Stake Holder Theory Freemans Classic Definition Business Essay


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According to stake holder theory Freemans classic definition of a stakeholder is any group or individual who can affect or is affected by the achievement of the organizations objectives (Freeman, 1984, p. 46). Stakeholders are analysed into PRIMARY AND SECONDARY STAKEHOLDERS are as follows

A primary stakeholder group is ``one without whose continuing participation the corporation can't survive as a going concern'' with the primary group including ``shareholders and investors, employees, customers and suppliers, together with the public stakeholder group: the governments and communities that provide infrastructures and markets, whose regulations and laws must be followed, and to whom taxes and obligations may be due'' Clarkson (1995, p. 106).

The secondary groups are defined as ``those who influence or affect, or are influenced or affected by the corporation, but they are not engaged in transactions with the corporation and are not important for its survival''. For social responsibility, the central issue is whether stakeholder is part of the motivation for business to be responsible and if so to which stakeholders. Hamil (1999). Which groups does manager pay an extra attention? Mitchell et al. (1997) develop a model of stakeholder identification and salience based on stakeholders possessing one or more of the characteristic of power, legitimacy and urgency. the three attributes do lead to salience. Thus, we might expect that firms would focus most attention to those legitimate stakeholder groups who have urgency and power. Agle et al. (1999). It means that firm with problems over employee retention would attend to employee matter and those in consumer markets would have regard to issues that affect

reputation. Stakeholder groups may also become more or less urgent; so environmental groups and concern became more urgent to oil firms following the Exxon Valdez oil spill (Patten, 1992). We note from the current commercial approaches to CSR that stakeholder analysis is important, but that the

rationale remains largely instrumental (WBCSD, 1999; Business Impact, 2000). However, there are elements that are also normative. For example, Business Impact begins by advocating that CSR should be based against set purposes and values nevertheless such purpose and values are also linked to ``contributing to the firm's status and achievement'' (Business Impact, 2000, p. 1.01.)


Society as "a series of social contracts between members of society and society itself''. In the context of CSR, an alternative possibility is not that business might respond in a responsible manner because in its commercial interest, but because it is part of how society look ahead business to operate. Donaldson and Dunfee (1999) develop integrated social contracts theory as a way for managers to take decisions in an ethical way. They differentiate between macro social contracts and micro social contracts. Thus a macro social contract in the context of communities, for example, would be an expectation that business provide support to its local community and the specific form of involvement would be the micro social contract. Hence companies who adopt a view of social contracts would describe their involvement as part of ``societal expectation'' however,

this could explain the initial motivation, it might not explain the totality of their involvement. One of the commercial benefits was identified in the Australian

study (CCPA, 2000) was described as ``licence to operate'' particularly for natural resource firms. This may be regarded as part of the commercial benefit of increase reputation, but also links to gaining and maintaining legitimacy (Suchman, 1995).


``an awareness or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of value, belief, norms and definitions'' Suchman (1995). Bringing together prior literature on legitimacy management including the strategic tradition of resource dependence theory (Pfeffer and Salancik, 1978) and the institutional traditions (DiMaggio and Powell, 1983) he identifies three types of organisational legitimacy cognitive, moral, pragmative etc. He also indentifies three key challenges of legitimacy management like gaining, maintaining and repairing legitimacy. Suchman notice out that "legitimacy management depends on communication" to involve legitimacy theory there is a need to examine some forms of corporate communications. Lindblom (1994, cited in Gray et al., 1996) notes that legitimacy is not necessarily a gentle process for organisations to obtain legitimacy from society. She argues that an organisation may employ four broad legitimation strategies when faced with different legitimation threats:

seek to educate its stakeholders about the organisation's purpose to improve that performance.

