CH2 - Stakeholders & Social Responsibility Flashcards
Agency Relationship Definition
(Jensen & Meckling 1976)
Is a contract under which 1 or more persons (‘the principals’) engage another person (the agent) to perform some service on their behalf that involves delegating their decision-making authority to the agent
Agency Theory => Use
Agency theory is used to study the problems of motivation and control when a principal needs the help of an agent to carry out activities
Agency Theory, according to Berle and Means (The Modern Corporation and Private Property) is:
- separation of ownership and control
- division of authority and responsibility
- agents are accountable towards their principal
Agency Problem
Potential conflicts of interest between management (agent) and shareholders (principal)
- Agent => short-term thinking, principal => long-term
- Agent => personal wealth of agent which may be detrimental to the principals wealth or long-term goals/strategy
- Principals may suffer from a lack of visibility of whats going on within the Company. Principal will have to trust the info & that the agent is acting in the principals best interests.
Agency Monitoring Systems
- Principles can take a no. of steps to monitor their agents:
- Increase number of NEDs
- Request formation of committees
- Employ consultants
- Attend AGM & questions board
Agency Solution
- Shareholders (principals) posses the right to remove directors from office
- Shareholders can take steps to exercise control (expensive, time-consuming and difficult to manage)
=> any steps taken by shareholders are likely to incur ‘agency costs’
Agency issues
=> why shareholders may become concerned about management:
- Deteriorations in: => share price => profits => market reaction - poor transparency - economic factors - loss of staff
Ways in which principals can align their interests with agents:
Incentives (increase agents personal wealth): - Bonuses - Shares - Share options => performance related pay
Stakeholder Claims:
- Direct
- Indirect
Classifying stakeholders
Classified by proximity to Org: - Internal - Connected - External Or classified as: - Active - Passive
Why Orgs need to recognise its stakeholders when making significant strategic decisions
- to identify way of communicating with and managing stakeholders
- to pre-empt negative reactions and manage stakeholder conflicts
- to assess level of interest and power
- to establish support for strategic goals
Power and Interest
Mendelow 1991
(Mendelow 1991)
=>Low power, low interest = Minimal effort
=>Low power, high interest = Kept informed (community representatives)
=>High power, low interest = Kept satisfied (Institutional Investors)
=>High power, high interest = Acceptable (Key players)
Level of Power:
Mendelow 1991
- Who can exercise the most influence over a particular decision.
- Those who actively participate in decision making
- Those who’s views are regularly consulted
- Those who have right of veto over decisions
- Can be more influential if their power is combined with:
=> Legitimacy
=> Urgency
Level of Interest:
Mendelow 1991
Reflects the effort stakeholders put in to attempting to participate in the org’s activities.
Problems with stakeholder mapping
Mendelow 1991
- Difficult to measure each stakeholders power & influence
- Map is not static. Changing circumstances may mean stakeholders change positions
- Map is based on the idea that strategic positioning, rather than moral or ethical concerns, should govern org’s attitudes to stakeholders
- If there are a no. of key players and their views conflict, it can be very difficult to resolve the situation.
Fiduciary Duty:
Is a duty of care and trust which 1 person or entity owes to another. It can be a legal or ethical obligation.
2 fundamentally different motivations for considering stakeholders
- Instrumental view => justifies considering stakeholders purely because of the economic benefits to the company
- Normative view => based on the idea that the Co. has moral obligations towards its stakeholders
Corporate Social Responsibility
Is a concept whereby Orgs consider the interest of society by taking responsibility for the impact of their activities on wider stakeholder groups.
This obligation can be seem to extend beyond their statutory obligations to comply with legislation.
Carrol 1991 describes and categorises CSR
Carrol, 1991 - CSR Categorised:
- Economic ( Basic Level)
- Legal
- Ethical
- Philanthropic (High Level)
Corporate Citizenship
Mattern & Crone, 2005
Corporate Citizenship (Mattern & Crone, 2005):
- Limited view (mostly imposed)
- Equivalent view (part voluntary, part imposed)
- Extended view (mostly voluntary)
Ethical Stances (Johnson et al 2017)
Ethical Stances (Johnson et al 2017):
- Short-term shareholder interests
- Long-term shareholder interests
- Multiple stakeholder obligations
- Shaper of society
CSR viewpoints (Grey et al, 1996)
CSR viewpoints (Grey et al, 1996):
- Pristine capitalist (traditional view)
- Expedient (cynical view)
- Social Ecologist (Use natural resources)
- Socialist (Address imbalance in society)
- Radical Feminist (Promote feminine values)
- Deep Ecologist (Promote habit conservation)
CSR 2.0 (Visser 2011)
CSR 2.0 (Visser 2011):
Suggests that we should be responsible for making the changes ourselves.
5 principles should be adopted in order to do this:
- Creativity (embrace new ideas)
- Scalability (translating them across borders)
- Responsiveness (the ability to change)
- Glocality (local solutions on a global scale)
- Circularity (recognising the cycle of events)
Arguments for/against CSR
For: - Reputation - Attractive - Advantage Against: - Taking money away from Shareholders - Time-consuming (lose focus on actual business) - Public Relations activity only
Social and Environmental Reporting
- Reporting guidelines to serve as frameworks:
- IS0 14000 Environmental Management Standard (prescribes a general framework on which a no. of specific standards have been based)
- Global Report Initiative (GRI) sustainability reporting guidelines (develop: transparency, accountability, reporting and sustainable development)
- AA1000 Standard on triple-bottom line (3BL) reporting (people, planet, profit)
- EU EMAS emphasising targets and improvements (voluntary scheme)
