A Study On A Stakeholder Approach Business Essay

A Study On A Stakeholder Approach subscriber line Essay How should corporate display bestrides vision with trends favouring an engagement with the good dimensions of business and stakeholder orientation, and with any say-so tensions of this engagement with sh beholder returns. Illustrate your analysis with recent specific examplesAll the work contained within is my possess unaided effort and conforms with the Universitys guidelines on plagiarism. This essay explores the consumption of the board, contrary stakeholder perspectives on ethics and offers practical insights for handling them. Shareholders are significant stakeholders that expect higher returns on their investment than with risk free savings. Yet schemes cannot exist in isolation operate with come out employees or acceptance by broader society. This human dimension periodically conflicts with the riches creation objective. Employees and society are also important stakeholders, holding different perspectives. M ilton Friedman (1982) Edward freeman (1984)The only group with a moral claim on the flock is the slew who own shares of the stock (shareholders) Many groups have a moral claim on the corporation that derives from the corporations potential to harm or benefit them (stakeholders)Freeman et al (2007) The dominance of investor rights, the diminishment of near, moral decisions question if we should consider value systems when assessing a business decision. The focus is on the conflicting demands of labor, government, investors, and managers in the hopes of resolving the inherent conflicts. As such, one group must dominate in order to win. Stakeholders contradictory values require consideration by the CEO to select an suspend strategical path.Stakeholder Group Interests Ethical Dimension Managers Power, prestige, compensation, legacy Potential conflicts of interest with shareholder value Customers Service, product theatrical role, value Not taking defective product to mart No pric e fixing, participating in cartels, no misleading advertisements Creditors Security of capital CEO whitethorn pursue overseas expansion policy putting funds at risk for unknown returns Suppliers Regular grantments, continuity of business Avoidance of put uping or soliciting bribes. Policy on acceptance of gifts. Shareholders Dividends, Capital growth, unspoiled Short term vs. long term strategy. Returns from low live countries may be through exploitation Government Taxes, Employment Tax avoidance schemes. subversion in developing nations may require payment of facilitation fees Society No harm to employees. Employment. Preservation of environment Movement of jobs to low cost countries and ensuring wellness and recourse recitals followed even if country has lower standard. The CEO/ focussing team are also stakeholders. Thus, tensions exist between the vigilance and the governance board, which have a fiducial duty to the principals (shareholders). The add-in performs due diligence to underwrite the appointed executive managing the firm acts appropriately in the interests of shareholders. An agency problem, where the goals of the shareholders (maximising returns) and the ( wariness) agent are in potential conflict is challenging for the principals to confirm the agent is acting appropriately. E.g. the CEO wishes to pursue an respectable approach in the supply chain that costs more(prenominal) than the genuine standard, that shareholders find unattractive due to lower returns. A strong board could experience tensions in power and influence such that non executive directors use their typeset to balance control in the interests of shareholders. The boards ability to replace the CEO is the ultimate threat, which should also ensure entry with any honourable statute. A firm with good governance wouldnt combine the roles of Board Chairman and CEO, due to conflict of interest. Non profit brass sections without shareholders also balance stakeholder co ncerns. morality, the moral principles that guide organizational behaviour are an empyrean where a strategic choice can be made to be a leader (active view) or merely respond to legislation (passive). Its the purview of management to determine the respectable position. The organization develops a commandment to support the practice. The ethical emplacement is likely to lead to diverse stakeholder opinions. For the ethical standard to be meaningful, consummation should be measured. Business results still matter but so do how they were achieved. The emergence of the triple bottom line concept, which states that measures of Corporate Social Responsibility (CSR) should be included equally with financial and opposite performance indicators has highlighted the ethical position of firms. Bartlett (1990)Concerns about shareholder value have begun to influence major strategic choices, and not always to the good. man its reasonable that shareholders expect a return on their investment , galore(postnominal) are short term holders looking for quick returns. With CEOs downstairs pressure to produce immediate results, fundamentally conflicting values emerge within the companions stakeholders. An ethical stance could cost more through sustainable sourcing, place in people and supporting auditing procedures. The additional depreciate burden may be considered too high in the on-going challenging economic climate. Abandoning ethical principles could be costly if Governments/trade associations levy fines for standards violations or adverse state-supportedity results in passing game of sales.Application of the Environment Strategy Competencies government (ESCO) framework, Heracleous (2009), identifies potential stakeholder tensions most ethical issues, which provide be discussed later. EnvironmentPolitical Increasing legislation on pollution advertising. Standards for minimum wages and safety. Social Growing concern for quality of life creates pressure to reduc e exploitation and conserve