2 seek to change the organisation's awareness of the event (but without changing the organisation's actual performance)

distract (i.e. manipulate) attention away from the issue of concern.

seek to change external expectations about its performance.

legitimacy might be a key reason for undertaking corporate social behaviour and also then using that activity as a kind of publicity (Lindblom cited in Gray et al.,1996 and in Clarke,1998). CSR Europe (2000,p.46) states "in order to calculate overall performance and their performance on specific CSR issues, companies can use input, output, outcome and process indicators" (emphasis in the original). They then cite, from a review of 45 companies, a number of detailed workplace climate, marketplace, environment, community and local economic development, human rights and ethics performance indicators. These indicators are then compared to proposed indicators by "other initiatives" and then the business impact task force derive "suggested impact indictors for each COPORATE SOCIAL RESPONSIBILITY issue" (p.58). Particular indicators are proposed for companies at different stages of development from those "beginning to measure progress" through to "further improvement of their performance" it is interesting to note the range of areas covered in an assessment of corporate social responsibility. The debate on what to measure in assessing corporate social performance and how objective measures can be obtained and verified is an issue of much current debate (e.g. Gray et al.. 1996; Gonella et al., 1998).


Considering unmet social needs and social issues, it is possible to follow a strategy focused on capturing a market aimed at the social dimension (McWilliams and Siegel, 2001). A good example is a firms who found ways to differentiate products in light of the obesity issue. For example, whole foods Market has became the largest retail food chain in the world specializing in organic food and health. Whole Foods Market is not only meeting the welfare of society and addressing a social issue by offering differentiated products designed to nourish and maintain the health of individuals, but is consistently increasing sales and profits, demonstrating that what is good for society does not have to be a burden to firms and what is good for firms does not have to be a burden to firms and what is good for firms does not have to be a burden to society. (Burke and Logsdon, 1996; Husted and Salazar, 2006). Building CSR into strategy in a way that shows its actual business importance to the firm's mission (Burke and Logston, 1996). By way of example, some firms signal that Corporate Social Responsibility is a fundamental purpose mission of their existence. As part of its mission, The Body Shop make cosmetic that do not hurt animals. Here, the Body Shop has pointed out a social issue animal cruelty through the very core of their business developing the highest quality, innovative, effective and safe cosmetic products. Ben and Jerry's homemade ice cream, on the other hand, has a three-part mission Social, Product, and Economic. Ben and Jerry's mission can be further analysed through the following description capitalism and the wealth it generate do not create opportunity for everyone equally. We organize that the gap in between the rich and the poor is broader than at any time since 1920 . We try hard to generate economic opportunities for those who have been denied them and to proceed new models of economic justice that are sustainable and replicable. By definition, the manufacturing of products creates waste. We try hard to minimize our negative impact on the environment. The growing of food is overly based upon the use of harmfull chemicals and other methods that are unsustainable. We support sustainable and safe methods of food c production that reduce environmental degradation and maintain the productivity of the land over time, and support the economic viability of family farms and rural communities. We seek and support non-violent ways to achieve peace and justice. We believe government resources are used more productively in meeting human needs than in building and maintaining weapons systems. We are trying our best to show a respect for human beings inside and outside our company and for the communities in which they live clearly to Ben and Jerry's corporate social responsibility is its mission. However maintaining right balance between mission and the level of corporate social responsibility is not always easy. An imbalance can lead to a firm being spread too thin between its economic charter and other social responsibilities, thus raising concern about long term viability given finite resources(Pearce and Doh, 2005). Building corporate social responsibility in the fundamental purpose of the firm its mission does not necessarily happen without proper reflection and understanding of the environment and personal values and convictions of a firm's top leaders. Understanding the environment and its implications for the firm rests within the domain of strategy. Andrews(1971) and Ansoff(1980) says that issues that firms must notice consist of those that are both internal and external. However, while there are many issues to be strategic, it must be a forthcoming development at a level of importance such that the issue can significantly impact on a firm's ability to meet its objective. To identify issues of this type, research and analysis, using different variety of technicque, is the prescribed course of action(Andrews, 1971; porter, 1980). Given that the identification and understanding of strategic issues is primarily a research and analysis function of strategy, from a Corporate social responsibility perspective, the unit of analysis and techniques of analysis are particularly important to assess the impact of factors of a social nature. The unit of analysis is social related problems and issues according to the definition of Mahon and Waddock (1992), social problems can objectively exist before they become social issues. In this sense, strategically and opportunistically, there are unmet social needs and social issues. Unmet social needs are social problems that are developing in society but have not yet been officially defined or propagated to the level of an issue by social factors or stake holder. On the other hand, social issues are "official" in the sense that they have reached, through various actor actions, the formal attention of governmental policy makers and corporate managers. Thus, analysis of these two social-related factors is important to address their strategic significance. In order to analyse and assess unmet social needs, a number of techniques are potentially usefull. Media coverage and expert testimony, for example, are important mediums to monitor in that they can disclose early signals of unmet social needs while scenario planning is a usefull technique in that it enables firms to explore future scenarios that take into account shifts in consumer patterns, reactions of competitors and the possibility of litigation and regulation (Kahaner, 1996; Swartz, 1996). By example, growing concern over obesity in the US Surgeon general that obesity had become an epidemic(Lawrence,2004). Furthermore, expert testimony, such as that of Harvard Building corporate social responsibility into strategy 115 University's Walter Willett, explained that childhood obesity was in part linked to the marketing of "junk food" (Lawrence, 2004). Thus the problem of obesity was transfering from individual responsibility to external environmental factors including corporate marketing. In the case of obesity, many fast food restaurant for example have been caught off guard and some lawsuits encountered as a result, damaging reputations and costing significant resources (Burros,2006). Techniques such as analysis of expert testimony and scenario planning, media monitoring etc the shift might have been anticipated much earlier and an unmet social need identified

