Stakeholders
Individuals or groups with an interest, claim or stake in the company and how well it performs.
Anyone in an exchange relationship with the company.
Internal Stakeholders
Stockholders and employees, including executive officers, other managers, and board members.
External Stakeholders
All other individuals and groups that have some claim on the company. (customers, suppliers, creditors (including banks and bondholders), governments, unions, local communities, and the general public).
Why Consider Stakeholders?
Stakeholders are key to the success of company
If their claims are not considered, stakeholders withdraw support
Stakeholders are in an exchange relationship with the company. They supply an organization with contributions in exchange for inducements.
Impact Analysis
Helps companies decide what stakeholders are most critical to survival.
Steps:
1. Identify stakeholders.
2. Identify stakeholders' interest and concerns.
3. As a result, identify what claims stakeholders are likely to make on the organization.
4. Identify
Mission Statement
Established the guiding principles for strategic decision making. (what the company does)
Who is being satisfied (what customers groups)
What is being satisfied (what customer needs
How customer needs are being satisfied (by what skills, knowledge, or com
Vision
Tells what the company would like to achieve
Intended to stretch a company by articulating its ambitions
Meant to be an attainable goal that will motivate employees
Values
State how managers and employees should conduct themselves, how they should do business, and what kind of organization they should build to help the company achieve its mission.
Organizational culture
The set of values, norms, and standards that control how employees work to achieve an organization's mission and goals
Goal
A precise and measurable desired future state that a company attempts to realize. The purpose is to specify with precision what must be done if the company to attain its mission or vision.
They are precise and measurable
They address crucial issues
They a
Risk Capital
Equity capital for which there is no guarantee that stockholders will ever recoup their investment or earn a decent return.
The Agency Problem
As agents for stockholders, managers should pursue strategies that maximize long run return for stockholders
Managers sometimes pursue strategies that are not in the interest of stockholders
Agency Theory offers an explanation for this behavior
Information asymmetry
Exists between the agent and the principal, because the agents almost always have more information
Governance mechanisms
Purpose is to monitor agents, evaluate their performance, and if necessary, take corrective action.
Poor Business Ethics
Early 2000's:
Scandals swept the corporate world
Self-interest seeking by senior executives. The accounting fraud masked massive debts and overcompensated top management
Failure of corporate governance mechanisms-Fraudulent activities were not exposed int
Empire building
Buying many new businesses in an attempt to increase the size of the company diversification.
Challenge for principles
(1) Shape the behavior of agents so they act in accordance with the goals set by principals
(2) Reduce the information asymmetry between agents and principals
(3) Develop mechanisms for removing agents who do not act in accordance with the goals of princi
Government Mechanisms
Purpose is to monitor agents, evaluate their performance, and take corrective action to reduce the scope and frequency of agency problems.
Goals is to align stockholder and management interest.
Board of Directors
members elected by shareholder to make sure business decisions are in the shareholder's best interest
reduce the asymmetry between stockholders and managers
Stock-based compensation
Pay-for-performance systems to reward ethical managers
Financial Statements
reports that give consistent, detailed, and accurate information about how efficiently and effectively the company is run
Takeover constraint
The threat arising from the risk of being acquired by another company
Nobless oblige
Honorable and benevolent behavior considered the responsibility of people of high (noble birth)
In a business setting, it is taken to mean benevolent behavior that is the moral responsibility of successful enterprise.
Self-dealing
occurs when managers find a way to feather their own nests with corporate monies
Information manipulation
occurs when managers use their control over corporate data to distort or hide information in order to enhance their own financial situation or the competitive position of the firm.
Anti-competitive behavior
Covers a range of actions aimed at harming actual or potential competitors, most often by using monopoly power, thereby enhancing the long-run prospects of the firm.
Opportunistic exploitation
Occurs when the managers of a firm seek to unilaterally rewrite terms of a contract with suppliers, buyers, or complement providers in a way that is more favorable to the firm, often using their power to force the revision through.
Substandard working conditions
Arise when manager underinvest in working conditions or pay employees below market rates, in order to reduce their costs of production.
Environment degradation
occurs when a firm takes actions that directly or indirectly result in pollution or other forms of environmental harm.
Corruption
Can arise in a business context when managers pay bribes or otherwise act unethically to gain access to lucrative business contracts.
Root of Unethical Behavior
A lack of separation between one's business ethics and personal ethics.
Failure to ask relevant questions.
Purely economical organizational culture
Pressure from top managers.
Unethical behavior by company leaders.
- It is not what leaders preach that mat
Hiring and Promotions
The act of hiring employees whose ethical principles are in line with the company's ethics
Organizational Culture
- The culture within the business that should explicitly articulate ethical values and place a strong emphasis on ethical behavior
Organizati
Organization Culture and Leadership
The business must explicitly articulate values that place a strong emphasis on ethical behavior. (code of ethics).
Building an organizational culture that places a high value on ethical behavior requires incentive and promotional systems that reward peopl
Decision-Making Processes
1. Does my decision fall within the accepted values or standards that typically apply in the organizational environment?
2. Am I willing to see the decision communicated to all stakeholders affected by it?
3. Would the people with whom I have a significan
Ethics Officers
Members who are responsible for making sure that all employees are trained to be ethically aware, that ethical considerations enter the business decision-making process, and that the company's code of ethics is adhered to.
Strong Corporate Governance
Independent board of directors that are willing to hold top mangers to account for self-dealing and are able to question information provided to them by managers
Moral Courage
Give "permission" to employees to exercise moral courage. Companies can also set up ethical hotlines, allowing employees to anonymously register a complain with a corporate ethics officer.
