Business in Society: Stakeholders
Business in Society
The Corporation and Its Stakeholders
Businesses interact in many complicated ways with people and groups in society.
What is a Stakeholder? A stakeholder is anyone who either affects or is affected by what a company does.
What Managers Do:
Figure out who the important stakeholders are.
Understand what each stakeholder cares about, how much influence they have, and their relationships with others.
Build good, working connections with these groups to improve the company's reputation and deal with social and ethical issues.
Current Difficulties:
Rapid worldwide changes, new expectations, environmental worries, and fast-developing technologies.
Managers need to make money for the company while also benefiting all the different stakeholders.
Key Learning Objectives
LO 1-1: Understand that business and society work like a connected system.
LO 1-2: Think about why modern companies exist.
LO 1-3: Know what stakeholders are, including those involved in buying/selling (market), those not involved in buying/selling (nonmarket), those inside the company (internal), and those outside (external).
LO 1-4: Learn how to study stakeholders and understand what they want and how much power they have.
LO 1-5: See how companies are set up internally to work with stakeholders.
LO 1-6: Identify the forces that are changing how business and society interact.
Case Study: Amazon
Amazon, known as "Earth's biggest store," is a huge part of daily life, with its income greatly increasing during the 2020 pandemic.
Company Facts (2021):
Worth 1.6 trillion.
The second-largest private employer in the U.S. (over 780,000 employees).
Income grew by 37% in 2020.
CEO Jeff Bezos's wealth: around 200 billion.
Stock price was 19 times higher than ten years before.
How Amazon Affects Stakeholders:
Gives customers easy access to many products and makes shopping convenient.
Has caused job losses in traditional stores, with an estimated total loss of 1.2 million retail jobs in the U.S. as online shopping grew.
Has been criticized for a tough work culture and bad employee satisfaction reports, including many people leaving their jobs and stressful work environments.
People worry about Amazon's strong control of the market because it promotes its own brands and sellers on its platform, which feels like unfair competition.
Key Studies:
Bain & Company found that Alexa's recommendations often suggest Amazon's own products first.
Business and Society
Definitions:
Business: Organizations created to make a profit.
Society: People and their social structures; businesses are a part of society but have their own distinct roles.
Understanding How They Depend on Each Other:
Business and society rely on each other; business decisions affect people in society, and society affects businesses.
Companies create value not only for their owners (shareholders) but also for a broader group of stakeholders, including employees, customers, and communities.
Systems Perspective
General Systems Theory:
Started in the 1940s, this idea focuses on how everything in an organization is connected to its environment.
Businesses must change and adapt to new situations, much like living things.
This theory helps managers think about how things interact and how the environment influences them.
Stakeholder Theory of the Firm
What Modern Companies Are For:
Shareholder Theory:
The main goal is to make the most money possible for the company's owners (shareholders) over time.
Managers are seen as working for the shareholders and owe their main duty to them.
Stakeholder Theory:
Suggests that companies have responsibilities beyond just making money; they should also focus on benefiting all their stakeholders.
Arguments for Stakeholder Theory
It Describes Reality (Descriptive Argument):
It gives a true picture of how companies actually work; it means managers have to consider many different interests to keep the business going.
It Helps Performance (Instrumental Argument):
Companies that act responsibly towards their stakeholders often do better financially in the long run.
Example: The LEGO Group's commitment to community involvement and educational programs.
It's the Right Thing to Do (Normative Argument):
Companies have ethical duties to all stakeholders because of the power and resources they control.
Laws often allow for companies to consider what's best for a wide range of stakeholders.
Stakeholders Defined
Stakeholder Idea:
Stakeholders are people or groups affected by or who can affect an organization's decisions.
It's important to know the difference between stakeholders (anyone with a broad interest) and stockholders (specific owners of the company).
Types of Stakeholders
Market Stakeholders: These are groups that have a direct economic relationship with the company (like shareholders, lenders, employees, customers, suppliers).
Nonmarket Stakeholders: These groups influence or are influenced by what a company does but don't have a direct economic exchange with it (like the community, government, non-profit organizations).
Internal vs External Stakeholders:
Internal: Employees and managers who work inside the company.
External: People or groups outside the company who interact with it.
Stakeholder Analysis
How the Process Works:
Figure out the Problem: Managers must clearly identify the issues related to stakeholders.
Key Questions to Ask:
Who are the important stakeholders?
What does each stakeholder care about?
How much influence does each stakeholder have?
How might different stakeholders team up together?
Power of Stakeholders
Stakeholder power is their ability to change outcomes in different ways:
Voting Power: Comes from formal rights (like shareholders voting).
Economic Power: Comes from their involvement in the company's buying and selling activities.
Political Power: Through laws, lobbying efforts, and public speaking.
Legal Power: The ability to take legal action if they are harmed.
Informational Power: Having important facts and being able to share them.
Stakeholder Mapping
A visual diagram that shows what stakeholders care about, how much power they have, and who might work together. This helps companies understand different positions and plan their actions.
It shows in a practical way how different levels of influence affect decisions.
Conclusion
It's very important for today's company leaders to thoroughly understand the complex relationships with stakeholders.
Businesses must handle and adjust to the changing environment and what their stakeholders expect from them to create lasting value.