3

Defining and Prioritizing Stakeholders

Figure 3.1 Starbucks, based in Seattle, Washington, is a company with more than 250,000 employees and
locations across the globe. It directly affects countless stakeholders beyond its institutional investors and
millions of customers, from coffee growers and milk producers, to urban and suburban communities and
developers, to local, state, and national governments. (credit: modification of “StarbucksVaughanMills” by
“Raysonho”/Wikimedia Commons, CC0)

Chapter Outline
3.1 Adopting a Stakeholder Orientation
3.2 Weighing Stakeholder Claims
3.3 Ethical Decision-Making and Prioritizing Stakeholders
3.4 Corporate Social Responsibility (CSR)

Introduction
In May 2018, in the wake of a global uproar after two black men in a Philadelphia Starbucks were arrested
while awaiting a friend, Starbucks closed its approximately eight thousand U.S. stores to conduct racial bias
training (Figure 3.1).1 The company also officially changed its policy to allow people to visit its stores and
restrooms without making a purchase, hoping to avoid more incidents like this one (sparked by a white
employee calling 9-1-1 when the men did not buy anything). The two men who were arrested eventually
settled with Starbucks for an undisclosed sum.

As one of the largest beverage retailers in the world, Starbucks directly affects countless stakeholders: food
and drink distributors; coffee and tea growers; milk producers; urban and suburban communities; local, state,
and national governments; more than 300,000 employees and 1,600 institutional investors; and millions of
customers.2 The company’s decision to close its U.S. stores for half a day was financially costly, and the
training session could never fully solve the problem of conscious or unconscious bias. But the firm believed it
was the right thing to do. Why does it matter to its stakeholders what Starbucks does? What role do
68 Chapter 3 Defining and Prioritizing Stakeholders

stakeholders play in a company’s decisions about its ethical behavior, and why?

3.1 Adopting a Stakeholder Orientation

Learning Objectives
By the end of this section, you will be able to:

• Identify key types of business-stakeholder relationships

• Explain why laws do not dictate every ethical responsibility a company may owe key stakeholders
• Discuss why stakeholders’ welfare must be at the heart of ethical business decisions

Have you ever had a stake in a decision someone else was making? Depending on your relationship with that
person and your level of interest in the decision, you may have tried to ensure that the choice made was in
your best interests. Understanding your somewhat analogous role as a stakeholder in businesses large and
small, local and global, will help you realize the value of prioritizing stakeholders in your own professional life
and business decisions.

Stakeholder Relationships
Many individuals and groups inside and outside a business have an interest in the way it brings products or
services to market to turn a profit. These stakeholders include customers, clients, employees, shareholders,
communities, the environment, the government, and the media (traditional and social), among others. All
stakeholders should be considered essential to a business, but not all have equal priority. Different groups of
stakeholders carry different weights with decision makers in companies and assert varying levels of interest
and influence. As we examine their roles, consider how an organization benefits by working with its
stakeholders and how it may benefit from encouraging stakeholders to work together to promote their mutual
interests.

What are the roles of an organization’s many stakeholders? We begin with the internal stakeholders. The
board of directors—in a company large enough to have one—is responsible for defining and evaluating the
ongoing mission of a business after its founding. It broadly oversees decisions about the mission and direction
of the business, the products or services offered, the markets in which the business will operate, and salary
and benefits for the senior officers of the organization. The board also sets goals for income and profitability.
Its most important function is to select and hire the chief executive officer (CEO) or president. The CEO is
usually the only employee who reports directly to the board of directors, and he or she is charged with
implementing the policies the board sets and consulting with them on significant issues pertaining to the
company, such as a dramatic shift in products or services offered or discussions to acquire—or be acquired
by—another firm.

In turn, the CEO hires executives to lead initiatives and carry out procedures in the various functional areas of
the business, such as finance, sales and marketing, public relations, manufacturing, quality control, human
resources (sometimes called human capital), accounting, and legal compliance. Employees in these areas are
internal stakeholders in the success of both their division and the larger corporation. Some interact with the
outside environment in which the business operates and serve as contact points for external stakeholders,
such as media and government, as well.

In terms of external stakeholders for a business, customers certainly are an essential group. They need to be
able to trust that products and services are backed by the integrity of the company. They also provide reviews,
positive or negative, and referrals. Customers’ perceptions of the business matter, too. Those who learn that a

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Chapter 3 Defining and Prioritizing Stakeholders 69

business is not treating employees fairly, for instance, may reconsider their loyalty or even boycott the
business to try to influence change in the organization. Stakeholder relationships, good and bad, can have
compound effects, particularly when social media can spread word of unethical behavior quickly and widely.

Key external stakeholders are usually those outside of the organization who most directly influence a
business’s bottom line and hold power over the business. Besides customers and clients, suppliers have a
great deal of influence and command a great deal of attention from businesses of all sizes. Governments hold
power through regulatory bodies, from federal agencies such as the Environmental Protection Agency to the
local planning and zoning boards of the communities in which businesses exist. These latter groups often
exercise influence over the physical spaces where businesses work and try to grow (Figure 3.2).

Figure 3.2 Maryland’s former Lieutenant Governor, Anthony Brown, hosts a 2014 small-business
stakeholder roundtable discussion. Governments consider local businesses to be stakeholders in economic
decision-making. Small businesses have their own local and regional stakeholders, who are influenced by the
products and services they offer and the decisions they make in building their businesses. (credit: modification
of “Lt. Governor Host MBE_Small Business Stakeholders Roundtable Discussion” by “Maryland GovPics”/Flickr,
CC BY 2.0)

Businesses are responsible to their stakeholders. Every purchase of a product or a service carries with it a sort
of promise. Buyers promise that their money or credit is good, and businesses promise a level of quality that
will deliver what is advertised. The relationship can quickly get more complex, though. Stakeholders also may
demand that the businesses they patronize give back to the local community or protect the global
environment while developing their products or providing services. Employees may demand a certain level of
remuneration for their work. Governments demand that companies comply with laws, and buyers in business-
to-business exchanges (B2B, in business jargon) demand not only high-quality products and services but on-
time delivery and responsive maintenance and service should something go wrong. Meeting core obligations
to stakeholders is primarily about delivering good products and services, but it is also about communicating
and preparing for potential problems, whether from within the company or from external circumstances like a
natural disaster.

Ethical Responsibilities Often Extend Beyond Legal Requirements

We have seen that stakeholders include the people and entities invested in and influential in the success of an
organization. It is also true that stakeholders can have multiple, and simultaneous, roles. For example, an
70 Chapter 3 Defining and Prioritizing Stakeholders

employee can also be a customer and a stockholder.

Any transaction between a stakeholder and a business organization may appear finite. For instance, after you
purchase something from a store you leave and go home. But your relationship with the store probably
continues. You might want to repurchase the item or ask a question about a warranty. The store may have
collected future marketing data about you and your purchases through its customer loyalty program or your
use of a credit card.

Samsung, based in South Korea, is a large, multinational corporation that makes a variety of products,
including household appliances such as washers and dryers. When Samsung’s washers developed a problem
with the spin cycle in 2017, the company warned customers that the machines could become unbalanced and
tip over, and that children should be kept away. The problem persisted, however, and Samsung’s responsibility
and legal exposure increased. The eventual fix was to offer all owners of the particular washer model a full
refund even if the customer did not have a complaint, and to offer free pick up of the machine as well. The
recall covered almost three million washers, which ranged in price from $450 to $1500. By choosing to spend
billions to rectify the problem, Samsung limited its legal exposure to potential lawsuits, settlement of which
would likely have far exceeded the refunds it paid. This example demonstrates the weight of the implicit social
contract between a company and its stakeholders and the potential impact on the bottom line if that contract
is broken.

