Figure 2-1Two in Three Companies Now Have Positive Ethics Cultures
Note: Due to rounding, some numbers do not equal 100 percent.
Source: Ethics Resource Center, National Business Ethics Survey of the U.S. Workforce (Arlington, VI: Ethics Resource Center, 2014), 17.
Secondary stakeholders do not typically engage directly in transactions with a company and are therefore not essential to its survival. These include the media, trade associations, and special interest groups like the American Association of Retired People (AARP), a special interest group working to support retirees’ rights such as health care benefits. Both primary and secondary stakeholders embrace specific values and standards that dictate acceptable and unacceptable corporate behaviors. It is important for managers to recognize that while primary groups may present more day-to-day concerns, secondary groups cannot be ignored or given less consideration in the ethical decision making process because they have legitimacy. Sometimes a secondary stakeholder can have as much—if not more—power to influence outcomes than a primary stakeholder. Table 2-1 shows a select list of issues important to various stakeholder groups and identifies how corporations impact these issues.
Table 2-1
Examples of Stakeholder Issues and Associated Measures of Corporate Impacts
Stakeholder Groups and Issues
Potential Indicators of Corporate Impact on These Issues
Employees
1.
Compensation and benefits
•
Ratio of lowest wage to national legal minimum or to local cost of living
2.
Training and development
•
Changes in average years of training of employees
3.
Employee diversity
•
Percentages of employees from different genders and races
4.
Occupational health and safety
•
Standard injury rates and absentee rates
5.
Communications with management
•
Availability of open-door policies or ombudsmen
Customers
1.
Product safety and quality
•
Number of product recalls over time
2.
Management of customer complaints
•
Number of customer complaints and availability of procedures to answer them
3.
Services to disabled customers
•
Availability and nature of measures taken to ensure services to disabled customers
Investors
1.
Transparency of shareholder communications
•
Availability of procedures to inform shareholders about corporate activities
2.
Shareholder rights
•
Frequency and type of litigation involving violations of shareholder rights
Suppliers
1.
Encouraging suppliers in developing countries
•
Prices offered to suppliers in developed countries in comparison to countries’ other suppliers
2.
Encouraging minority suppliers
•
Percentage of minority suppliers
Community
1.
Public health and safety protection
•
Availability of emergency response plan
2.
Conservation of energy and materials
•
Data on reduction of waste produced and comparison to industry
3.
Donations and support of local organizations
•
Annual employee time spent in community service
Environmental Groups
1.
Minimizing the use of energy
•
Amount of electricity purchased; percentage of “green” electricity
2.
Minimizing emissions and waste
•
Type, amount, and designation of waste generated
3.
Minimizing adverse environmental effects of goods and services
•
Percentage of product weight reclaimed after use
Figure 2-2 offers a conceptualization of the relationship between businesses and stakeholders. In this stakeholder interaction model , there are reciprocal relationships between the firm and a host of stakeholders. In addition to the fundamental input of investors, employees, and suppliers, this approach recognizes other stakeholders and explicitly acknowledges that dialogue exists between a firm’s internal and external environments. Corporate social responsibility actions that put employees at the center of activities gain the support of both external and internal stakeholders.
Figure 2-2Interactions between a Company and Its Primary and Secondary Stakeholders
Source: Adapted from Isabelle Maignan, 0. C. Ferrell, and Linda Ferrell, “A Stakeholder Model for Implementing Social Responsibility in Marketing,” European Journal of Marketing 39 (2005): 956–977.
2-1bA Stakeholder Orientation
The degree to which a firm understands and addresses stakeholder demands can be referred to as a stakeholder orientation . A stakeholder orientation involves “activities and processes within a system of social institutions that facilitate and maintain value through exchange relationships with multiple stakeholders.” This orientation comprises three sets of activities:
1. the organization-wide generation of data about stakeholder groups and assessment of the firm’s effects on these groups,
2. the distribution of this information throughout the firm, and
3. the responsiveness of the organization as a whole to this information.
Generating data about stakeholders begins with identifying the stakeholders relevant to the firm. Relevant stakeholder groups should be analyzed on the basis of the power each enjoys, as well as by the ties between them and the company. Next, the firm should identify the concerns about the business that are relevant to each stakeholder group. This information is derived from formal research, including surveys, focus groups, Internet searches, and press reviews. For example, Shell has an online discussion forum that invites website visitors to express their opinions on the implications of the company’s activities. Employees and managers also generate this information informally as they carry out their daily activities. For example, purchasing managers know about suppliers’ demands, public relations executives are tuned into the media, legal counselors are aware of the regulatory environment, financial executives connect to investors, sales representatives are in touch with customers, and human resources advisers communicate directly with employees. Finally, companies should evaluate their impact on the issues of importance to the various stakeholders they identify. While shareholders desire strong profitability and growth, societal stakeholders have needs extending beyond these two requirements.
Given the variety of employees involved in the generation of information about stakeholders, it is essential the information gathered be circulated throughout the firm. The firm must facilitate the communication of information about the nature of relevant stakeholder communities, concerns, and impact of the firm on these issues to all members of the organization. The dissemination of stakeholder intelligence can be formally organized through newsletters and internal information forums. Companies should use these activities to communicate the company’s code of conduct to employees. Such communication informs employees about appropriate and inappropriate conduct within the organization. Research suggests employees in organizations with ethical codes of conduct are less accepting of potential misconduct toward stakeholders. Ethical codes are of little use if they are not effectively communicated throughout the firm.
A stakeholder orientation is not complete without including activities that address stakeholder issues. For example, manufacturers in some countries have been under attack for product quality issues and safety violations. Nonprofit groups attacked Apple for alleged abuse by one of its suppliers. According to the groups, workers at a Chinese factory run by Taiwan-based Catcher Technology Co. handled toxic chemicals without protective gear. The factory was also accused of dumping toxic chemicals into a sewer that leads into a river. As the most powerful member of the supply chain, Apple is expected to promote safety and workers’ rights throughout its distribution network.
The responsiveness of an organization as a whole to stakeholder intelligence consists of the initiatives the firm adopts to ensure it abides by or exceeds stakeholder expectations and has a positive impact on stakeholder issues. Such activities are likely specific to a particular stakeholder group (for example, family friendly work schedules) or to a particular stakeholder issue (such as pollution reduction programs). These responsive processes typically involve participation of the concerned stakeholder groups. Nestle, for example, adopted tougher standards for its suppliers that included eliminating gestation crates for female pigs after animal rights advocacy groups pushed for reform.
A stakeholder orientation can be viewed as a continuum in that firms are likely to adopt the concept to varying degrees. To gauge a firm’s stakeholder orientation, it is necessary to evaluate the extent the firm adopts behaviors that typify the generation and dissemination of stakeholder intelligence and the responsiveness to this intelligence. A given organization may generate and disseminate more intelligence about some stakeholder communities than others and respond accordingly.
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