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CHAPTER 2: STAKEHOLDER RELATIONSHIPS,

SOCIAL RESPONSIBILITY& CORPORATE GOVERNANCE
PHAM THI BICH NGOC

LEARNING OUTCOMES
After this chapter students will be able to…
v Know and understand the history of business responsibility.
v Get to know the central tools needed to manage business
responsibility.
v Manage business for the creation of stakeholder value.
v Conduct a stakeholder assessment and excel in stakeholder
management.

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RESPONSIBILITY:
MANAGING FOR STAKEHOLDER VALUE

-Wallace Donham-

“Civilization may well head for one of its periods of decline” if business
leaders do not “learn to exercise their powers and responsibilities with
… responsibility towards other groups in the community.”

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ORIGINS OF BUSINESS RESPONSIBILITY

ROOTS OF BUSINESS RESPONSIBILITY

vConfucianism
ØCommunity thinking
vJudaism and Christianity
ØDonations
vIslam
ØValues of justice, balance, trust, and
benevolence 6
The Good Samaritan

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DEVELOPMENT OF TERMINOLOGY

1950-1960 EARLY 1960s 1960s 1990 2010 2010

1984 1993 1998 2003 2007 2018

Responsibility Corporate Corporate Corporate Corporate social Corporate

of the social philanthropy citizenship entrepreneurship responsibility
businessman responsibility

THEORETICAL MILESTONES
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INSTITUTIONALIZATION LANDMARKS

European Union corporate social responsibility (CSR) strategy

(2006)

United Nations Global Compact (GC) (2000)

ISO 26000 (2010)

STATUS QUO AND THE FUTURE

vExemplary size of business responsibility networks in 2010
Ø Global Compact, more than 6,000 companies
Ø CSR Europe more than 3,000 companies
vAreas of opportunity
Ø Developing countries and small and medium-sized enterprises (SMEs)

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Part of the core

Integration business

Changes to structure,
Transformation: processes, and products
THE NEW
BUSINESS
RESPONSIBILITY
Scale Large impact

Opportunity and
Entrepreneurship venture thinking

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CONCEPTS OF BUSINESS RESPONSIBILITY

Defining Business Responsibility

Related Terms

Classification and Interpretation

Assessing Corporate Social Performance 12

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DEFINING BUSINESS RESPONSIBILITY

vBusiness responsibility refers to
voluntarily assuming accountability for
social, economic, and environmental
issues related to stakeholders, aiming to
optimize stakeholder value.
Ø applies to all types of business equally,
independent of size, maturity, or
organizational structure
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COMMON TERMS
USED TO
DESCRIBE
RESPONSIBLE
BUSINESS

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Corporate
social has been long-established and uses the word social to
responsibility refer to the social characteristics of stakeholders.
(CSR)

Corporate has been introduced, mainly through practitioners, in

responsibility order to avoid the purely social bias and to include also
(CR) responsibilities toward environmental stakeholders.
BUSINESS
RESPONSIBILITY
Corporate describes responsible business activities focusing on
AND RELATED citizenship businesses´ role in and contribution to community.
TERMS
describes responsible business activities with an
Social
entrepreneurship entrepreneurial venture approach to addressing social
and environmental issues.

Corporate social
entrepreneurship
refers to a big established business that aims at solving
(CSE) social stakeholder problems.
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UNDERSTANDINGS OF BUSINESS RESPONSIBILITY

Instrumental Political Integrative Ethical

• Tool for profit • Role of • Business can • Business-

generation business for only survive, society
society prosper, and relationship as
grow if it embedded into
integrates an ethical
stakeholder framework
demands into
its activities.

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INTERPRETATIONS OF BUSINESS RESPONSIBILITY

vExplicit versus implicit

vConvergent versus divergent
vSocial versus nonsocial stakeholders
vResponsibility and accountability
vSoft versus hard or (even) radical

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DEFINING CORPORATE SOCIAL PERFORMANCE

vCorporate social performance (CSP) is

an umbrella term referring to the
assessment made by both qualitative
and quantitative methods used to
evaluate the degree of responsibility
assumed by a company.