When a product does not live up to its maker’s claims for whatever reason, the manufacturer needs to correct
the problem to retain or regain customers’ trust. Without this trust, the interdependence between the
company and its stakeholders can fail. By choosing to recognize and repay its customer stakeholders,
Samsung acted at an ethical maximum, taking the strongest possible action to behave ethically in a given
situation. An ethical minimum, or the least a company might do that complies with the law, would have been
to offer the warning and nothing more. This may have been a defensible position in court, but the warning
might not have reached all purchasers of the defective machine and many children could have been hurt.

Each case of a faulty product or poorly delivered service is different. If laws reach above a minimum standard,
they can grow cumbersome and impede business growth. If businesses adhere only to laws and ethical
minimums, however, they can develop poor reputations and people can be harmed. The ethically minimal
course of action is not illegal or necessarily unethical, but the company choosing it will have failed to recognize
the value of its customers.

CASES FROM THE REAL WORLD

Amazon Sets a Demanding Pace on the Job

In a visit to an Amazon distribution center, a group of business students and their professors met with
the general manager.3 After taking them on an extensive tour of the five-acre facility, the general
manager commented on the slowness of the visitors’ walking pace. He described the Amazon Pace, a
fast, aggressive walk, and confirmed that the average employee walks eight or nine miles during a shift.
These employees are called “pickers,” and their task is to fill an order and deliver it to the processing and
packing center as quickly as possible. The design of the center is a trade secret that results in a random
distribution of products. Therefore, the picker has to cover a number of directions and distances while
filling an order. Those who cannot keep up the pace are usually let go, just as would be those who steal.

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Chapter 3 Defining and Prioritizing Stakeholders 71

Critical Thinking

• Does the requirement to walk an average of eight or nine miles at a fast pace every day strike you as
a reasonable expectation for employees at Amazon, or any other workplace? Why or why not?
Should a company that wants to impose this requirement tell job applicants beforehand?
• Is it ethical for customers to patronize a company that imposes this kind of requirement on its
employees? And if not, what other choices do customers have and what can they do about it?
• The center’s general manager may have been exaggerating about the Amazon Pace to impress
upon his visitors how quickly and nimbly pickers fill customer orders for the company. If not,
however, is such a pace sustainable without the risk of physiological and psychological stress?

The law only partly captures the ethical obligations firms owe their stakeholders. One way many companies go
beyond the legally required minimum as employers is to offer lavish amenities—that is, resources made
available to employees in addition to wages, salary, and other standard benefits. They include such offerings
as on-site exercise rooms and other services, company discounts, complimentary or subsidized snacks or
meals, and the opportunity to buy stock in the company at a discounted price. Astute business leaders see the
increased costs of amenities as an investment in retaining employees as long-term stakeholders. Stakeholder
loyalty within and outside the firm is essential in sustaining any business venture, no matter how small or
large.

W H AT W O U L D Y O U D O ?

The Social Responsibility of Business

There are two opposing views about how businesses, and large publicly held corporations in particular,
should approach ethics and social responsibility. One view holds that businesses should behave ethically
within the marketplace but concern themselves only with serving shareholders and other investors. This
view places economic considerations above all others. The other view is that stakeholders are not the
means to the end (profit) but are ends in and of themselves as human beings (see our earlier discussion
of deontological ethics in Ethics from Antiquity to the Present). Thus, the social responsibility of
business view is that being responsible to customers, employees, and a host of other stakeholders
should be not only a corporate concern but central to a business’s mission. In essence, this view places a
premium on the careful consideration of stakeholders. Consider what approach you might take if you
were the CEO of a multinational corporation.

Critical Thinking

• Would your business be driven primarily by a particular social mission or simply by economics?
• How do you think stakeholder relationships would influence your approach to business? Why?
72 Chapter 3 Defining and Prioritizing Stakeholders

LINK TO LEARNING

Read a detailed consideration of the social responsibility of business in the form of polite but fiercely
oppositional correspondence between economist Milton Friedman and John Mackey, founder and CEO of
Whole Foods (https://openstax.org/l/53WholeFoods) to learn more.

One challenge for any organization’s managers is that not all stakeholders agree on where the company
should strive to land when it chooses between ethical minimums and maximums. Take stockholders, for
example. Logically, most stockholders are interested in maximizing the return on their investment in the firm,
which earns profit for them in the form of dividends. Lynn Stout, late Professor of Law at Cornell Law School,
described the role of shareholder in this way:

“Shareholders as a class want companies to be able to treat their stakeholders well, because this
encourages employee and customer loyalty . . . Yet individual shareholders can profit from pushing
boards to exploit committed stakeholders—say, by threatening to outsource jobs unless employees
agree to lower wages, or refusing to support products customers have come to rely on unless they
buy expensive new products as well. In the long run, such corporate opportunism makes it difficult
for companies to attract employee and customer loyalty in the first place.” 4

Essential to Stout’s point is that shareholders do not necessarily behave as a class. Some will want to maximize
their investment even at a cost to other stakeholders. Some may want to extend beyond the legal minimum
and seek a long-term perspective on profit maximization, demanding better treatment of stakeholders to
maximize future potential value and to do more good than harm.

In the long run, stakeholder welfare must be kept at the heart of each company’s business operations for
these significant, twin reasons: It is the right thing to do and it is good for business. Still, if managers need
additional incentive to act on the basis of policies that benefit stakeholders, it is useful to recall that
stakeholders who believe their interests have been ignored will readily make their displeasure known, both to
company management and to the much wider community of social media.

3.2 Weighing Stakeholder Claims

Learning Objectives
By the end of this section, you will be able to:

• Explain why stakeholders’ claims vary in importance

• Categorize stakeholders to better understand their claims

As we saw earlier in this chapter and in Why Ethics Matter, the law only partially captures the ethical
obligations firms owe their stakeholders. A particular stakeholder claim, that is, any given stakeholder’s
interest in a business decision, may therefore challenge the ethical stance even of an organization that
complies with the law. For example, some community members may oppose the opening of a “big box” chain
store that threatens the livelihoods of small-business owners in the area, while shareholders, creditors,
employees, and consumers within the nearby neighborhoods support it as an additional opportunity for profit
and quality goods at competitive prices. Conflicts like this illustrate how complicated prioritizing stakeholder
claims can be, particularly when there are ethical pros and cons on both sides. A big box store may offer a

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Chapter 3 Defining and Prioritizing Stakeholders 73

wider selection of goods at lower prices, for example, and create jobs for teens and part-time workers.

A related theme to recall is that even though all stakeholder claims are important for a company to
acknowledge, not all claims are of equal importance. Most business leaders appreciate that a company’s key
stakeholders are essential to its efficient operation and growth, and that its overall mission, goals, and limited
resources will force its managers to make choices by prioritizing stakeholders’ needs. In this section, we look
at ethical ways in which business managers can begin to make those decisions.

The Ethical Basis of Stakeholders’ Claims

Stakeholder claims vary in their significance for a firm. According to Donaldson and Preston,5 there are three
theoretical approaches to considering stakeholder claims: a descriptive approach, an instrumental approach,
and a normative approach. The descriptive approach sees the company as composed of various stakeholder
groups, each with its own interests. These interests impinge on the company to a greater or lesser degree;
thus, the main point of the descriptive approach is to develop the most accurate model and act on it in ways
that weigh and balance these interests as fairly as possible. The instrumental approach connects stakeholder
management and financial outcomes, proposing that appropriate management of stakeholder interests is
important and useful because it contributes to a positive bottom line.