the environment/resources. Increasing number of pressure groups representing under privileged groups with special interests. Economic Globalisation of companies requiring many to operate in developing countries.Technological New technologies alter working practices such as automation reducing manual labour but equilibrate against employment loss. StrategyLow cost Outsourcing/off shoring to low cost countries requires thorough audit to meet ethical standards Differentiation merchandising ethical products at a ex deviate premium requires rigorous configuration programme. high standards may apply to belong to ethical funds or associations Core Competencies Service virtue Cost control Ethics as core value helps appreciate customer perspective. Ethical position may be higher cost Organisation Process Procedures, checklists or guidance on ethical issues available and training to support Seek synergies with ethical dimensions Culture Embed values in organ isation stories, management living the values. Align reward system with ethical results People Selection and retention through ethical values. Board competent to challenge management Holistic personnel development Ethics training Structure Ethics officer role, decisions on how to operate overseas may be influenced by take aim of control Society expects organizations not to harm employees or the environment. For profitability in the current business situation, organizations cant afford to have an ethical image at odds with the values of contemporary society. Its good for business to take ethical positions, which can directly influence consumers and also indirectly shape government perceptions of the patience to help avoid legislative hindrances. Porters (1985) bargaining power of consumers and suppliers of labour, are increasingly influenced by ethics. An ethical approach to employment through non discrimination and fair pay assists in the attraction and retention of talent th at avoids shape up associated costs. As ethics involves exercising judgement its not easy to t each(prenominal). Paine (2000) For many, running the numbers is a more enjoyable type of mental activity than deliberating about the issues. As the less favored cognitive capacities fall into disuse, they can be expected to deteriorate. This situates it harder for board directors to make sound decisions and also for firms to train personnel and codify. Yet this complexity is no excuse for not trying.The firm may target the ethically/socially sensible consumer segment. Firms with high active engagement are considered ethical organizations where their philosophy drives both what the accompany does and how it achieves it. This requires commitment to high standards, rigorous training and monitoring/publishing of data. circumspection evaluates the advantages of this approach and determines if its appropriate for the business. There may be significant consequences for failure to deliver p otential loss of status in ethical funds with associated loss of investment and potential decrease in mart capitalisation. Some ethical funds use shareholder pressure to bring about changes in company policy. Usually an active screening process will remove organizations from the fund that have behaved negatively with respect to core values such as subversive activity or exploitation.There are different ways to take stakeholder views into consideration when fashioning company decisions and it would be advisable to have principles to guide the process. Power brings influence, so large multinational companies in particular have high ethical/social impact. This can be harnessed as a force for good. However, whether it is the role of organisations is debatable. Increasingly consumers and businesses prefer to purchase from organisations with high ethical standards. Trudel and Cotte (2009) found consumers with high existing ethical expectations will allow a greater price premium punish ment is greater than the premium prepared to pay companies neednt be 100% ethical to be rewardedOrganisations pursuing an ethically responsible differentiation strategy could market at premium price provided consumers are educated about those products. Certain consumer groups may push for the entire range to be ethical which may step-up costs or otherwise prove challenging. Equally consumer expectations may shift and force 100%. Governance At lower levels, management should enforce the ethical principles that have been set. There are two possible approaches through compliance or integrity (value) based. Managers should explain the position with respect to issues that employees are likely to exhibit like accepting gifts that may be deemed inducements. If employees believe their ability to do their job is negatively impacted they might not support the principles. The organisation ought to ensure rewards align with desirable behaviour and there are consequences for non compliance. E xploration of ethical issuesWhen short term shortages exist, such as with swine flu medication an ethical parameter for management may surface as to whether to exploit the situation and ask higher prices. However, pharmaceutical companies elected not to, as they position themselves, as super ethical and apparent profiteering from vulnerable people would contradict their stated values. Public sensitivity to drug pricing is high. Yet pharmaceutical companies choose to obey the earn of the law with respect to low cost generics rather than its spirit, which allows them to continue to reap high financial returns for modest payoffs. While they claim to use the revenue for further research its arguably at odds with the greater benefit of society not all stakeholders are equal.MSN (2009) As part of its drive to cut health care costs, the Obama administration takes to stop payments pharmaceutical companies make to generic drug makers to delay the launch of cheap copies. Drug companies h ave successfully argued in apostrophize that their patents allow them to