The Stakeholder Model

Darshan Thaker (1021213) Rahul Sinha (1021226) Rohit Dhannawat (1021229) Arpita Srivastava (1021239)

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A shareholder mission statement

From Coca-Cola:

We exist to create value for our share owners on a long term basis by building a business that enhances the Coca-Cola companys trademark. This is also our ultimate commitment.

A stakeholder mission statement

Cadbury Schweppes

Our task is to build upon our tradition of quality and value and to provide brands, products, financial results and management performance that meet the interest of our shareholders.

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HISTORY
In the feudal age and continuing for centuries, kings owned most property in the kingdom. The first corporations, such as the British East India Company, were broadly chartered by powerful nobility to achieve wealth by trading, taking slaves and war booty, and stripping the resource wealth of colonies and weak countries. In the industrial and modern age, laws were passed to curb the feudal excesses of companies and their benefactors. The legal form of corporations evolved to the present shareholder model. The stakeholder model requires that all of the parties affected by management decisions, in addition to the shareholders themselves, management, employees, customers, suppliers, communities in which the company operates and the environment from local to global, all must be considered as fairly and justly as possible.
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Who are stakeholders?

A person, group or organization that has direct or indirect stake in an organization because it can affect or be affected by the organization's actions, objectives, and policies.

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What is the common ground between shareholder and stakeholder model?

Transparency: Full disclosure of financial and nonfinancial information Accountability: Ensuring that management is effectively overseen (and, where necessary, replaced) by appointing an independent and competent governing body. Fairness: Equitable treatment of investor Responsibility: Ensuring the corporation fulfils its proper role in society.

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Owners / Shareholders

Their stake:

stocks, bonds, equity, etc.

Their expectation:

some ROI

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Stakes and expectations: Employees

Their stake:

jobs, livelihood, career, human capital investments

Their expectation:

decent wages, security, benefits and meaningful work

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Stakes and expectations: Customers

Their stake:

need for / purchases of products and services

Their expectations:

honesty, quality goods, fair pricing

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Stakes and expectations: the community

Their stake:

the environment, taxes, payroll, infrastructure improvements

Their expectations:

good citizenship, open partnership

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Stakes and expectations: Trade Associations

Their stake:

Time, Energy, Risk at work, job.

Their expectations:

Safety, Better relation with top management, Improved working conditions, Fair wages

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Pressures on Business Competitive pressures Modern business faces greater competitive pressure: More open markets Globalisation Shareholders seeking ever higher profits

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Pressures on Business
Pressure of responsibility Growing importance to consumers of ethical business:
Total UK sales of Fair Trade products grew in 2004 by more than 50% to 140 million.

Environmental legislation
In the last few years it has been proven that it is possible to treat employees, customers, suppliers, communities, and natural environment well better than most companies are now doing, and at the same time both make a good profit and produce products which themselves help assure sustainable development

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How Should Firms Respond? Inclusivity:

Take a wide view of why the firm exists Recognise range of interest groups Form partnerships with wide range of groups

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Whats Different About This? Firms used to aim for maximum profits to keep shareholders happy

This was often against interests of groups outside organisation Now, interdependence seen as vital Partnerships with all interest groups
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What Does This Mean? Difficult to balance the different short term demands of shareholders and stakeholders Firms can benefit considerably from cooperating with stakeholder groups Their needs can be built into the firms decision making processes

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Benefits Firms Can Expect Better public relations More favourable reporting of firms activities in media Quality relationships with suppliers Lower staff turnover

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CRITIQUE
Criticism of the stakeholder model: It is not a realistic assessment of the power relationships between the corporation and other entities. There is no single, clear, and objective measure to evaluate the combined ethical/economic performance of a firm.

Advocacy for the stakeholder model: A corporation that embraces stakeholders performs better. It is the ethical way to manage because stakeholders have moral rights that grow from the way powerful corporations affect them.

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The web of stakeholder relationships

Can you serve the long term interests of the shareholders without paying attention to the others? The interconnectedness of wealth creation Long term relationships are source of wealth not individual transactions The key to organizational long term viability is manage the entire web of interconnected stakeholder relationships for everyones mutual benefit as much as possible.

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Sources!
instructional1.calstatela.edu - /prosent/MGMT 308/ http://www.oecd.org/dataoecd/5/41/1930657.pdf http://www.alanfkay.com/successes/stakeholder_model.shtml http://www.bized.co.uk/educators/1619/business/external/presentation/stakeholdermodel.ppt

Business, Government and Society Steiner and Steiner McGraw-Hill Irwin, 12th Edition, Page: 15-17

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