The normative approach considers stakeholders as ends in themselves rather than simply as means to
achieve better financial results. According to Donaldson and Preston, in the normative approach “the interests
of all stakeholders are of intrinsic value. That is, each group of stakeholders merits consideration for its own
sake and not merely because of its ability to further the interests of some other group, such as the
shareowners.”6 This approach is the one that most appropriately represents ethical stakeholder theory,
according to Donaldson and Preston, and it places an objective consideration of all stakeholders’ interests
ahead of fiscal considerations alone.

We can also view these three approaches to stakeholders as occupying levels of increasing
comprehensiveness. At the lowest level is the descriptive approach, which merely sets the stage for
consideration of stakeholder claims and concerns. The instrumental aspect combines a consideration for profit
along with other stakeholder concerns and attempts to balance these interests with particular attention to the
way the company and its shareholders might be affected. The normative approach takes the most
comprehensive view of the organization and its stakeholders, putting the focus squarely on stakeholders.
Although Donaldson and Preston stress that the descriptive and instrumental approaches are integral to
stakeholder theory, they contend that the fundamental basis of stakeholder theory is normative.7

Of course, these are theoretical approaches, and the extent to which any of them is implemented in a given
company will vary. But unfortunately, the decision to disconnect from stakeholders is both real and expensive
for a corporation. A 2005 survey of customers of 362 companies is demonstrative: “Only 8% of customers
described their experience as ‘superior.’ However, 80% of the companies surveyed believe that the experience
they have been providing is indeed superior.”8 Another study found significant links between levels of
customer satisfaction and a firm’s performance, including rates of retention, overall revenue, and stock price.9
Enlightened companies spend time and resources testing their stakeholders’ concerns and eliciting their
feedback while there is time to incorporate it into management decisions.
74 Chapter 3 Defining and Prioritizing Stakeholders

LINK TO LEARNING

This article discusses a recent video showing United Airlines removing ticketed, seated passengers from
a plane to make room for four of its employees who needed to fly to another airport
(https://openstax.org/l/53VideoUnited) igniting debate over company policies and how they are
implemented. This related article about the United Airlines overbooking situation (https://openstax.org/
l/53United) provides some more information.

Upon being asked to deplane and take a later flight, should a customer who has booked the fare for the
earlier flight have the right to refuse? Which stakeholder(s) do you think United valued more in this
incident? Why?

Airlines overbook to ensure that despite any no-shows or cancellations, any given flight will have as
many occupied seats as possible, because an unoccupied seat represents lost revenue. In terms of
valuing stakeholders, does this strategy make sense to you? Why or why not?

A classic example of negative consumer reaction is the response that met Ford Motor Company’s 1958
introduction of the Edsel (Figure 3.3). Ford had done extensive research to create a luxury family sedan aimed
at an upper-income segment of the market then dominated by Buick, Oldsmobile, and Chrysler. However, the
market did not identify Ford products with high status, and the Edsel did not last three years in the
marketplace. Ford failed to serve the investors, suppliers, and employees who depended on the company for
their livelihoods. Of course, the corporation survived that failure, perhaps because it learned the lessons of
stakeholder management the hard way.

Figure 3.3 This Edsel Pacer was manufactured in 1958, the first year of production of the ill-fated Ford
model, which ceased production in November 1959. (credit: modification of “Edsel Pacer 2-door Hardtop 1958
front” by “Redsimon”/Wikimedia Commons, CC BY 2.5)

Entertainers too (as well as their clubs, venues, and studios) are sensitive to the views of their
stakeholders—that is, fans and the consuming public as a whole. Scarlett Johansson recently signed on to play
the role of Dante “Tex” Gill in a biographical film (or “biopic”). Gill had been identified as female at birth but
spent much of his professional career self-identifying as male. When the casting was announced in July 2018, it
provoked a controversy among transgender rights groups, and within a few days, Johansson announced she

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Chapter 3 Defining and Prioritizing Stakeholders 75

had withdrawn from the role.10 “In light of recent ethical questions raised surrounding my casting as Dante
Tex Gill, I have decided to respectfully withdraw my participation in the project. . . . While I would have loved
the opportunity to bring Dante’s story and transition to life, I understand why many feel he should be
portrayed by a transgender person, and I am thankful that this casting debate, albeit controversial, has
sparked a larger conversation about diversity and representation in film,” she said.11

Defining Stakeholder Categories

To better understand stakeholder theory and, ultimately, manage stakeholder claims and expectations, it may
be helpful to take a closer look at categories of stakeholders. One way to categorize stakeholders is by
defining their impact. For example, regulatory stakeholders including stockholders, legislatures, government
regulators, and boards of directors are enabling stakeholders because they permit the firm to function.
Normative stakeholders such as competitors and peers influence the norms or informal rules of the
industry; functional stakeholders are those who influence inputs, such as suppliers, employees, and unions,
and those influencing outputs such as customers, distributors, and retailers. Finally, diffused stakeholders
include other organizations such as nongovernmental organizations (NGOs), voters, and mass media
organizations with less direct relationships but potential for meaningful impacts on firms (Figure 3.4).12

Figure 3.4 Grouping stakeholders into meaningful categories according to relationship types allows an
organization to prioritize stakeholders’ claims. (attribution: Copyright Rice University, OpenStax, under CC BY
4.0 license)

As the Figure 3.4 shows, enabling and functional stakeholders are those active in design, production, and
marketing. They provide input for the products or services the organization distributes in the form of output.
Companies should identify all the stakeholders shown in the figure and consider how they are linked to the
76 Chapter 3 Defining and Prioritizing Stakeholders

firm. Although the diffused linkage stakeholders will vary according to place and time, the enabling, functional,
and normative linkage stakeholders are constant, because they are integral to the operation of the firm.
Stakeholders, in turn, can exert some control and authority by serving on the board of directors, by exercising
their power as purchasers, by being elected to public office, or by joining employees’ unions.

In many cases, if one stakeholder effects a change in the firm, other stakeholders will be affected. For
example, if an NGO raises concerns about unequal pay of laborers on a rubber plantation that provides raw
materials for gasket makers, the supplier may be forced to equalize pay, incurring additional expense. The
supplier has taken the ethical action, but ultimately the cost is likely passed through the supply chain to the
end user, the retail purchaser at the local car dealer. The supplier could also have absorbed the additional
cost, diminishing the bottom line and reducing returns for stockholders, who may withdraw their investment
from the company. Although this model of stakeholder relationships is complex, it is useful in understanding
the impact of each individual group on the organization as a whole.

James E. Grunig, now professor emeritus at University of Maryland, and Todd Hunt, who together developed
the organizational linkage model in Figure 3.4, looked at these relationships through the lens of four “publics”
or cohorts: the nonpublic, the latent, the aware, and the active. These publics are distinguished by their degree
of awareness of a problem and ability to do something about it. In the nonpublic cohort, no problem is
recognized or exists. For the latent public, a problem is there but the public does not recognize it. The aware
public recognizes that a problem exists. The active public is aware of the problem and organizes to respond to
it. These categories help the organization design its message about a problem and decide how to
communicate. Herein lies the ethical significance. If an organization is aware of a problem and the public is
not, the organization has an opportunity to communicate and guide the public in recognizing and dealing with
it, as the example of Johnson & Johnson’s Tylenol product in the following box illustrates.

CASES FROM THE REAL WORLD

The Chicago Tylenol Murders

In the fall of 1982, Johnson & Johnson faced a public relations nightmare when customers in Cook
County, Illinois, began dying—eventually, a total of seven people died—after taking over-the-counter,
Tylenol-branded acetaminophen capsules. Analysis showed the presence of potassium cyanide, a fatal
poison in no way connected with the production of the pill. Johnson & Johnson voluntarily removed all
Tylenol products from the U.S. marketplace and offered to pay full retail price for any pills returned to the
company. This represented about thirty million bottles of capsules worth more than $100 million.
(Significantly, too, Johnson & Johnson decided on this wide-ranging action despite the fact that it and law
enforcement realized the cyanide poisoning was limited to Cook County, Illinois.)

