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Stakeholder Impact on Corporate Ethics

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15 views18 pages

Stakeholder Impact on Corporate Ethics

Uploaded by

tbajaj24
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

MQM

MQM 385
385
CHAPTER-11
CHAPTER-11
STAKEHOLDERS
STAKEHOLDERS AND CORPORATE
PERFORMANCE
 Stakeholders: Individuals or groups with an
interest, claim, or stake in the company
 Internal stakeholders: Stockholders and employees,
including executive officers, other managers, and board
members
 External stakeholders: All other individuals and groups
that have some claim on the company
STEPS IN STAKEHOLDER IMPACT
ANALYSIS
 Identify stakeholders along with their interests
and concerns
 Identify the probable claims of stakeholders on
the organization
 Identify important stakeholders from the
organization’s perspective
 Identify the resulting strategic challenges
PROFITABILITY, PROFIT GROWTH, AND
STAKEHOLDER CLAIMS
 Stockholders receive a return on investment
from dividend payments and capital appreciation
in the market value of a share
 Ways to grow profits:
 Participating in a market that is growing
 Taking market share from competitors
 Consolidating the industry through horizontal
integration
 Development of new markets through international
expansion, vertical integration, or diversification
AGENCY THEORY
 Deals with business relationship problems when
decision-making authority is delegated from one
person to another
 Relationship between stockholders and senior
managers:
 Stockholder - Principal
 Senior managers - Agent
AGENCY PROBLEM
 Information asymmetry: Agent has more
information about the resources being managed
than the principal
 Laws for monitoring agents:
 Codetermination law (Mitbestimmungsgesetz in
German law)
 Securities and Exchange Commission (SEC)
 Generally agreed-upon accounting principles (GAAP)
AGENCY PROBLEM
 On-the-job consumption: Describes the behavior
of senior management’s use of company funds
to acquire perks
 Empire building - Buying new businesses to
increase the size of the company through
diversification
CHALLENGES FOR PRINCIPALS

 Shaping the agents’ behavior to act in


accordance with the goals set
 Reducing the information asymmetry
 Developing mechanisms for removing agents
who do not act in accordance with the goals
GOVERNANCE MECHANISMS
 Used by principals to:
 Align incentives with the agents
 Monitor and control agents
 Types:
 Board of directors
 Stock-based compensation
 Financial statements
 Takeover constraint
GOVERNANCE MECHANISMS INSIDE A
COMPANY
 Strategic control systems - Formal target-setting,
measurement, and feedback systems
 Establish standards and targets against which
performance can be measured
 Create systems for measuring and monitoring
performance on a regular basis
 Compare actual performance against the established
targets
 Evaluate results and take corrective action if necessary
ETHICS AND STRATEGY

Ethics

• Accepted principles of right or wrong that govern the


conduct of a person, the members of a profession, or
the actions of an organization

Business ethics

• Accepted principles of right or wrong governing the


conduct of businesspeople

Ethical dilemmas

• Situations where there is no agreement over exactly


what the accepted principles of right and wrong are
RIGHTS OF STAKEHOLDERS
Stakeholders Rights
• Timely and accurate information about their
Stockholders investments

• Be fully informed about the products and services they


Customers purchase

• Safe working conditions


• Fair compensation for the work they perform
Employees
• Just treatment by managers

Suppliers • Expect contracts to be respected


• Expect that the firm will abide by the rules of
competition and not violate the basic principles of
Competitors
antitrust laws

Communities and • Expect that a firm will not violate the basic
the general public expectations that society places on enterprises
UNETHICAL BEHAVIOR ARISING FROM
AGENCY PROBLEMS
Self-dealing
• Managers using company funds for personal use

Information manipulation
• Managers use their control over corporate data to distort or hide
information
• To enhance their own financial situation or the competitive
position of the firm

Anticompetitive behavior
• Aimed at harming actual or potential competitors to enhance the
long-run prospects of the firm

Opportunistic exploitation
• Managers rewriting the terms of a contract to make it favorable to
the firm
UNETHICAL BEHAVIOR ARISING FROM
AGENCY PROBLEMS
Substandard working conditions
• Managers underinvest in working conditions or pay employees
below-market rates
• To reduce their production costs

Environmental degradation
• Occurs when a company’s actions directly or indirectly result in
pollution or other forms of environmental harm

Corruption
• Can arise when managers pay bribes to gain access to lucrative
business contracts
ROOTS OF UNETHICAL BEHAVIOR
 Personal ethics: Generally accepted principles of
right and wrong governing the conduct of
individuals
 Failing to ask oneself if a decision is ethical
 Some organizational cultures de-emphasize
business ethics
 Pressure to meet unrealistic performance goals
 Unethical leadership
BEHAVING ETHICALLY
 Favor hiring and promotion with a well-grounded
sense of personal ethics
 Build an organizational culture that places a high
value on ethical behavior
 Code of ethics: Formal statement of the ethical
priorities to which a business adheres
 Ensure that leaders practice and preach ethical
behavior
BEHAVING ETHICALLY

 Ensure people consider the ethical dimension of


business decisions
 Use ethics officers
 Put strong governance processes in place
 Act with moral courage

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