Regulatory costs can fall disproportionately on small businesses.

Substantive Deregulation

Changing or eliminating the actual law or regulation.

Procedural Deregulation

Weakening or preventing enforcement without necessarily changing the underlying rule.

Substantive vs. Procedural Deregulation

Substantive changes the rule itself; procedural leaves the rule but weakens or obstructs enforcement.

Examples of Procedural Deregulation

Cutting agency funding, firing regulators, not appointing regulators, impounding funds, or otherwise obstructing enforcement.

Sunset Law

A provision causing a law/regulation to automatically expire at a future date unless it is reauthorized.

Command-and-Control Regulation

Government specifies exactly HOW a business must comply: "You must do it this way."

Flexible Enforcement

Government specifies the required RESULT but gives businesses flexibility in how they achieve it.

Command-and-Control vs. Flexible Enforcement

Command-and-control specifies the method; flexible enforcement specifies the outcome.

Why might businesses prefer Flexible Enforcement?

Businesses can choose less expensive or more efficient ways of reaching the government's required result.

At-Will Employment

The general employment rule allowing termination without traditional "for cause" protection, subject to important exceptions.

Major exceptions/limitations to At-Will Employment

Union contracts, ordinary employment contracts, good faith/fair dealing, public policy protections, and protections for union organizing.

Union contract exception to At-Will Employment

A union contract may require an employer to have cause before terminating an employee.

Ordinary employment contract exception

An employment contract can restrict an employer's ability to terminate an employee at will.

Good faith/fair dealing exception

An employer may violate this principle by acting in bad faith, such as deliberately making employment intolerable to force someone to quit.

Public-policy exception

Employees cannot be fired for certain actions protected by public policy, such as jury duty or military service.

2018 Supreme Court employment-arbitration rule

Class notes state that employers may use binding arbitration agreements and class-action waivers in employment disputes.

Why employee vs. independent contractor classification matters

Employees receive legal rights/benefits contractors may not, giving businesses a financial incentive to classify workers as contractors.

Washington Economic Realities Test

A six-factor test discussed in class for determining whether a worker is an employee or independent contractor.

Economic Realities Test — 6 factors

1. Permanence 2. Skill 3. Worker investment 4. Profit/loss opportunity 5. Employer control 6. Whether service is integral to business.

Economic Realities — Permanence

A longer/more permanent working relationship points more toward employee status.

Economic Realities — Degree of Skill

Consider the degree and nature of skill required to perform the work.

Economic Realities — Worker Investment

Consider how much the worker personally invests in equipment and materials.

Economic Realities — Opportunity for Profit/Loss

Consider whether the worker can independently make a profit or suffer a loss based on management of the work.

Economic Realities — Employer Control

Greater control by the alleged employer points more toward employee status.