Because Tylenol was a flagship product bringing in significant revenue, this was an extreme action but
one based on the company’s ethics, rooted in its corporate credo. Investigation showed that someone
had tinkered with the bottles and injected cyanide into the product in stores. Although no one was ever
apprehended, the entire drug industry responded, following Johnson & Johnson’s lead, by introducing
tamper-proof containers that warned consumers not to use the product if the packaging appeared in any
way compromised.

The strong ethical stance taken by Johnson & Johnson executives resulted in immediate action that

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Chapter 3 Defining and Prioritizing Stakeholders 77

reassured the public. When the company eventually returned Tylenol to the market, it introduced it first
to clinics, hospitals, and physicians’ offices, promoting medicine’s professional trust in the product. The
strategy was successful. Before the poisonings, Tylenol had 37 percent of the market of over-the-counter
analgesics. That plunged to 7 percent in fall 1982 but was resurrected to 30 percent by fall 1983.

Critical Thinking

• In its corporate credo, Johnson & Johnson identifies multiple stakeholders: users of its products
(output), employees (input), employees’ families (diffused linkage), and the government (enabling
linkage). Applying Grunig and Hunt’s theory, do you believe Johnson & Johnson acted as an
enlightened company that includes and communicates with a variety of publics?
• U.S. business leaders are often accused of acting on a short-term obsession with profitability at the
expense of the long-term interests of their corporation. Which aspects of the Tylenol crisis
demonstrate a short-term perspective? Which show the value of a longer-term perspective?

LINK TO LEARNING

With the adoption of its credo, Johnson & Johnson became one of the first corporations to create
something like a mission statement. Read the Johnson & Johnson credo (https://openstax.org/l/
53J&JCredo) to learn more.

On the other hand, a company might try to manage a problem by covering it up or denying it. For example,
Volkswagen had data that showed its diesel engine’s emissions exceeded U.S. pollution standards. Rather than
redesign the engine, Volkswagen engineers installed a unit in each car to interpret the emissions as if they met
Environmental Protection Agency standards. When the fraud was discovered, Volkswagen was required to buy
back millions of cars. As of September 2017, the company had incurred fines and expenses in excess of $30
billion, and some employees had gone to jail. Such damage is bad enough, but loss of reputation and the trust
of consumers and stockholders has hurt the company’s value and share price.13 Volkswagen’s management of
stakeholder relationships was poor and extremely expensive. Once-loyal stakeholders became part of an
aware and active public—a group of people united by a common problem and organized for satisfaction,
sometimes demanding compensation.14

A challenge for business leaders is to assign appropriate weights to stakeholder claims on their companies in
an ethical manner. This task is even more difficult because a claim is not necessarily a formal process.
“Essentially, stakeholders ‘want something’ from an organization. Some want . . . to influence what the
organization does . . . and others are, or potentially could be, concerned with the way they are affected by the
organization.”15

If a stakeholder has its own identity or voice, or if members of a stakeholder group are many, the claim can be
clear and direct, such as in the case of a union negotiating for better pay and benefits, or a community trying
to lure a corporation to open operations there. Think of the enormous effort communities around the world
make to try to get the Olympics or World Cup organizers to bring the competition to their locale. In spite of
significant investment and debt, these communities see a real advantage to their local economy.

Many stakeholder claims are indirect, or “voiceless,” due perhaps to their representing relatively few
78 Chapter 3 Defining and Prioritizing Stakeholders

individuals relative to the size and power of the organization and the time required to evoke a response from a
large, bureaucratic company. If you have ever had a problem with a cable television or satellite company, you
can immediately understand this stakeholder relationship, because it is so difficult to find someone with
enough authority to make a decision on behalf of the company. Some companies count on individuals’
growing frustrated and giving up on the claim. An indirect stakeholder claim might also be one that affects
future generations, such as concerns about air and water pollution. For example, University of Southern
California law professor Christopher D. Stone introduced in 1972 what was then a radical concept for the law in
the United States, that the environment itself is entitled to legal standing in the courts. If this were so, then the
environment might also be eligible for certain protections under the law. Appearing at the dawn of increasing
social awareness of ecologic concerns, Stone’s influential law review article “Should Trees Have Standing?”
gave many environmentalists a new legal philosophy to harness in defense of the natural world.16

LINK TO LEARNING

Try playing a game of stakeholder identification, mapping, and analysis, such as this one from the
“Gamestorming” website (https://openstax.org/l/53Gamestorming) to learn more.

3.3 Ethical Decision-Making and Prioritizing Stakeholders

Learning Objectives
By the end of this section, you will be able to:

• Identify the factors that affect stakeholder prioritization

• Explain why priorities will vary based upon the interest and power of the stakeholder
• Describe how to prioritize stakeholder claims, particularly when they conflict

If we carry the idea of stakeholder to the extreme, every person is a stakeholder of every company. The first
step in stakeholder management, the process of accurately assessing stakeholder claims so an organization
can manage them effectively, is therefore to define and prioritize stakeholders significant to the firm. Then, it
must consider their claims.

Given that there are numerous types of stakeholders, how do managers balance these claims? Ethically, no
group should be treated better than another, and managers should respond to as many stakeholders as
possible. However, time and resource limitations require organizations to prioritize claims as stakeholder
needs rise and fall.

Stakeholder Prioritization
First, it may help to speak to the expectations that any stakeholders may have of a particular business or
institution. It depends on particular stakeholders, of course, but we can safely say that all stakeholders expect
a form of satisfaction from an organization. If these stakeholders are shareholders (stockowners), then they
generally wish to see a high return on their purchase of company shares. If, on the other hand, they are
employees, they typically hope for interesting tasks, a safe work environment, job security, and rewarding pay
and benefits. If, yet again, the stakeholders are members of the community surrounding a business, they

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Chapter 3 Defining and Prioritizing Stakeholders 79

usually wish that the company not harm the physical environment or degrade the quality of life within it.

So the task confronting an organization’s management begins with understanding these multiple and
sometimes conflicting expectations and ethically deciding which stakeholders to focus on and in what
sequence, if not all stakeholders cannot be addressed simultaneously, that is, stakeholder prioritization. It
helps to actively gather information about all key stakeholders and their claims. First, managers must establish
that an individual with a concern is a member of a stakeholder group. For example, a brand may attract
hundreds or thousands of mentions on Twitter each day. Which ones should be taken seriously as
representative of key stakeholders? Brand managers look for patterns of communication and for context
when deciding whether to engage with customers in the open expanses of social media platforms.

LINK TO LEARNING

Read this article “Five Questions to Identify Key Stakeholders” (https://openstax.org/l/53FiveQuestions)

in the Harvard Business Review to learn more about identifying your key stakeholders.

After establishing that a key stakeholder group is being represented, the manager should identify what the
company needs from the stakeholder. This simply helps clarify the relationship. If nothing is needed
immediately or for the foreseeable future, this does not mean the stakeholder group does not matter, but it
can be a good indication that the stakeholder need not be prioritized at the moment.

Note that managers are often considering these questions in real time, usually with limited resources and
power, and that circumstances can change in a matter of moments. In one sense, all representatives of a
company are constantly practicing stakeholder prioritization. It need not be a formal process. At times, it is a
question of which supplier should be praised or prodded or which customer has a larger order to fill or a
special request that might be met. What matters is establishing that someone is a stakeholder, that the
concern is currently important, and that the relationship matters for the growth of the business.