make the deals. Conformance with legislation is expected. Companies that violate rules are rightly punished. Pharmaceutical companies could find the Obama response is more severe than the prior value of efficacious compliance. MarketingThere are obvious ethical issues associated with advertising to children. Other marketing issues that may stimulate debate between management and the board are withholding entropy that may adversely influence purchase decisions or handling unhealthy products.The Independent (2009)French government bans all advertising of nimble phones to children under 12 is announced by the Environment Minister, and he will ban the sale of any phone designed to be used by those under six.The majority of children in Western society have mobiles and many firms have used pester power to their advantage. The introduction of legislation confirms societys distaste for the practice and good boards should have used environmental scanning to check over this trend emerge, proactively determine a favourable company stance and if necessary challenge management executives on their policy. Failure to clean up ones own area can lead to harsher standards when Governments are forced to act. The firm should recognise the importance of satisfying different stakeholders but agree that customers are vital, as it costs less to retain customers than to attract them. Reichheld (1994) found a 5% increase in customer faithfulness led to significant increases in profits (25 100%) through further purchases and recommendations, providing a cost effective marketing advantage. A strong ethical stance could be a strategic lever to generate consumer loyalty. triggers that are more environmentally friendly or ethically based are key for hereafter success to align with societys expectations and could also be a source of competitive advantage. Ethics may become a tiebreaker between competitors so co mpanies need to take in key customer values that drive purchase decisions. Ultimately consumer pressure may require ethical standards to become a core business driver rather than representative of the philanthropic values of the company. Tobacco firms have been heavily criticised for their advertising. BAT has gone beyond the requirements of legislation in many countries and is proud of their stance as evidenced on their website. Operating responsibly If a business is managing products which pose health risks, it is all the more important that it does so responsibly. Our International Marketing Standards (IMS) set down detailed guidance on all aspects of tobacco marketing. Central to the IMS is our long held commitment to ensuring that no marketing activity is directed at, or particularly appeals to, youth. The IMS are globally applicable. Adherence by our companies forms part of our regular internal audit process. We publicly report any instances of incomplete adherence each ye ar.Supply ChainThe Co operative website declares While other retailers have recently discovered the commercial benefits of an ethical approach to business, our beliefs define who we are. Were proud that our ethical approach started in 1844 when the Rochdale Pioneers established a set of values and principles in response to a society that was being exploited.Understandably the co op is the UKs longest assist of Fairtrade products. Fairtrade ensures producers operate sustainably and applies a premium for investment in education healthcare or farm improvements. UK Fairtrade sales have increased 4267% since 1998. (Fair trade website). The Co op also offers banking, which operates ethically including its investment portfolio. They experience little conflict between stakeholders positions as they trade on their philosophy. The Guardian reported Primark shoot three of its Indian habit suppliers after discovering they were using child labour to work long hours in poor conditions. Many or ganizations are pursuing cost cutting in the current economic climate. However, there are clearly ethical and monitoring issues related to outsourcing to low cost countries. Global trading now impacts even minor buying decisions. Financial concerns like tax efficiency and lower overheads are increasingly becoming a more important element of competitive (cost reduction) strategy. This puts pressure on management to ensure such sourcing is conducted to appropriate standards and a robust audit programme exists for overseas subcontractors. With management from a distance there are options for visibleness and control.The debate to exercise a high degree of control in local markets may mean elevated costs associated with establishing a subsidiary or joint venture. As the higher costs of ethical control may not be in the outperform financial interests of shareholders this conversation may gain the Board for discussion of congruence with the financial position and overall strategy. In so me countries managers preferentially employ family members. From an ethics perspective employment should be offered to the best qualified candidate. It can readily be envisaged that managers put pressure on employees to meet targets and this may give rise to ethical dilemmas. The tensions that arise could be just now whether to lie about the reason for a late delivery to appease a client. However, honesty is what most people desire and forcing this issue could damage the company reputation if it later came out, but is also likely to demoralise employees such that they disengage in other aspects of their work, standards fall and higher costs ensue. The board would want evidence that management are fostering the correct approach in the grow of the organisation so access to reports is fundamental. Mintzberg (1983) viewed shareholders control as inadequate as they are usually passive. However, Shell shareholders voted against the companys executive pay plan (BBC 2009). This increased shareholder activism was prompted by poor performance and high executive rewards were inappropriate in such