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QUALITATIVE CSP
ASSESSMENT CRITERIA
SOCIAL RESPONSIVENESS ISSUES MATURITY
Mode of reaction Sophistication of
to stakeholder issues covered
claims

ORGANIZATIONAL IMPLEMENTATION
RESPONSIBILITY CATEGORY STAGES
Type of responsibility Degree to which
assumed based on stakeholder responsibilities
the CSR pyramid are embedded into a
company´s processes

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THE PYRAMID OF CORPORATE SOCIAL RESPONSIBILITIES

PHILANTHROPIC Be a good corporate citizen

responsibilities Contribute resources to the community,
improve the quality of life

Be ethical
Obligation to do what is right, ETHICAL
just and fair. Avoid harm responsibilities

Obey the law

LEGAL Law is society’s codification of
responsibilities right and wrong.
Play by the rules of the game

Be profitable
The foundation upon ECONOMIC
which all others rest
responsibilities

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DIMENSIONS
OF
CORPORATE
SOCIAL
PERFORMANCE

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APPLICATION LEVELS OF CSP DIMENSIONS

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ISSUES IN SOCIAL RESPONSIBILITY

v Social issues are associated with the common
good and deal with concerns that affect large
segments of society and the welfare of our
entire society.
v Consumer protection often occurs in the form
of laws passed to protect consumers from
unfair and deceptive business practices; these
issues usually have an immediate impact on
the consumer after a purchase.

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ISSUES IN SOCIAL RESPONSIBILITY

v Sustainability is defined as the potential for the
long-term well-being of the natural environment
and businesses can no longer ignore the
environment as a stakeholder.
v Corporate governance involves the development
of formal systems of accountability, oversight and
control. Strong corporate governance mechanisms
help remove the possibility for employees to make
unethical decisions.

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CORPORATE GOVERNANCE
v The failure to balance stakeholder interests can result
in a failure to maximize shareholders’ wealth.
Ø Directors and corporate officers have a duty of
care, or duty of diligence, to make informed and
prudent decisions.
Ø Directors have a duty of loyalty, which means all
their decisions should be in the best interests of
the corporation and its stakeholders.
v Two major challenges for boards of directors are
officer compensation and the temptation to use
knowledge about investments, business ventures,
and the stock market to engage in insider trading.

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CORPORATE GOVERNANCE
v To remove the opportunity for employees to make
unethical decisions, most companies have developed
formal systems of accountability, oversight, and
control—known as corporate governance.
v Accountability: how closely workplace decisions are
aligned with a firm’s stated strategic direction and its
compliance with ethical and legal considerations.
v Oversight provides a system of checks and balances
that limit employees’ and managers’ opportunities to
deviate from policies and strategies and that prevent
unethical and illegal activities.
v Control is the process of auditing and improving
organizational decisions and actions

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VIEW OF CORPORATE GOVERNANCE

v The shareholder model of corporate governance is
founded in classic economic precepts, including the
goal of maximizing wealth for investors and owners.
Ø Focuses on developing and improving the formal
system for maintaining performance accountability
between top management and the firms’
shareholders.
Ø A shareholder orientation should drive a firm’s
decisions toward serving the best interests of
investors.

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VIEW OF CORPORATE GOVERNANCE

v The stakeholder model of corporate governance
adopts a broader view of the purpose of business
because it must answer to other stakeholders,
including employees, suppliers, government
regulators, communities, and special-interest groups.
Ø Because of limited resources, companies must
determine which of their stakeholders are primary.

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INTERCONTINENTAL HOTEL GROUP VERSUS

STARBUCKS: A CSP CHALLENGE

vComparison of responsible sourcing

practices
Ø Starbucks Coffee and Farmer Equity
(C.A.F.E.)
Ø Intercontinental Hotel Group (IHG) Academy

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CSP OF
INTERCONTINENTAL'S
AND STARBUCKS’S
RESPONSIBLE
SOURCING
PROGRAMS

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RESPONSIBILITY MANAGEMENT AS
STAKEHOLDER MANAGEMENT
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“The purpose of stakeholder management was to

devise methods to manage the myriad groups and
relationships that resulted in a strategic fashion.”