second part

Companies follows Corporate social responsibility because being socially and ethically responsible a company can attract customer, investors, top employees and help , environmental and labour activists. "it's no longer sufficient to turn a good profit, you have to show that you didn't make profit at expense of employees, the environment or society" (New society publishers,2002) and former senior manager of leadership development at IBM Canada. To take the advantage of Corporate social responsibility company uses agenda 21. Corporate Agenda 21 represents a global action plan to be taken by companies to advance their positioning in environmental and social sustainability and responsibility. Multiple existing corporate sustainability reports and global organizations similar in design to corporate 21, inter alia, the World Business Counsil for Sustainable development (WBCSD,1992), The UN global compact, and the international institute for sustainable development also helped frame corporate agenda 21 And its resulting organization corporate 21. Corporate 21 would work to reverse growing skepticism through the universal application of the planet-people-profit principles outlined in Corporate Agenda 21. By advancing these global ecological, social, and economic sustainability priorities, Corporate 21 members would cultivate increased trust among stakeholders. They would accomplish this by "not claiming green credentials, but standing next to others who support theirs" (Grant, 2007). In other words, individual business claims would take the back seat to more comprehensive and universally measurable aims and would practices agreed upon by the global business community. The resulting image will be further reinforced through major global marketing initiatives. "corporate 21" become synonymous with companies dedicated to advancing a sustainable and responsible global agenda. Image reversal will thus be accomplished through a universal approach backed by strong advertising campaigns, which will inform the public a t large of corporate 21's existence and aims. As Edwards (2005) in the sustainability revolution rightfully notes, " the tremendous marketing power of companies that creates mass appeal for soft drinks, toys, fast food and music could do wonders for sustainable values." This point cannot be emphasized enough and important key to this project lies in the business aspect of marketing , to bring corporate 21 impact to the level of slogans such as Nike's "Just Do It" in the global market place . In much the same way as organizations such as the European union have used eco-labeling to advance aims, Corporate 21 would use a similarly strong advertising platform to build public awareness of its socio-economic and environmentally sustainable actions. Through emphasis on advertising, Corporate 21 will gain what Michael B. Goodman in work with anyone anywhere. A guide to Global business refers to as "icon brand" status. As goodman (2006) notes, "since icons deal with universal dreams, they travel extremely well,". In much the same way, Corporate 21, albeit not a brand, will focus its efforts on universal dreams of environmental, social and economic stability. Corporate 21, through publicized sustainability efforts, will be able to rally the world around its aims, thus becoming an "Icon" organization. Second, healthy profit attainment will be at the heart of corporate agenda 21 principles and resulting initiatives. As Edwards (2005) opined in the sustainability revolution, "sustainable programs in business must demonstrate economic advantages". Thus, Corporate 21 initiatives will seek return on The Triple Bottom line Economic, social and environmental. As Jeffrey Immelt, board chairman, and CEO of general electric concluded, "if (using our platform to be a good citizen) wasn't good for business, we probably wouldn't do it")

good for business, we probably wouldn't do it" (Gunther, 2004). John Prestbo, president