circumstances. The board should have a compensation committee to recommend appropriate levels and be cognisant of public opinion. Stakeholders, including some shareholders consider excessive pay unethical. CorruptionGuardian (Dec 2008) Siemens Ex chairman and chief executive Heinrich von Pierer is under heavy suspicion of failing to stop the bribery when he and his board were informed. He has consistently denied any knowledge of corruption. Without naming names, the DoJ/SEC findings point the finger at the former board for failing in its fiducial duties. Siemens is already demanding compensation from 11 former executives. as part of the US settlement, Siemens made Theo Waigel, former German finance minister, its first compliance monitor.At Siemens organisational culture permitted participation in bribery as an acceptable standard of conduct. There was insufficient influence f rom the board to fully ingraft an ethical stance in the processes or daily culture. Nor did the board or management set an appropriate tone as a cultural credit entry point. The board had an obligation to prevent illegal practices. They should have realised the risks of non compliance and sought pertinent information if it was not offered. Siemens should have had a compliance role at senior management level. There is less flexibility in the response when its mandated than had they been proactive. The board didnt effectively monitor management on behalf of shareholders or evaluate the CEOs performance in an honest and open manner. As CEO and chairman roles were combined one person had a high degree influence. While this may have made it harder to challenge him they should have used their legitimate powers to do so. They failed the interests of shareholders and didnt perform their fiduciary role, which is serious dereliction of duty. Further they ignored their role of understanding a nd determining strategic risks and ensuring compliance with laws and regulations. Siemens competed aggressively and unfairly with their competitors. They risked Government intervention to free markets and financial loss. As illustrated the introduction of a code of ethics is not sufficient by itself to encourage ethical behaviour. Senior management should positively support a cultural change to foster the appropriate values, patterns of thinking and behaviour. As McKinney and Moore (2008) attest The mere existence of written codes of ethics cannot be expected to be the answer to the international bribery problem. Ethical carriage must be modeled in the corporation from the top down so that it permeates the entire organization.Organizations should utilise HR practices to recruit /select for promotion people who model the correct values, provide further training and align incentives to objectives around ethics. In extreme cases they may need to discipline people for non compliance. BP reports how many employees it has fired for violations.In some countries gifts/incentives to companies or government officials are prevalent. Even in civilised societies like Japan use gifts but a policy will help prevent confusion. Bribery, extortion and facilitation fees are more clearly delineated as unethical conduct. Firms need to determine their level of engagement, which may acknowledge it, exists and try to change practice from within or avoid altogether. Head office has to set the tone for overseas managers who may feel they should adopt the local custom because they see it as acceptable through continued exposure.Telegraph Mabey websiteMabey Johnson plead guilty to 10 charges of corruption and violating sanctions. The company tried to influence officials in Jamaica and Ghana when process for public contracts. It also paid more than 422,000 to Saddam Husseins regime. Mabey Johnson faces fines and will make reparations to Jamaica, Ghana and a UN programme which benefi ts Iraq. It has agreed to an internal compliance programme carried out by an SFO approved independent monitor. The SFOs director said These are serious offences and it is significant that Mabey Johnson has co operated with us to get to this landmark point. This is a model for other companies who want to self report corruption and have it dealt with quickly and fairly. Peter Lloyd, (new) managing director, said We deeply regret the past conduct of our company, and we have committed to making a fresh start. Staff have been retrained and sales and associated systems reviewed. The move follows the companys voluntary disclosure to the SFO of evidence that it may have engaged in corrupt practices. The information came to light in the course of an internal investigation by the companys solicitors.Five of Mabey Johnsons eight directors have stepped down since spring 2008 when the company told the SFO of the corruption offences.Excerpt from their code of ethics policy not to offer, give or accept bribes, excess hospitality or substantial favoursFailure to align with the environment is a greens mistake evidenced by Siemens and Mabey. Secondly the organisational elements of process, structure and culture are slender factors where misalignment highlights ethical tokenism saying one thing but honour another. Kerr (1975) found people respond to what they think others value so hoping for a positive outcome while rewarding contrary behaviour is a mismatch. Organisational culture can seriously undermine strategy and the pursuit of ethical objectives. If the reward system doesnt encourage ethical conduct and managers or board turn a blind eye to conduct in order to achieve business objectives its no surprise that employees follow suit. DiscussionThe companys strategic direction could incorporate an ethical position that becomes a differentiator. As value drivers are different for the various points on the ethical continuum, management makes conscious trade off decision s in selecting a particular strategy, which may be dependent on firm specific factors and their core competencies. There is also a balancing of