If the firm cannot survive without this particular stakeholder or replace him or her relatively easily, then such a
person should have priority over other stakeholders who do not meet this criterion. Key suppliers, lucrative or
steady customers, and influential regulators must all be attended to but not necessarily capitulated to. For
example, a local state legislator representing the district where a business is located may be urging the
legislature to raise business taxes to generate more revenue for the state. By him- or herself, the legislator
may not have sufficient political clout to persuade the legislature to raise taxes. Yet wise business leaders will
not ignore such a representative and will engage in dialogue with him or her. The legislator may eventually be
able to win others over to the cause, so it behooves perceptive management to establish a working
relationship with him or her.

Not every stakeholder can command constant attention, and no firm has unlimited time or resources, so in
one sense, this prioritizing is simply the business of management. Combine the inherent priority of the
stakeholder relationship with the level of exigency, that is, the level of urgency of a stakeholder claim, to
arrive at a decision about where to begin focusing resources and efforts.

Stakeholder prioritization will also vary based on time and circumstance. For example, a large retailer facing
aggressive new competitors must prioritize customer service and value. With Amazon acquiring Whole Foods
and drastically cutting prices, the grocery chain’s customer base may very well grow because prices could
become more attractive while the perception of high quality may persist. Potential customers may no longer
80 Chapter 3 Defining and Prioritizing Stakeholders

need to economize by shopping elsewhere.17 Whole Foods’ competitors, on the other hand, must now
prioritize customer service, whereas before they could compete on price alone. Whole Foods can become a
serious competitor to discount grocery stores like ALDI and Walmart.

Another way to prioritize stakeholder relationships is with a matrix of their power and interest. As Figure 3.5
shows, a stakeholder group can be weighted on the basis of its influence (or power) over and interest in its
relationship to the firm. A stakeholder with a high level of both power and interest is a key stakeholder. If this
type of stakeholder group encounters a problem, its priority rises.

Figure 3.5 Stakeholder priority can be expressed as a relationship between the stakeholder group’s
influence or power and the interest the stakeholder takes in the relationship. (attribution: Copyright Rice
University, OpenStax, under CC BY 4.0 license)

On the supplier side, a small farmer or seasonal supplier could fall in the low-power, low-interest category,
particularly if that farmer were selling various retailers produce from his or her fields. However, if that same
farmer could connect to a huge purveyor like Kroger, he or she could sell this giant customer its entire crop.
This relationship places the farmer in the low-power, high-interest category, meaning he or she will most likely
have to make price adjustments to make the sale.

The model’s focus on power reveals a need for any company to carefully cultivate relationships with
stakeholders. Not all stakeholders have equal influence with a firm. Still, no organization can blithely ignore
any stakeholder without potentially debilitating economic consequences. For example, now that Amazon has
acquired Whole Foods and increased the size of the customer stakeholder group, it must also find ways to
personalize its communications with this group, because personal service has traditionally been more a
hallmark of Whole Foods than of Amazon.

Successful business practice today hinges on the ethical acknowledgement of stakeholder claims. It is the right
thing to do. Not only that, it also engenders satisfied stakeholders, whether they be customers, stockowners,
employees, or the community in which a firm is located. Naturally, satisfied stakeholders lead to the financial
well-being of a company.

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Chapter 3 Defining and Prioritizing Stakeholders 81

Managing Stakeholder Expectations

Stakeholder management does not work if the firm’s prioritizing decisions are based on flawed, inaccurate, or
incomplete information. Some tools are available to help. MITRE is a nonprofit research and development
consulting firm that helps governments and other large organizations with many stakeholders conduct
stakeholder assessment. The MITRE Guide to Stakeholder Assessment and Management lays out a five-step
system for stakeholder management.18

Overall, MITRE stresses that an organization must sustain trust with its stakeholders through communication
efforts. To accomplish this, however, stakeholders must first be clearly identified and then periodically
reidentified, because stakeholder cohorts change in size and significance over time. The concerns or claims of
stakeholders are identified through data gathering and analysis. Sometimes a firm will conduct surveys or
focus groups with customers, suppliers, or other stakeholders. Other times, product usage data will be
available as a function of sales figures and marketing data. For software in web and mobile applications, for
example, user data may be readily available to show how stakeholders are using the company’s digital
services or why they appear to be purchasing its products. Another source of stakeholder data is social media,
where firms can monitor topics stakeholders of all types are talking about. What matters is gathering relevant
and accurate data and ensuring that key stakeholders are providing it. In the next step, managers present the
results of their research to the company’s decision makers or make decisions themselves.19 Finally,
stakeholders should be informed that their concerns were taken into consideration and that the company will
continue to heed them. In other words, the firm should convey to them that they are important.

LINK TO LEARNING

One methodology for prioritizing stakeholder claims is the Stakeholder Circle, developed by Dr. Linda
Bourne. Visit the Stakeholder Management website detailing the five key actions an organization can
take using this model (https://openstax.org/l/53StakeCircle) to learn more.

W H AT W O U L D Y O U D O ?

Malaysia Airlines
Malaysia Airlines is owned by individual investors and the Malaysian government, which took over the
company in 2014 after two mysterious jet crashes. The airline has lost money and struggled since that
time, going through three CEOs. The current CEO, Peter Bellew, is experienced in tourism and travel and
has been asked to cut costs and increase revenues. His strategy is to maximize the number of Malaysian
Muslims (who make up more than 60 percent of the population) flying to Mecca for hajj, the annual holy
pilgrimage and an obligation for all Muslims who are well enough to travel and can afford the trip. Bellew
plans to provide charter flights to make the pilgrimage easier on travelers.20

Critical Thinking

• Describe the passenger stakeholder claims on Malaysia Airlines.

• Describe the government stakeholder claims on Malaysia Airlines.
82 Chapter 3 Defining and Prioritizing Stakeholders

• What would you advise Bellew to identify as a priority—the demand from pilgrims for easy travel at
a reduced price or the demand from the government for profitable operations? Explain your
answer.

Because every firm, no matter its mission, ultimately depends on the marketplace, its clients or customers are
often high-priority stakeholders. Ethically, the company owes allegiance to customer stakeholders, but it also
has an opportunity and perhaps a responsibility to shape their expectations in ways that encourage its growth
and allow it to continue to provide for employees, suppliers, distributors, and shareholders.

We should note, too, that nonprofit organizations are beholden, for the most part, to the same rules that apply
to for-profits for their sustainability. Nonprofits typically provide a service that is just as dependent on cash
flow as is the service or product of a for-profit. A significant difference, of course, is that the client or customer
for a nonprofit’s service often is unable to pay for it. Therefore, the necessary cash must come from other
sources, often in the form of donations or endowments. Hence, those who give to philanthropies constitute
essential stakeholders for these nonprofits and must be acknowledged as such.

Wesley E. Lindahl, who studies and advises nonprofits, notes that philanthropies have an ethical obligation to
safeguard the donations that come their way. He likens this to a stewardship, because the monies given to
charities are gifts intended for others very much in need of them. So those who manage nonprofits have a
special obligation to ensure that these donations are well spent and distributed appropriately.21

There are three major components to bringing about change in customer or donor expectations: (1) customer
receptivity to a product or service offered by the company, (2) acknowledgement of the gap between customer
receptivity and corporate action to reduce it, and (3) a system to bring about and maintain change in customer
desires to bring it in line with precisely what the corporation can deliver. One example of firms altering
customers’ habits is the evolution of beverage containers. Most soft drinks and other beverages such as beer
were once delivered in reusable glass bottles. Customers were motivated to return the bottles by the refund of
a minimal cash deposit originally paid at the time of purchase. The bottles had to be thick and sturdy for reuse,
which resulted in substantial transportation costs, due to their weight.

