A Study On A Stakeholder Approach Business Essay

A Study On A Stakeholder Approach line of work Essay How should embodied menus deal with trends favouring an engagement with the unreserved dimensions of business and stakeholder orientation, and with any capableness tensions of this engagement with sh beholder returns. Illustrate your epitome with recent specific examplesAll the work contained within is my own unaided effort and conforms with the Universitys guidelines on plagiarism. This probe explores the intent of the board, assorted stakeholder positions on ethical motive and offers practical insights for handling them. Shargonholders are signifi crappert stakeholders that expect towering returns on their enthronisation than with risk free savings. Yet organisations can non pull through in isolation operate without employees or acceptance by broader society. This human dimension periodically conflicts with the wealth creation objective. Employees and society are as well important stakeholders, holding differe nt perspectives. Milton Friedman (1982) Edward Freeman (1984)The only group with a righteous claim on the corporation is the throng who own shares of the stock (shareholders) Many groups bedevil a moral claim on the corporation that derives from the corporations potentiality to misuse or benefit them (stakeholders)Freeman et al (2007) The dominance of investor rights, the diminishment of good, moral purposes misgiving if we should consider cherish 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 implicit in(p) conflicts. As such, one group must dominate in order to win. Stakeholders contradictory determine look consideration by the chief exe skitterive officer to select an appropriate strategic path.Stakeholder Group Interests respectable Dimension Managers business leader, prestige, compensation, legacy Potential conflicts of interest with shareholder value Customers Service, harvest quality, value Not taking defective product to market No expense fixing, participating in cartels, no misleading advertisements Creditors Security of capital CEO whitethorn pursue abroad expansion policy putting funds at risk for inscrutable returns Suppliers Regular payments, continuity of business Avoidance of paying or soliciting bribes. Policy on acceptance of gifts. Shareholders Dividends, neat growth, safe Short term vs. long term strategy. Returns from low terms countries may be finished growing Government Taxes, Employment Tax avoidance schemes. corruption in evolution nations may ask payment of facilitation fees Society No harm to employees. Employment. Preservation of environment Movement of jobs to low approach countries and ensuring health and safety practices followed even if coun drive has disappoint standard. The CEO/management team are also stakeholders. Thus, tensions exist between the management and the governance bo ard, which pull in a fiduciary duty to the principals (shareholders). The Board finishs due coating to visualize 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 (management) 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 honorable nest in the supply chain that costs more(prenominal)(prenominal) than the current standard, that shareholders find unattractive due to lower returns. A strong board could experience tensions in power and influence such that non executive handlers implement their position to balance control in the interests of shareholders. The boards ability to replace the CEO is the ultimate threat, which should also ensure deference with any ethical code. A firm with good governance wouldnt combine the roles of Board president and CEO , due to conflict of interest. Non profit organisations without shareholders also balance stakeholder concerns. Ethics, the moral principles that guide organizational behaviour are an area where a strategic choice can be made to be a loss leader (active spot) or absolutely respond to lawmaking (passive). Its the purview of management to determine the ethical position. The organization develops a code to support the practice. The ethical stance is in all standardisedlihood to lead to diverse stakeholder horizons. For the ethical standard to be meaningful, performance should be measured. Business results still matter but so do how they were achieved. The emergence of the tierce bottom line concept, which states that measures of Corporate Social Responsibility (CSR) should be included equally with monetary and some other performance indicators has talllighted the ethical position of firms. Bartlett (1990)Concerns about shareholder value reserve begun to influence major str ategic choices, and not always to the good.While its reasonable that shareholders expect a return on their investment, some are short term holders looking for quick returns. With CEOs under extort to produce immediate results, basically conflicting values emerge within the companys stakeholders. An ethical stance could cost more through sustainable sourcing, investing in people and supporting canvassing procedures. The additional expense burden may be considered overly high in the current challenging scotch climate. Abandoning ethical principles could be costly if Governments/trade associations levy fines for standards violations or adverse publicity results in loss of transplants.Application of the Environment Strategy Competencies Organisation (ESCO) framework, Heracleous (2009), identifies potential stakeholder tensions around ethical issues, which will be discussed later. EnvironmentPolitical Increasing legislation on contamination advertise. Standards for minimum wag es and safety. Social Growing concern for quality of life creates pressure to reduce exploitation and conserve the environment/resources. Increasing number of pressure groups representing under privileged groups with special interests. Economic globalisation of companies requiring many a(prenominal) to operate in developing countries.Technological New technologies alter working practices such as automation reducing manual force but balanced against employment loss. StrategyLow cost Outsourcing/off shoring to low cost countries withdraws thorough audit to meet ethical standards Differentiation marketing ethical products at a premium deals rigorous compliance programme. uplifteder standards may apply to break to ethical funds or associations