of the Dow Jones Indexes also testifies to profitability in sustainability: "Companies Now business is finding that unmindful progress and resources both have their limits, which cannot be ignored if it hopes to survive. Another possible explanation as to why corporate contributions are not always recognized and lauded is the growing use of "green washing," where by business creates a false image of its products, services or practices as beneficial to the environment or socially responsible. This practice has significantly undermined Corporate social responsibility and sustainable business movements by greatly increasing the level of scepticism among consumers, non-profit organizations, the media, and the public at large. Whatever the reasons for lack of recognition where due, however, the fact remains that this general distrust creates a hurdle that a globally transparent approach may hope to overcome. Corporate 21 would work to reverse growing scepticism through the universal application of the planet, people, profit principles outlined in Corporate Agenda 21. By advancing these global ecological, social, and economic sustainability priorities, Corporate 21 members would cultivate increased trust among stakeholders. T hey would accomplish this by "not claiming green credentials, but standing next to others who support theirs" Through emphasis on advertising, Corporate 21 will gain what Michael B. Goodman in work with anyone anywhere a guide to global business refers to as "Icon bran" status. As Goodman(2006) notes, "since icons deal with universal dreams, they travel extremely well,". In much the same way, Corporate 21, albeit not a brand, will focus its efforts on universal dreams of environmental, social and economic stability. Corporate 21, therefore, through publicized sustainability efforts, will be able to rally the world around its aims, thus becoming an "Icon" organization. Second healthy profit attainment will be at the heart of Corporate Agenda 21 principles and resulting initiatives. As Edwards(2005) opined in the sustainability revolution, "sustainable programs in business must demonstrate economic advantages". Thus, corporate 21 initiatives will seek return on the triple bottom line economic , social and environmental. As Jeffrey immelt, board chairman, and CEO of General Electric concluded, "If using our platform to be a good citizen wasn't good for business, we probably wouldn't do it" (Gunther, 2004). John Prestbo, president of the Dow jones Indexes also testifies to profitability in sustainability: "Companies pursuing growth in the triple bottom line tend to display superior stock market performance with favourable risk return profiles" (Savitz and Weber,2006). Therefore, Corporate 21 should make no false claims, there will definitely be an underlying business imperative to this project. But it will be a responsible business imperative. What Savitz coined the "sustainability sweet spot"- "the place where the pursuit of the common good" (Savitz and Weber,2006,p.22) will be a common aim in initiative selection and action. Third, current consumption rates and trends cannot be sustained. As a result, business has seen a significant rise in related government mandates over the past few decades, for example the clean air act, the clean water act and the endangered species act in the USA and reach legislation in the EU. Studies support these mandates a recent KPMG report released in the financial times identified "four risks businesses face from climate change physical, regulatory, reputational and legal" (Financial Times,2008). The world is shrinking as a community, while growing exponentially as a population increased demands on resources are inevitable, but luckily that demand is also much more transparent. We can foresee with relative accuracy, for example just how many additional light bulbs will be needed in developing countries in the years to come (Friedman,2008). We cannot expect that progress to slow, just as we cannot purposefully curb progress in the developed world to compensate for this additional drain on resources. What we can do, as responsible business and world citizens, is look for ways to offset or reduce waste in our own operations before governmental mandates remind us of this necessity. An organization such as Corporate 21 can help us accomplish this goal. It may also indirectly set the regulatory agenda by foresseing these demands and limiting them. Fourth, Corporate 21 will provide and official forum for exclusive corporate partnerships. Leaders will come together in the spirit of non-competition to create a globally responsible business agenda. This ope-idea forum will allow Corporate 21 members, key corporate social responsibility and sustainability figures from multiple global corporation, to come together to share their experiences and ideas about what works and what does not in the struggle for sustainable business. As Robert Redford stated regarding his independent film company Sundance,"if you generate an atmosphere of freedom, where people are not frightend someone will steal their ideas, they engage with each other, they help out one another" (Zades,2003). It is crucial that we recognize the fact that issues and crises related to environmental and social degradation are not someone else's problem, but are in fact our collective problem-potentially the greatest challenge of our era. We cannot solve this problem alone. The greater our numbers and resources the greater our net of influence. Solutions here should not be regarded as trade secrets, but as opportunities to create solid partnerships to advance this global agenda. Fifth, insofar as healthy competition is vital to business, this collaborative opportunity would not imply a loss of competitive advantage. On the contrary, Corporate 21 could expect increased competition both within and outside its organization in two fundamental ways Members will be recognized individually for creative sustainable input contributions to Corporate 21, thus keeping idea competition alive, albeit transparent.