To reduce these costs of manufacturing and transportation, manufacturers first redesigned production to be
local, and then, when technology allowed, introduced aluminum cans and pull tabs. Eventually, the cardboard
carton that held bottles together was replaced by a plastic set of rings to hold aluminum cans together. Now,
however, customers and other stakeholders object to the hazard these rings present to wildlife. Some firms
have responded by redesigning their packaging yet again. This ongoing process of developing new packaging,
listening to feedback, and redesigning the product over time ultimately changed stakeholder behavior and
modernized the beverage industry. Stakeholders are essential parts of a cycle of mutual interest and
involvement.

E T H I C S A C R O S S T I M E A N D C U LT U R E S

Going King Sized in the United States and Crashing on the Couch in China
IKEA is a multinational corporation with a proven track record of listening to stakeholders in ways that
improve relationships and the bottom line. The Swedish company has had success in the United States

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Chapter 3 Defining and Prioritizing Stakeholders 83

and, more recently, in China by adapting to local cultural norms. For example, in the United States, IKEA
solicited the concerns of many of its approximately fifty thousand in-store customers and even visited
some at home. The company learned, among other things, that U.S. customers assumed IKEA featured
only European-size beds. In fact, IKEA has offered king-size beds for years; they simply were not on
display. IKEA then began to focus on displaying furniture U.S. consumers were more familiar with and so
grew its bedroom furniture sales in 2012 and 2013.22

As IKEA expands into China, it has welcomed a different trend—people taking naps on the furniture on
display. “While snoozing is prohibited at IKEA stores elsewhere, the Swedish retailer has long permitted
Chinese customers to doze off, rather than alienate shoppers accustomed to sleeping in public.” 23
Adapting to local culture, as these examples demonstrate, is one way a company can respond to
stakeholder wishes. The firm abandons some of its usual protocols in exchange for increasing consumer
identification with its products.

IKEA appears to have learned what many companies with a global presence have concluded:
Stakeholders, and particularly consumer-stakeholders, have different expectations in different
geographic settings. Because a firm’s ethical obligations include listening and responding to the needs
of stakeholders, it behooves all international companies to appreciate the varying perspectives that
geography and culture may produce among them.

Critical Thinking

• Does IKEA have a system to influence stakeholder behavior? If so, describe the system and explain
who changes more under the system, IKEA or its consumers.
• Does IKEA’s strategy reflect a normative approach to managing stakeholder claims? If so, how?

The ethical responsibility of a stakeholder is to make known his or her preferences to the companies he or she
purchases from or relies on. Such communication can lead to an increased commitment on the part of
corporations to improve. To the extent they do so, companies act more ethically in responding to the wishes
and needs of their stakeholders.

3.4 Corporate Social Responsibility (CSR)

Learning Objectives
By the end of this section, you will be able to:

• Define corporate social responsibility and the triple bottom line approach
• Compare the sincere application of CSR and its use as merely a public relations tool
• Explain why CSR ultimately benefits both companies and their stakeholders

Thus far, we have discussed stakeholders mostly as individuals and groups outside the organization. This
section focuses on the business firm as a stakeholder in its environment and examines the concept of a
corporation as a socially responsible entity conscious of the influences it has on society. That is, we look at the
role companies, and large corporations in particular, play as active stakeholders in communities. Corporations,
by their sheer size, affect their local, regional, national, and global communities. Creating a positive impact in
these communities may mean providing jobs, strengthening economies, or driving innovation. Negative
impacts may include doing damage to the environment, forcing the exit of smaller competitors, and offering
84 Chapter 3 Defining and Prioritizing Stakeholders

poor customer service, to name a few. This section examines the concept of a corporation as a socially
responsible entity conscious of the influences it has on society.

Corporate Social Responsibility Defined

In recent years, many organizations have embraced corporate social responsibility (CSR), a philosophy
(introduced in Why Ethics Matter,) in which the company’s expected actions include not only producing a
reliable product, charging a fair price with fair profit margins, and paying a fair wage to employees, but also
caring for the environment and acting on other social concerns. Many corporations work on prosocial
endeavors and share that information with their customers and the communities where they do business. CSR,
when conducted in good faith, is beneficial to corporations and their stakeholders. This is especially true for
stakeholders that have typically been given low priority and little voice, such as the natural environment and
community members who live near corporate sites and manufacturing facilities.

CSR in its ideal form focuses managers on demonstrating the social good of their new products and
endeavors. It can be framed as a response to the backlash corporations face for a long track record of harming
environments and communities in their efforts to be more efficient and profitable. Pushback is not new.
Charles Dickens wrote about the effects of the coal economy on nineteenth-century England and shaped the
way we think about the early industrial revolution. The twentieth-century writer Chinua Achebe, among many
others, wrote about colonization and its transformative and often painful effect on African cultures. Rachel
Carson first brought public attention to corporation’s chemical poisoning of U.S. waterways in her 1962 book
Silent Spring.

Betty Friedan’s The Feminine Mystique (1963) critiqued the way twentieth-century industrialization boxed
women into traditional roles and limited their agency. Kate Chopin’s novel The Awakening (1899) and the
nineteenth-century novels of Jane Austen had already outlined how limited options were for women despite
massive social and economic shifts in the industrializing West. Stakeholder communities left out of or directly
harmed by the economic revolution have demanded that they be able to influence corporate and
governmental economic practices to benefit more directly from corporate growth as well as entrepreneurship
opportunities. The trend to adopt CSR may represent an opportunity for greater engagement and involvement
by groups mostly ignored until now by the wave of corporate economic growth reshaping the industrialized
world.

CSR and the Environment

Corporations have responded to stakeholder concerns about the environment and sustainability. In 1999, Dow
Jones began publishing an annual list of companies for which sustainability was important. Sustainability is the
practice of preserving resources and operating in a way that is ecologically responsible in the long term.24 The
Dow Jones Sustainability Indices “serve as benchmarks for investors who integrate sustainability
considerations into their portfolios.”25 There is a growing awareness that human actions can, and do, harm
the environment. Destruction of the environment can ultimately lead to reduction of resources, declining
business opportunities, and lowered quality of life. Enlightened business stakeholders realize that profit is only
one positive effect of business operations. In addition to safeguarding the environment, other ethical
contributions that stakeholders could lobby corporate management to make include establishing schools and
health clinics in impoverished neighborhoods and endowing worthwhile philanthropies in the communities
where companies have a presence.

Other stakeholders, such as state governments, NGOs, citizen groups, and political action committees in the

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Chapter 3 Defining and Prioritizing Stakeholders 85

United States apply social and legal pressure on businesses to improve their environmental practices. For
example, the state of California in 2015 enacted a set of laws, referred to as the California Transparency in
Supply Chains Act, which requires firms to report on the working conditions of the employees of their
suppliers. The law requires only disclosures, but the added transparency is a step toward holding U.S. and
other multinational corporations responsible for what goes on before their products appear in shiny packages
in stores. The legislators who wrote California’s Supply Chains Act recognize that consumer stakeholders are
likely to bring pressure to bear on companies found to use slave labor in their supply chains, so forcing
disclosure can bring about change because corporations would rather adjust their relationships with supply-
chain stakeholders than risk alienating massive numbers of customers.26

As instances of this type of pressure on corporations increase around the world, stakeholder groups become
simultaneously less isolated and more powerful. Firms need customers. Customers need employment, and the
state needs taxes just as firms need resources. All stakeholders exist in an interdependent network of
relationships, and what is most needed is a sustainable system that enables all types of key stakeholders to
establish and apply influence.