Core Competencies Service excellence Cost control Ethics as core value helps appreciate customer perspective. Ethical position may be higher cost Organisation Process Procedures, checklists or pleader on ethical issues available and tr aining to support prove synergies with ethical dimensions Culture Embed values in organisation stories, management living the values. Align support system with ethical results People Selection and retention through ethical values. Board competent to contend management Holistic personnel development Ethics training Structure Ethics officer role, decisions on how to operate overseas may be influenced by level 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 motion-picture show at odds with the values of contemporary society. Its good for business to take ethical positions, which can straightaway influence consumers and also indirectly shape government perceptions of the industry to help avoid legislative hindrances. Porters (1985) talk terms power of consumers and suppliers of labour, are increasingly influenced by ethics. An ethical approach to employment through non discrimination and fresh pay assists in the attr accomplish and retention of talent that avoids gain ground associated costs. As ethics involves exercising discretion its not easy to teach. Paine (2000) For many, running the numbers is a more enjoyable type of mental natural action than deliberating about the issues. As the less favored cognitive capacities fall into disuse, they can be expected to deteriorate. This makes 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 aware consumer segment. Firms with high active engagement are considered ethical organizations where their philosophy drives both what the company does and how it achieves it. This requires commitment to high standards, rigorous training and monitoring/ publish of data. Management evaluates the advantages of this approach and determines if i ts appropriate for the business. There may be significant consequences for failure to deliver potential loss of status in ethical funds with associated loss of investment and potential decrease in market 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 stoopedion or exploitation.There are different ways to take stakeholder views into consideration when making 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) tack consumers with high existing ethical expectations will allow a greater price premium punishment is greater than the premium pay offd to pay companies drivent be blow% 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 consummate range to be ethical which may increase 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 club. There are both possible approaches through compliance or integrity (value) based. Managers should explain the position with respect to issues that employees are likely to face 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 e nsure rewards align with desirable behaviour and in that respect are consequences for non compliance. Exploration of ethical issuesWhen short term shortages exist, such as with swine flu medication an ethical debate for management may surface as to whether to exploit the situation and request higher prices. However, pharmaceutic companies elected not to, as they position themselves, as highly ethical and apparent profiteering from vulnerable people would contradict their stated values. Public sensitivity to drug pricing is high. Yet pharmaceutical companies choose to practise the letter 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 wants to stop payments pharmaceutical companies make to generic drug makers to delay the institute of cheap copies. Drug companies have success to the full argued in court 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 result is more severe than the prior value of legal 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 information that may adversely influence purchase decisions or handling unhealthy products.The In capable (2009)French government bans all advertising of mobile 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 horse opera society have mobiles and many firms have used pester power to their advantage. The introduction of legislation confirms societys uncongeniality for the practice and good boards should have used environmental scanning to see 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 full-blooded 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 loyalty led to significant increases in clams (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. Innovations that are more environmentally hearty or ethically based are key for future success to align with societys expectations and could also be a source of competitive advantage. Ethics may become a tiebreaker between competitors so companies make to understand 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 regal 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 enjoin at, or particularly appeals to, youth. The IMS are globally applicable. Adherence by our companies forms part o f our regular internal audit process. We publicly report any instances of incomplete adherence each year.Supply ChainThe Co surgical website declares While other retailers have recently discovered the commercial benefits of an ethical approach to business, our beliefs define who we are. Were noble-minded 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 supporter 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 fired three of its Indian clothing suppliers after(prenominal) discovering they were using child labour to work long hours in poor conditions. Many organizations 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 purchasing decisions. Financial concerns like tax cleverness 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 visibility and control.The debate to exercise a high period of control in local markets may mean elevated costs associated with establishing a subordinate or joint venture. As the higher costs of ethical control may not be in the best financial interests of shareholde rs this conversation may reach the Board for discussion of congruence with the financial position and overall strategy. In some 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 fail rise to ethical dilemmas. The tensions that arise could be simply 