(1) Members will be recognized individually for creative sustainable input

contributions to Corporate 21, thus keeping idea competition alive, albeit

transparent.2 Moreover, this "atmosphere of freedom" among member businesses will give corporate 21 members a competitive edge over those businesses that are currently not engaged in the field, as well as those who are doing very little-opening up what Savitz and Weber(2006) identifies as markets "hidden in plain sight" in the developed world.

It is important that contributing members do not feel threatened by the open exchange of ideas that would be required to make this work. Corporate 21 would guarantee, therefore, individual recognition for creative input this could be accomplished, for ideas that would be required to make this work. Corporate 21 would guarantee, therefore individual recognition for creative input this could be accomplished, for example, through the use of recording devices and immediate group consensus on owner of output. Innovative ideas would thus be attributed to individual members, but allow use by the entire group. By sharing ideas, business would demonstrate a more universal, altruistic approach to CSR and sustainability which would increase the validity of its claims and intentions, thus positively engaging consumers, NGOS, and the media. The growing public support for businesses truly engaged in responsible practices would open up a market advantage for Corporate 21 member products and services. Finally by making partners out of competing global businesses, while maintaining a healthy competitive business environment, Corporate 21 would provide and innovative business organizational model. A recurrent buzz in the US corporate arena, innovative is considered crucial to sustainable business growth (Harvard Business review; Huston and Sakkab 2006 and Iyer and Davenport 2008). Among Business Week's "World's 25 most innovative companies," We can find six of the 12 businesses consulted for this study's planet, people, profit model (discussed in global planet, people, profit guidelines and initiatives) A Greener Apple (2008), Nokia (2007), Starbucks (2007), Dell (2008), and Target (2007) (Business Week,2006). Innovation is a reoccurring buzz word in the business world. By innovation movement, current research in the field intends "the transition from the knowledge Economy to the creativity economy" (Business week, 2005), finding new, innovative ways to do business as unusual. One such example of this was cited in Redford's independent film company, Sundance, the group was able to advance and innovate by bringing so many artists together in a spirit of non-competition. Corporate 21 would also truly represent Business as unusual-a new era in creative, out of the box thinking and non-competitive business cooperation toward a responsible global end.

Third part

1 > A number of scholars believe that "ethical investors" form a clientele that react to demonstrations of corporate social concern (Belkaoui,1984). Investors of this type would avoid particular investments entirely for ethical reasons. The socially responsive corporations are achieving a good return on equity over those companies which are less socially responsive. This is evidenced by the positive relationship between the company's reputation index and its return on equity.

2 Firms which economize heavily are thought of less socially responsible than other firms. Consequently, one expects those companie's reputation indices to be affected downward, and a negative relationship between REPUTATION INDEX and Down% is expected hence the first hypothesis H1 There exists a negative relatrionship between corporate social performance as measured by a company's reputation index and the level of organizational downsizing.

Discrimination- With respect to the second independent variable, it is the belief of this author that if a company distinguish against it employees based on sex, national origin, sexual orientation, age etc it should be viewed by various constituents as less socially responsible than a company with a "clean" standing in this area. Corporations are bound by law. This is a fact and one can say that laws are some of the most effective ways that society has of imposing its demands and making explicit the responsibility of corporations. If social responsibility, as it usually is , then a company can claim to be socially responsible and a good citizen to the extent that it keep its hands legally clean. If a company, on the other hand discriminates or is perceived by its employees to pursue some discriminatory practices, then this implies that the corporation has violated the law and is socially less responsible. In many cases, discrimination lawsuits are settled out of court, where the company pays an undisclosed amount of money to drop their case against it. It is adequate to state that reaching an out of court settlement is an a admission of fault on the part of the company involved. Consequently, corporations classified as discriminatory are those in which the employees won the lawsuit against the company, and or where the company reached an out of court settlement with the parties involved. The variable (DISCRM) is operationalized as a binary variable having a value of 1 when a proof of discrimination is found and a value of 0 otherwise. Data on this variable were collected from the Wall Street Journal Index under the heading" Discrimination" The second hypothesis is formulated: H2: There exists a negative relationship between a company's social performance as measured by its reputation index and that company's discriminatory practices.



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