People, Planet, Profit: The Triple Bottom Line

How can corporations and their stakeholders measure some of the effects of CSR programs? The triple
bottom line (TBL) offers a way. TBL is a measure described in 1994 by John Elkington, a British business
consultant (Figure 3.6), and it forces us to reconsider the very concept of the “bottom line.” Most businesses,
and most consumers for that matter, think of the bottom line as a shorthand expression of their financial well-
being. Are they making a profit, staying solvent, or falling into debt? That is the customary bottom line, but
Elkington suggests that businesses need to consider not just one but rather three measures of their true
bottom line: the economic and also the social and environmental results of their actions. The social and
environmental impacts of doing business, called people and planet in the TBL, are the externalities of their
operations that companies must take into account.

Figure 3.6 The three components of the triple bottom line are interrelated. (attribution: Copyright Rice
University, OpenStax, under CC BY 4.0 license)

The TBL concept recognizes that external stakeholders consider it a corporation’s responsibility to go beyond
86 Chapter 3 Defining and Prioritizing Stakeholders

making money. If increasing wealth damages the environment or makes people sick, society demands that the
corporation revise its methods or leave the community. Society, businesses, and governments have realized
that all stakeholders have to work for the common good. When they are successful at acting in a socially
responsible way, corporations will and should claim credit. In acting according to the TBL model and
promoting such acts, many corporations have reinvested their efforts and their profits in ways that can
ultimately lead to the development of a sustainable economic system.

CSR as Public Relations Tool

On the other hand, for some, CSR is nothing more than an opportunity for publicity as a firm tries to look good
through various environmentally or socially friendly initiatives without making systemic changes that will have
long-term positive effects. Carrying out superficial CSR efforts that merely cover up systemic ethics problems
in this inauthentic way (especially as it applies to the environment), and acting simply for the sake of public
relations is called greenwashing. To truly understand a company’s approach toward the environment, we
need to do more than blindly accept the words on its website or its advertising.

CASES FROM THE REAL WORLD

When an Image of Social Responsibility May Be Greenwashing

Ben and Jerry’s Ice Cream started as a small ice cream stand in Vermont and based its products on pure,
locally supplied dairy and agricultural products. The company grew quickly and is now a global brand
owned by Unilever, an international consumer goods company co-headquartered in Rotterdam, The
Netherlands, and London, United Kingdom.

According to its statement of values, Ben and Jerry’s mission is threefold: “Our Product Mission drives us
to make fantastic ice cream—for its own sake. Our Economic Mission asks us to manage our Company
for sustainable financial growth. Our Social Mission compels us to use our Company in innovative ways
to make the world a better place.”

With its expansion, however, Ben and Jerry’s had to get its milk—the main raw ingredient of ice
cream—from larger suppliers, most of which use confined-animal feeding operations (CAFOs). CAFOs
have been condemned by animal-rights activists as harmful to the well-being of the animals. Consumer
activists also claim that CAFOs contribute significantly to pollution because they release heavy
concentrations of animal waste into the ground, water sources, and air.

Critical Thinking

• Does the use of CAFOs compromise Ben and Jerry’s mission? Why or why not?
• Has the growth of Ben and Jerry’s contributed to any form of greenwashing by the parent company,
Unilever? If so, how?

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Chapter 3 Defining and Prioritizing Stakeholders 87

LINK TO LEARNING

Read Ben and Jerry’s Statement of Mission (https://openstax.org/l/53BenJerry) for more on the
company’s values and mission.

Coca-Cola provides another example of practices some would identify as greenwashing. The company states
the following on its website:

“Engaging our diverse stakeholders in long-term dialogue provides important input that informs
our decision making, and helps us continuously improve and make progress toward our 2020
sustainability goals . . . We are committed to ongoing stakeholder engagement as a core
component of our business and sustainability strategies, our annual reporting process, and our
activities around the world. As active members of the communities where we live and work, we
want to strengthen the fabric of our communities so that we can prosper together.” 27

Let us take a close look at this statement. “Engaging stakeholders in long-term dialogue” appears to describe
an ongoing and reciprocal relationship that helps improvement be continuous. Commitment to “stakeholder
engagement as a core component of business and sustainability strategies” appears to focus the company on
the requirement to conduct clear, honest, transparent reporting.

Currently 20 percent of the people on Earth consume a Coca-Cola product each day, meaning a very large
portion of the global population belongs to the company’s consumer stakeholder group. Depending on the
process and location, it is estimated that it takes more than three liters of water to produce a liter of Coke.
Each day, therefore, millions of liters of water are removed from the Earth to make Coke products, so the
company’s water footprint can endanger the water supplies of both employee and neighbor stakeholders. For
example, in Chiapas, Mexico, the Coca-Cola bottling plant consumes more than one billion liters of water daily,
but only about half the population has running water.28 Mexico leads the world in per capita consumption of
Coke products.

If consumers are aware only of Coca-Cola’s advertising campaigns and corporate public relations writings
online, they will miss the very real concerns about water security associated with it and other corporations
producing beverages in similar fashion. Thus it requires interest on the part of stakeholders to continue to
drive real CSR practices and to differentiate true CSR efforts from greenwashing.

The Ultimate Stakeholder Benefit

CSR used in good faith has the potential to reshape the orientation of multinational corporations to their
stakeholders. By positioning themselves as stakeholders in a broader global community, conscientious
corporations can be exemplary organizations. They can demonstrate interest and influence on a global scale
and improve the way the manufacture of goods and delivery of services serve the local and global
environment. They can return to communities as much as they extract and foster automatic financial
reinvestment so that people willing and able to work for them can afford not only the necessities but a chance
to pursue happiness.

In return, global corporations will have sustainable business models that look beyond short-term growth
forecasts. They will have a method of operating and a framework for thinking about sustained growth with
stakeholders and as stakeholders. Ethical stakeholder relationships systematically grow wealth and
88 Chapter 3 Defining and Prioritizing Stakeholders

opportunity in dynamic fashion. Without them, the global consumer economy may fail. On an alternate and
ethical path of prosperity, today’s supplier is a consumer in the next generation and Earth is still inhabitable
after many generations of dynamic change and continued global growth.

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Chapter 3 Defining and Prioritizing Stakeholders 89

Key Terms
amenities resources made available to employees in addition to wages, salary, and other standard benefits
descriptive approach a theory that views the company as composed of various stakeholders, each with its
own interests
diffused stakeholder a stakeholder with an interest in a company’s decisions and whose impacts on a firm
can be large even if the relationship is generally weaker than other types
enabling stakeholder a stakeholder who permits an organization to function within the economic and legal
system
ethical maximum the strongest action a company can choose to behave ethically in a given situation
ethical minimum the least a company might do to claim it holds an ethically positive position
exigency the level of urgency of a stakeholder claim
functional stakeholder a stakeholder whose relationships influence or govern an organization’s inputs and
outputs
greenwashing carrying out superficial CSR efforts that merely cover up systemic ethics problems for the
sake of public relations
instrumental approach a theory proposing that good management of stakeholders is important because it
can help the bottom line
normative approach a theory that considers stakeholders as ends unto themselves rather than means to
achieve a better bottom line
normative stakeholder a stakeholder in the organization’s industry who influences its norms or informal
rules
social responsibility of business the view that stakeholders are not the means to the end (profit) but are
ends in and of themselves as human beings
stakeholder claim a particular stakeholder’s interest in a business decision
stakeholder management the process of accurately assessing stakeholder claims so an organization can
manage them effectively
stakeholder prioritization the process of deciding which stakeholders to focus on and in what sequence
triple bottom line (TBL) a measure that accounts for an organization’s results in terms of its effects on
people, planet, and profits

Summary
3.1 Adopting a Stakeholder Orientation
An organization has duties and responsibilities with regard to each stakeholder; however, the implicit social
contract between business and society means that meeting legal requirements might support only minimal
ethical standards. Society on the whole and in the long run requires that business consider a broader range of
duties in its relationships with key stakeholders.