ethics and economic logic. Innovation to meet new regulations or ethical demands by consumers can mean better products and services are developed, providing a competitive edge. Technology now exists to cycle rubber from training shoes into playground flooring. Conformance with legislation is the minimum expectation and companies that violate the rules increasingly face more acute and vocal penalties for unethical conduct such as disruption of shareholder meetings.Successful companies with formal ethics rankings have codes of conduct, CSR/ethics officers, demonstrate management support and publish results on the company scorecard (e.g. Boots). Practical checklists would be helpful for employees to record decisions and also enable effective monitoring to take place. Good governance requires moral character reference and mental fortitude to m ake difficult judgment based decisions. Boards are accountable and need to use their powers to enforce the appropriate actions. Companies could seek compensation for board failures to act so the acceptance of the role comes with responsibilities. Good stewardship of the companys ethical integrity is an important board role. RecommendationsBoards should proactively engage in strategic decisions, overseeing compliance and fulfilling their obligations. In addition, a mitigation plan to deal with disclosure of unethical behaviour is beneficial. Boards should take immediate action on any violations and review the circumstances for lessons learned. Scenario planning could recognise possible indignations so boards can prepare how to respond while maintaining the highest ethical position possible. In Siemens case they were defensive, reactive, and slow, taking action after the public were aware. Conversely at Mabey they uncovered the issue themselves through audit, contacted the authoriti es and took a proactive stance using their website to communicate the issue and resolution. They even obtained valuable third party endorsement for their actions from the Serious Fraud Office, who held them up as an example. Boards reviewing strategic choices need access to data and useful tools. They should use their legitimate authority to request information if its not forthcoming. As well as investigating misalignments highlighted in an ESCO model the board are advised to apply the Cultural Administrative geographic Economic (CAGE) distance framework (Brennan 2009) to proposals for operating overseas. This tool highlights the types of issues to be encountered and shows risks that might otherwise be overlooked in a traditional country portfolio analysis. The Board could then determine if operating in the proposed country is economically viable and doesnt compromise their ethics position. Detailed economic analysis may be necessary as overseas financial rewards are often over est imated the costs of corruption could offset lower production costs. Hills, G Fiske,L Mahmud, A (2009)Corruption adds expense throughout the corporate value chain and can lead to costly operational disruptions. Current studies suggest corruption adds more than 10 percent to the cost of doing business in many countries, and that moving business from a country with low levels of corruption to a country with medium to high levels is equivalent to a 20 percent tax.Cultural Administrative Geographic EconomicDiverse ethnic backgrounds in workforce potential discrimination issues. Society norms do not include basic safety or hygiene factors. Child labour prevalent Gifts accepted practice Political ambivalence may require organisation to pay facilitation fees Remoteness and time differences may risk diluting organisations values Different attitudes to quality more likely to approve defective or dangerous products. Higher costs of training employees in developing nations to internal standar ds. Higher potential for fines with less educated workforceWith so many aspects to ethics a critical limitation of this review is the range of dimensions covered. Conclusion The role of the board in oversight of organizations is critical to ensuring shareholders interests are appropriately reflected amongst diverse stakeholder views. While there may be some tensions, increasingly opinion on ethical issues is aligned and organizations are expected to operate to a moral code. Ethics are linguistic context specific as countries have different standards. Judgment on ethical issues isnt easy. Hence ethics programmes should cover overarching principles, and firms should have processes to train personnel and monitor results. everyplace time societys values can change and new trends emerge, so environmental scanning is important for all strategic positioning, including ethics. Boards should review this information and managements perspective on what opportunities these conditions create to set strategic direction. The pressure to perform financially has adversely influenced ethical decision making and embedding an ethical philosophy within the organisation is challenging, yet brings significant rewards.ReferencesBartlett CA, (1990), Facing up to Complexity, McKinsey Quarterly, Spring pp27 35Brennan (2009) Warwick MMBA Strategy Practice course notes delivered June 8 12.Freeman, RE ,(1984) Strategic Management A Stakeholder Approach, Pitman, Boston, MAFreeman, RE, Martin, K Parmar, B, (2007), Stakeholder Capitalism, Journal of Business Ethics, vol 74, pp303 314Friedman, M, (1982) Capitalism and Freedom, University of Chicago Press, IL Heracleous L, Wirtz J Pangarkar (2009) Flying High in a Competitive Industry Secrets of the worlds leading airline, McGraw Hill, Singapore, p172 Hills, G Fiske,L Mahmud, A, (May 2009), Anti corruption as Strategic CSR A call to action for corporations, Ethics Resource Center, accessed from www.ethics.org 1 Jul 2009Kerr, S (1995) On t he folly of rewarding A, while hoping for B, The Academy of Management Executive, Vol. 9, Iss. 1, pp 7 15McKinney, JA. 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