Stakeholders
Individuals or groups with an interest, claim or stake in the company and how well it performs.
Anyone in an exchange relationship with the company.
Internal Stakeholders
Stockholders and employees, including executive officers, other managers, and board members.
External Stakeholders
All other individuals and groups that have some claim on the company. (customers, suppliers, creditors (including banks and bondholders), governments, unions, local communities, and the general public).
Why Consider Stakeholders?
Stakeholders are key to the success of company
If their claims are not considered, stakeholders withdraw support
Stakeholders are in an exchange relationship with the company. They supply an organization with contributions in exchange for inducements.
Impact Analysis
Helps companies decide what stakeholders are most critical to survival.
Steps:
1. Identify stakeholders.
2. Identify stakeholders' interest and concerns.
3. As a result, identify what claims stakeholders are likely to make on the organization.
4. Identify
Mission Statement
Established the guiding principles for strategic decision making. (what the company does)
Who is being satisfied (what customers groups)
What is being satisfied (what customer needs
How customer needs are being satisfied (by what skills, knowledge, or com
Vision
Tells what the company would like to achieve
Intended to stretch a company by articulating its ambitions
Meant to be an attainable goal that will motivate employees
Values
State how managers and employees should conduct themselves, how they should do business, and what kind of organization they should build to help the company achieve its mission.
Organizational culture
The set of values, norms, and standards that control how employees work to achieve an organization's mission and goals
Goal
A precise and measurable desired future state that a company attempts to realize. The purpose is to specify with precision what must be done if the company to attain its mission or vision.
They are precise and measurable
They address crucial issues
They a
Risk Capital
Equity capital for which there is no guarantee that stockholders will ever recoup their investment or earn a decent return.
The Agency Problem
As agents for stockholders, managers should pursue strategies that maximize long run return for stockholders
Managers sometimes pursue strategies that are not in the interest of stockholders
Agency Theory offers an explanation for this behavior
Information asymmetry
Exists between the agent and the principal, because the agents almost always have more information
Governance mechanisms
Purpose is to monitor agents, evaluate their performance, and if necessary, take corrective action.
Poor Business Ethics
Early 2000's:
Scandals swept the corporate world
Self-interest seeking by senior executives. The accounting fraud masked massive debts and overcompensated top management
Failure of corporate governance mechanisms-Fraudulent activities were not exposed int
Empire building
Buying many new businesses in an attempt to increase the size of the company diversification.
Challenge for principles
(1) Shape the behavior of agents so they act in accordance with the goals set by principals
(2) Reduce the information asymmetry between agents and principals
(3) Develop mechanisms for removing agents who do not act in accordance with the goals of princi
Government Mechanisms
Purpose is to monitor agents, evaluate their performance, and take corrective action to reduce the scope and frequency of agency problems.
Goals is to align stockholder and management interest.
Board of Directors
members elected by shareholder to make sure business decisions are in the shareholder's best interest
reduce the asymmetry between stockholders and managers
Stock-based compensation
Pay-for-performance systems to reward ethical managers
Financial Statements
reports that give consistent, detailed, and accurate information about how efficiently and effectively the company is run
Takeover constraint
The threat arising from the risk of being acquired by another company
Nobless oblige
Honorable and benevolent behavior considered the responsibility of people of high (noble birth)
In a business setting, it is taken to mean benevolent behavior that is the moral responsibility of successful enterprise.
Self-dealing
occurs when managers find a way to feather their own nests with corporate monies
Information manipulation
occurs when managers use their control over corporate data to distort or hide information in order to enhance their own financial situation or the competitive position of the firm.
Anti-competitive behavior
Covers a range of actions aimed at harming actual or potential competitors, most often by using monopoly power, thereby enhancing the long-run prospects of the firm.
Opportunistic exploitation
Occurs when the managers of a firm seek to unilaterally rewrite terms of a contract with suppliers, buyers, or complement providers in a way that is more favorable to the firm, often using their power to force the revision through.
Substandard working conditions
Arise when manager underinvest in working conditions or pay employees below market rates, in order to reduce their costs of production.
Environment degradation
occurs when a firm takes actions that directly or indirectly result in pollution or other forms of environmental harm.
Corruption
Can arise in a business context when managers pay bribes or otherwise act unethically to gain access to lucrative business contracts.
Root of Unethical Behavior
A lack of separation between one's business ethics and personal ethics.
Failure to ask relevant questions.
Purely economical organizational culture
Pressure from top managers.
Unethical behavior by company leaders.
- It is not what leaders preach that mat
Hiring and Promotions
The act of hiring employees whose ethical principles are in line with the company's ethics
Organizational Culture
- The culture within the business that should explicitly articulate ethical values and place a strong emphasis on ethical behavior
Organizati
Organization Culture and Leadership
The business must explicitly articulate values that place a strong emphasis on ethical behavior. (code of ethics).
Building an organizational culture that places a high value on ethical behavior requires incentive and promotional systems that reward peopl
Decision-Making Processes
1. Does my decision fall within the accepted values or standards that typically apply in the organizational environment?
2. Am I willing to see the decision communicated to all stakeholders affected by it?
3. Would the people with whom I have a significan
Ethics Officers
Members who are responsible for making sure that all employees are trained to be ethically aware, that ethical considerations enter the business decision-making process, and that the company's code of ethics is adhered to.
Strong Corporate Governance
Independent board of directors that are willing to hold top mangers to account for self-dealing and are able to question information provided to them by managers
Moral Courage
Give "permission" to employees to exercise moral courage. Companies can also set up ethical hotlines, allowing employees to anonymously register a complain with a corporate ethics officer.