Stakeholders and Social Responsibility

Question 1

What is the definition of Corporate Governance?

Answer 1

Corporate Governance is “the system by which companies are directed and controlled in the interests of shareholders and other stakeholders”

Question 2

What does “Agency” refer to?

Answer 2

Agency refers to the relationship between a principle (shareholder) and their agent (director)

Question 3

What is meant by a DIrector’s fiduciary duty?

Answer 3

Directors as agents have a fiduciary responsibility to shareholders as principles to operate in the best interests of those shareholders

Fiduciary duty = Duty of Care, or legal obligation to act in the shareholders’ best interests

Question 4

What are Agency Costs?

Answer 4

Agency costs are incurred by principles in monitoring agency behaviour because of a lack of trust in the good faith of agents, e.g.

• Remuneration packages and incentive schemes for directors
• Attending meetings – shareholders attending meetings to find out what directors are doing
• Costs of directors reporting to shareholders (e.g. annual report)
• External audit fee (monitoring cost) mandatory for listed companies
• Costs of accepting higher risks than shareholders would like

Question 5

What is the definition of a stakeholder?

Answer 5

‘Any person or group that can affect or be affected by the policies or activities of an organisation’.

Question 6

What is the definition of a stakeholder claim?

Answer 6

Atakeholder claims are the demands that the stakeholder makes of an organisation.

They essentially ‘want something’ from an organisation.

Question 7

Direct v Indirect Stakeholders - Define

Answer 7

Direct stakeholder claims are usually unambiguous, and are often made directly between the stakeholders and the organisation. These stakeholders can make their claim using their own “voice”.

Indirect claims are made by those stakeholders unable to express their claim directly to the organisation. They have no ‘voice’.

Question 8

Internal v External Stakeholders - Define

Answer 8

Internal: includes employees and management, and the board.

External: includes customers, competitors and suppliers.

Question 9

Primary v Secondary Stakeholders - Define

Answer 9

Primary: those that have a direct effect on the company and without whom it would be difficult to operate, government, shareholders and customers.

Secondary: those that have a limited direct influence on the organisation and without whom the company would survive, for example the community and employees (easily replaced)

Question 10

Active v Passive Stakeholders - Define

Answer 10

Active: those that wish to participate in the company

Passive: those that do not wish to participate. Crucially these stakeholders have a choice in that they can walk away or become involved or simply remain passive stakeholders.

Question 11

Voluntary v Involuntary Stakeholders - Define

Answer 11

Voluntary: those stakeholders that choose to be involved in organisational decision making

Involuntary: those stakeholders that do not choose to be involved in organisational decisions but become involved for a variety of reasons. (e.g. regulators, , government)

Question 12

Legitimate v Illegitimate Stakeholders - Define

Answer 12

Legitimate: those with an active economic relationship with an organisation (e.g. customers and suppliers)

Illegitimate: those without such a link, such as terrorists, where there is no case for taking their views into account when making decisions.

Question 13

Recognised v Unrecognised Stakeholders - Define

Answer 13

If an organisation considers a stakeholder’s claim to be illegitimate, it is likely that its claim will not be recognised.

Question 14

Known v Unknown Stakeholders - Define

Answer 14

Some stakeholders are known about by the organisation in question and others are not.

It is very difficult to recognise whether the claims of unknown stakeholders are considered legitimate or not.

Question 15

What is the difference between the Instrumental and Normative view of stakeholders?

Answer 15

The instrumental view of stakeholders considers stakeholders and their claims because it will be good for the business and help maximise profits and shareholder returns.

The normative view of stakeholders considers stakeholders and their claims because it is the right thing to do.

Question 16

What are the four different positions when analysing Stakeolders using Mendelow’s Matrix?

Answer 16

High Power and High Interest: The organisation’s strategy must be acceptable to them. E.g. a major customer.
High Power and Low Interest: These are capable of becoming key players and so should be kept satisfied.
Low Power and High Interest: These stakeholders do not have great ability to influence strategy, but their views can be important in influencing more powerful stakeholders, perhaps by lobbying. They should therefore be kept informed.
Low Power and Low Interest: Minimal effort is expended here as the potential impact on the organisation is low.

Question 17

What are the rights and responsibilities of the organisation as a corporate citizen

Answer 17

Responsibilities - Just as an individual has the responsibility to obey the law, fit in with the social and ethical norms of society, and behave in an appropriate way, so does a business.

Rights -

• A business has the right to be protected by the law
• In addition, it has the right to receive the support of society

Question 18

What are the Gray, Owens and Adams Seven positions on social responsibility?

Answer 18

1. Pristine capitalist
2. Expedients
3. Proponents of social contract
4. Social ecologist
5. Socialist
6. Radical Feminist
7. Deep ecologist

Question 19

Define “sustainability” in the context of social and environmental issues

Answer 19

Sustainability - “meeting the needs of the present without compromising the ability of future generations to meet their needs”.

Question 20

What is the environmental perspective of sustainability?

Answer 20

the effective management of environmental resources so that they continue to be available for future generations

Question 21

What is the social perspective of sustainability?

Answer 21

This perspective recognises that organisations have an impact on communities and may in fact change their social make-up.

Question 22

What is the economic perspective of sustainability?

Answer 22

Ensuring that the organisation will continue to be in existence for the foreseeable future. (sustainable business practices)

Question 23

Define Environmental footprint

Answer 23

Organisations leave evidence of their operations in the environment.

“Footprint is the net IMPACT that a company has on their environment – it can be positive or negative”

Question 24

What is the definition of a social audit?

Answer 24

A process that enables an organisation to assess and demonstrate its social, economic and environmental benefits and limitations.

Question 25

What is the purpose of an environmental audit?

Answer 25

The purpose of an environmental audit is to assure that the information given in an environmental report is a true and fair view of reality

Question 26

What is the difference between environmental audit and environmental accounting?

Answer 26

Environmental audit = a check against targets and a report on whether they have been met

Environmental accounting = recording and reporting the information in a monetary way

Question 27

What is the main purpose of an Integrated Report?

Answer 27

Integrated reporting is a process founded on integrated thinking that results in a periodic integrated report (annual report) by an organisation about value creation over time and related communications regarding aspects of value creation.

Question 28

What are the 6 types of capital in the Integrated Report

Answer 28

1. ) Financial Capital – money
2. ) Manufactured Capital – material goods or assets which contribute to the production process e.g. tools, machines and buildings
3. ) Intellectual Capital – Employee knowledge, business training and proprietary information.
4. ) Human Capital – people’s health, knowledge, skills and motivation
5. ) Social Capital – Institutions that develop human capital – families, communities, businesses, trade unions, schools and charities. “Giving back to society”
6. ) Natural Capital – the value that nature provides for us e.g. land, water, energy, climate change, CO2 emissions.