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 pervert 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 raising the correct approach in the culture of the organisation so access to reports is fundamental. Mintzberg (1983) viewed shareholders control as hapless as the y 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 unjustified pay unethical. CorruptionGuardian (Dec 2008) atomic number 16 Ex chairman and chief executive Heinrich von Pierer is under menacing suspicion of failing to stop the bribery when he and his board were informed. He has consistently denied any cognition of corruption. Without naming names, the DoJ/SEC findings point the finger at the former board for failing in its fiduciary 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 booking in bribery as an acceptable standard of conduct. There was insufficient influence from the board to fully embed an ethical stance in the processes or daily culture. Nor did the board or management set an appropriate tone as a cultural reference point. The board had an obligation to prevent unlawful 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 sharehold ers and didnt perform their fiduciary role, which is serious dereliction of duty. Further they ignored their role of understanding and 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 gain ground ethical behaviour. Senior management should positively support a cultural change to foster the appropriate values, patterns of meaning 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 behavior must be simulationed 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 go on exposure.Telegraph Mabey websiteMabey Johnson plead guilty to 10 charges of corruption and violating sanctions. The company tried to influence officials in Jamaica and gold coast when bidding for public contracts. It also paid more th an 422,000 to Saddam Husseins regime. Mabey Johnson faces fines and will make reparations to Jamaica, Ghana and a UN programme which benefits 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 profoundly 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 s tepped 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 common mistake evidenced by Siemens and Mabey. Secondly the organisational elements of process, structure and culture are fine factors where misalignment highlights ethical tokenism saying one thing but recognise 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 check an ethical position that becomes a di fferentiator. As value drivers are different for the various points on the ethical continuum, management makes conscious trade off decisions 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 work are developed, providing a competitive edge. Technology now exists to recycle rubber from training shoes into vacation spot flooring. Conformance with legislation is the minimum expectation and companies that violate the rules increasingly face more acute and song 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 recor d decisions and also enable effective monitoring to take place. Good governance requires moral fibre and mental fortitude to make 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 identify possible scandals 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 afte r the public were aware. Conversely at Mabey they uncovered the issue themselves through audit, contacted the authorities and took a proactive stance using their website to communicate the issue and resolution. They even obtained valuable 3rd party endorsement for their actions from the Serious artifice Office, who held them up as an example. Boards reviewing strategic choices need access to data and useful tools. They should use their legitimate berth 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(a) overseas. This tool highlights the types of issues to be encountered and shows risks that might otherwise be overlooked in a traditional demesne portfolio analysis. The Board could then determine if operating in the proposed country is economically viable and doesnt compr omise their ethics position. Detailed economic analysis may be required as overseas financial rewards are often over estimated 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. real studies suggest corruption adds more than 10 percent to the cost of doing business in many countries, and that base business from a country with low levels of corruption to a country with medium to high levels is akin 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 approv e defective or dangerous products. Higher costs of training employees in developing nations to internal standards. Higher potential for fines with less educated workforceWith so many aspects to ethics a vital 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 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. Over time societys values can change and new trends emerge, so environmental scanning is important for all strategic positioning, including ethics. Boards should review t his 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) strategical 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 co rporations, Ethics Resource Center, accessed from www.ethics.org 1 Jul 2009Kerr, S (1995) On the folly of rewarding A, while hoping for B, The Academy of Management Executive, Vol. 9, Iss. 1, pp 7 15McKinney, JA. Moore, CW., (2008), International Bribery Does a Written figure of Ethics Make a Difference in Perceptions of Business Professionals, Journal of Business Ethics, Vol. 79, Iss. 1/2 pp 103 12Mintzberg H, (1983), Power In and Around Organizations, Prentice Hall Englewood Cliffs, NJPaine, Lynn Sharp, (2000) Does Ethics Pay?, Business Ethics Quarterly, Vol. 10, Issue 1, pp319 330Porter, M, (1985), Competitive Advantage, The Free Press, NYReichheld FF, (1994), Loyalty and the renaissance of Marketing, Marketing Management, 2, 4 pp10 20Trudel, R Cotte J, (2009), Does It Pay to Be Good?, MIT Sloan Management Review, Vol. 50, Iss. 2, pp 61 68www.news.bbc.co.uk/1/hi/business/8058103.stm accessed 1 Jul 2009www.co operative.jobs/ourbusinesses/food/ethics accessed 1 Jul 2009www.ethic s.org accessed 7 July 2009 www.fairtrade.org.uk accessed 1 Jul 2009www.guardian.co.uk/business/2008/dec/16/regulation randomness scandal bribery accessed 7 Julywww.guardian.co.uk/world/2008/jun/22/india.humanrig