Final Quiz Flashcards
What are the Six Principles of Stakeholders Theory and Strategy
- The principle of entry and exit
- The principle of governance:
- The principle of externalities
- The principle of contract costs
- Agency principle
- The principle of limited immortality
According to this principle, there must be clear rules that delineate, For example, the rules when it comes to hiring employees and terminating their employment should be clear-cut and transparent.
The principle of entry and exit
This principle is concerned with how the rules governing the relationship between the stakeholders and the firm can be amended. With unanimous consent, any changes
The principle of governance
This is concerned with how a group that does not benefit from the actions of the corporation has to suffer certain difficulties because of the actions of the corporation.
This suggests that anyone who has to bear the costs of other stakeholders
has the right to become a stakeholder as well based on stakeholder theory. Anyone who is affected
by a business becomes a stakeholder
The principle of externalities
Each party to a contract should either bear equal amounts when it comes to cost, or the cost they bear should be proportional to the advantage they have in the firm. Not all of these costs are financial in nature, so they may be difficult to quantify.
The principle of contract cost
This principle states that the manager of a firm is an agent of the firm and therefore has responsibilities to the stakeholders as well as the shareholders
Agency Principle
This principle deals with the longevity of a firm. To ensure the success of the organization and its owners alike, it is necessary for the organization to exist for
a prolonged period of time. If the firm only exists for a very limited period of time, it would be advantageous for some of the stakeholders and disadvantageous for others. This violates the concept of a stakeholder theory. Thus the firm must remain in existence for a length of time, and it should be managed in a way that ensures its survival. “Limited” immortality refers to the fact that the firm can be long-lasting but it is impossible for it to actually be immortal.
The principle of limited immortality
There are certain flaws where this theory is concerned. If we do consider private ownership as the central tenet of the corporate structure, then how do we deal with the fact that Stakeholder theory does not prioritize the fiduciary relationship between stockholder and organization? Kenneth Goodpaster outlines certain implementations and the resultant pitfalls of this.
In the context of Corporate Social Responsibility (CSR), stakeholders are individuals or groups that are affected by or can affect a company’s operations and policies. They can be classified into internal and external stakeholders, each playing a vital role in the success and integrity of CSR
initiatives.
Implementation and Pitfalls of the Stakeholders Theory
What are the two types of stakeholders?
Internal Stakeholders
External Stakeholders
Importance in CSR: They oversee the company’s strategic direction and governance. Their commitment to CSR can ensure that ethical and sustainable practices are embedded in the company’s strategy. They play a key role in setting CSR priorities, monitoring progress, and holding management accountable for CSR outcomes
Board of Directors
They evaluate the effectiveness of the
company’s internal controls and compliance with CSR policies. They provide assurance that CSR initiatives are implemented as intended and identify areas for improvement. Their audits help maintain transparency and accountability within
the organization
Internal Audit Teams
Importance in CSR: they are directly affected by the company’s labor practices, workplace environment, and ethical standards. Engaging employees in CSR activities can enhance morale, increase productivity, and reduce turnover.
CSR initiatives such as fair wages, health and safety measures, and opportunities
for professional development can foster a loyal and motivated workforce
Employees
Importance in CSR: they are responsible for integrating CSR into the company’s strategic vision and operations. Their commitment to CSR can drive ethical decision-making and ensure that CSR goals align with business
objectives. They also play a crucial role in setting an example for ethical behavior
and sustainability practices within the organization.
Managers and Executives
o Importance in CSR: they are interested in the financial performance and long-term sustainability of the company. CSR can enhance a company’s reputation, leading to increased consumer trust and potentially higher returns on investment. Ethical business practices and sustainable strategies can attract socially responsible investors and improve shareholder value.
Shareholders
Importance in CSR: they expect companies to act responsibly and ethically. CSR initiatives such as product safety, quality, and ethical sourcing can build customer loyalty and trust. Transparent communication about CSR efforts can enhance the company’s reputation and attract customers who prioritize sustainability and ethical consumption
Customers