3.2 Weighing Stakeholder Claims

There are three approaches to stakeholder theory: the descriptive approach, the instrumental approach, and
the normative approach. The normative approach takes the most comprehensive view of the organization and
its stakeholders and is the fundamental basis of stakeholder theory. Organizations can analyze stakeholder
claims by classifying them on the basis of their intensity and impact on the firm, as well as on the basis of their
relationship to the firm. Such classifications may include enabling stakeholders, normative stakeholders,
90 Chapter 3 Defining and Prioritizing Stakeholders

functional stakeholders, and diffused stakeholders. Using the lens of the four “publics” (the nonpublic, the
latent, the aware, and the active), we can also understand a stakeholder claim on the basis of the public’s
degree of awareness of a problem and ability to do something about it.

3.3 Ethical Decision-Making and Prioritizing Stakeholders

Business leaders prioritize those stakeholders who have immediate needs or high urgency or great
significance to the organization, and the identity of these groups may shift over time. Stakeholders can also be
prioritized on the basis of their relationship to the organization using a matrix of their power and interest.
Steps in the MITRE stakeholder management process are to establish trust, identify stakeholders, gather and
analyze appropriate data, present information to management, and let stakeholders know they matter.
Because customers are often considered high-priority stakeholders, it can be essential for corporations and
nonprofit organizations to manage any expectations that customers (or donors) may have.

3.4 Corporate Social Responsibility (CSR)

Most organizations must practice genuine corporate social responsibility to be successful in the modern
marketplace. The triple bottom line places people and the planet on equal standing with profit in the mission
of an organization. The genuine practice of CSR, unlike greenwashing, requires a commitment to an additional
stakeholder, the planet, whose continued healthy existence is essential for any organization to operate.

Assessment Questions
1. Maintaining trust between stakeholders and organizations is ________.
A. the stakeholder’s responsibility
B. an ethical minimum
C. an ethical maximum
D. a social contract

2. True or false? Companies are required to provide amenities to their employees to fulfill the social contract
between management and employees as stakeholders.

3. Choose your favorite brand. List at least five of its key stakeholder groups.

4. A shareholder is a stakeholder who ________.

A. holds stock for investment
B. has a general interest in the fate of all publicly traded companies
C. focuses on the means by which firms get their products to market
D. always purchases the product or service of a particular company

5. A stakeholder claim ________.

A. is usually a complaint
B. is always financial
C. is any matter of concern for the corporation or company
D. is the same as a lawsuit

6. Explain how the normative approach to stakeholder theory informs the instrumental aspect and the
descriptive approach.

7. What is the most important quadrant in the influence/interest matrix, and why?

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Chapter 3 Defining and Prioritizing Stakeholders 91

8. In correct order, the stakeholder management steps adapted from the approach of the MITRE consulting
firm are to ________.
A. build trust, identify stakeholders, prioritize claims, visualize changes, and perform triage
B. build trust, identify stakeholders, gather and analyze data, present results, make changes, and prepare
a communication strategy
C. build trust, identify stakeholders, gather and analyze data, present findings to management, and
communicate key messages to stakeholders conveying the company’s appreciation of them
D. identify stakeholders, gather and analyze data, make changes, and present results

9. True or false? Stakeholder management practice ultimately is about valuing stakeholder contributions to a
firm, no matter how significant, inspired, or influential that contribution might not be.

10. Name the three components of the triple bottom line.

11. What does the California Transparency in Supply Chains Act require of businesses that operate in
California?

12. True or false? Corporate social responsibility is a voluntary action for companies.

13. The Dow Jones Sustainability Indices provides information for ________.
A. investors who seek quick profit
B. investors who seek long-term returns
C. investors who value CSR in companies
D. marketing promotions of each of its members

Endnotes
1. “The Latest: Police Release Call from Starbucks Employee,” Associated Press, April 17, 2018. https://apnews.com/
7c0b3793ca244e128effc1019bde194c.
2. “Starbucks,” Fortune. http://fortune.com/fortune500/starbucks/; “Starbucks Corporation Institutional Ownership,” Nasdaq.
https://www.nasdaq.com/symbol/sbux/institutional-holdings; “Starbucks Company Profile,” Starbucks. https://www.starbucks.com/
about-us/company-information/starbucks-company-profile (accessed June 18, 2018).
3. Michael Nunez, “New Horror Story Proves Working for Amazon Is More Soul-Crushing Than We Thought,” Gizmodo, March 7, 2016.
https://gizmodo.com/new-horror-story-proves-working-for-amazon-is-more-soul-1763323814.
4. Lynn A. Stout, “The Shareholder Value Myth,” Paper 771 (Ithaca, NY: Cornell Law Faculty Publications 2013), 6.
http://scholarship.law.cornell.edu/cgi/viewcontent.cgi?article=2311&context=facpub.
5. Thomas Donaldson and Lee E. Preston, “The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications,” The Academy
of Management Review 20, no. 1 (1995): 65–91.
6. Thomas Donaldson and Lee E. Preston, “The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications,” The Academy
of Management Review 20, no. 1 (1995): 65–91.
7. Thomas Donaldson and Lee E. Preston, “The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications,” The Academy
of Management Review 20, no. 1 (1995): 65–91.
8. Christopher Meyer and Andre Schwager, “Understanding Customer Experience,” Harvard Business Review, February 2007. https://hbr.org/
2007/02/understanding-customer-experience.
9. Paul Williams and Earl Naumann, “Customer Satisfaction and Business Performance: A Firm-Level Analysis,” Journal of Services Marketing
25, no. 1 (2011): 20–32.
10. Mia Galuppo, “Scarlett Johansson Drops Out of ‘Rub & Tug’ Trans Film Following Backlash,” Hollywood Reporter, July 13, 2018.
https://www.hollywoodreporter.com/news/scarlett-johansson-drops-trans-film-rub-tug-backlash-1127003.
11. Aaron Hicklin, “Exclusive: Scarlett Johansson Withdraws from Rub & Tug,” Out, July 13, 2018. https://www.out.com/out-exclusives/2018/7/
13/exclusive-scarlett-johansson-withdraws-rub-tug.
12. Brad L. Rawlins, “Prioritizing Stakeholders for Public Relations,” Institute for Public Relations, March 2006. https://www.instituteforpr.org/
wp-content/uploads/2006_Stakeholders_1.pdf.
13. Charles Riley, “Volkswagen's Diesel Scandal Costs Hit $30 Billion,” CNN Money, September 29, 2017. http://money.cnn.com/2017/09/29/
investing/volkswagen-diesel-cost-30-billion/index.html.
14. Miles Brignall, “Volkswagen’s US Compensation Deal Leaves British Drivers Fuming,” The Guardian, October 29, 2016.
https://www.theguardian.com/money/2016/oct/29/volkswagen-us-compensation-deal-british-drivers-fuming; Soraya Sarhaddi Nelson,
“German Consumers Fight Automakers for Compensation in Emissions Scandal,” All Things Considered, November 10, 2017.
https://www.npr.org/2017/11/10/563378729/german-consumers-fight-automakers-for-compensation-in-emissions-scandal.
15. P1 Examining Team, “All About Stakeholders – Part 1,” ACCA. http://www.accaglobal.com/us/en/student/exam-support-resources/
professional-exams-study-resources/p1/technical-articles/stakeholders-part1.html (accessed August 5, 2018).
16. Christopher D. Stone, “Should Trees Have Standing? Toward Legal Rights for Natural Objects,” Southern California Law Review 45, (1972):
450–501.