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THE
RESPONSIBILITY
MANAGEMENT
PROCESS

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Stakeholder management is the process of managing

relationships with the various groups, individuals, and entities
that affect or are affected by an activity.

Responsibility management is an administrative practice

centered on stakeholders and aimed at the maximization of
stakeholder value.
STAKEHOLDER
MANAGEMENT Stakeholders are any “groups and individuals that can affect or
AND are affected” by business activity.
RELATED TERMS
Stakeholder value is the degree of satisfaction of either single
stakeholders or of all stakeholders of a specific activity.

Materiality describes the shared importance of a specific issue

to both company and stakeholders.
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SHARED VALUE AND

STAKEHOLDER VALUE OPTIMIZATION

v Fundamental guidelines to create shared value:

Ø Optimization of stakeholder value in the long

run.

Ø Value optimization must consider the whole

“extended enterprise,”

Ø Holistic understanding and management of

those relationships.

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SHARED VALUE AND

STAKEHOLDER VALUE OPTIMIZATION

Imagine that the Head of Corporate Responsibility at an

information technology (IT) company such as Google, SAP, or
Microsoft has received proposals to spend the department’s
budget on either:
¡C1: a philanthropic community volunteering campaign
¡C2: developing a new application for mobile devices that
helps private customers to lead a more environmental
friendly life
¡C3: an energy-efficiency program for the company’s server
infrastructure.
How should the manager decide? We propose two basic
optimization criteria, a maximization maxim and a fairness
maxim.

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STAKEHOLDER VALUE OPTIMIZATION CRITERIA

vMaximization
Ø suggests that we should aim
to achieve the maximum
possible stakeholder value.
vFairness
Ø suggests that stakeholder
value distribution should be
fair in process and outcome.

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PROCESSES OF STAKEHOLDER MANAGEMENT

ASSESSMENT ENGAGEMENT
Stakeholder assessment is Stakeholder engagement is
the process of understanding the process of interaction with
stakeholders and their stakeholders & can be subdivided
relationship to a specific activity; into stakeholder
it can be subdivided into 2 steps, communication and the co-
stakeholder identification & creation of joint activities.
stakeholder prioritization

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STAKEHOLDER IDENTIFICATION CRITERIA

(EXEMPLARY)

Dependency Responsibility Tension Influence

is based on is based on is based on the is based on the

dependence of existence of need for impact on the
the organization legal, immediate organization’s or
or stakeholder of commercial, attention from a stakeholder’s
one on another. operational, or the organization strategic or
ethical/moral with regard to operational
responsibilities. financial, wider decision making.
economic, social,
or environmental
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CATEGORIZING STAKEHOLDERS

• Internal stakeholders are the ones forming part of the company´s

Internal and External internal organizational structure, external stakeholders are not.

• Primary stakeholders have a direct connection with the company.

Primary and secondary • Secondary stakeholders are indirectly connected to the company
through a primary stakeholder.

• Social stakeholders human beings currently alive, as opposed to

Social and Non-social nonsocial stakeholders.

Stakeholders and • Stakeholders are related to the company, nonstakeholders are not.
Non-stakeholders
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ESTABLISHING STAKEHOLDER MAPS

STEP
01 Identify the focal entity
A focal entity defines the perspective from
which the stakeholder analysis is conducted.

STEP
02
List stakeholders
Prepare a complete list disregarding type or
strength of relationship to the focal entity.

STEP
03 Group stakeholders
Organize the map in groups of stakeholders
with mutual characteristics.

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CATEGORIZED STAKEHOLDER MAP

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STAKEHOLDER INFLUENCE IN PRACTICE

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MAIN STAKEHOLDER PRIORITIZATION APPROACHES

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MANAGEMENT PROCESS 2:
STAKEHOLDER ENGAGEMENT
v Stakeholder engagement : the process of
interaction with stakeholders and can be
subdivided into stakeholder communication
and the co-creation of joint activities.
v Materiality assessment describes the shared
importance of a specific issue to both
company and stakeholders.

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MATERIALITY
ASSESSMENT
FOR TYPICAL
GENERIC
ISSUES

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UNDERSTANDING THE LEVELS OF

STAKEHOLDER ENGAGEMENT

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