Stakeholders and Social Responsibility Flashcards
What is the definition of Corporate Governance?
Corporate Governance is “the system by which companies are directed and controlled in the interests of shareholders and other stakeholders”
What does “Agency” refer to?
Agency refers to the relationship between a principle (shareholder) and their agent (director)
What is meant by a DIrector’s fiduciary duty?
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
What are Agency Costs?
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
What is the definition of a stakeholder?
‘Any person or group that can affect or be affected by the policies or activities of an organisation’.
What is the definition of a stakeholder claim?
Atakeholder claims are the demands that the stakeholder makes of an organisation.
They essentially ‘want something’ from an organisation.
Direct v Indirect Stakeholders - Define
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’.
Internal v External Stakeholders - Define
Internal: includes employees and management, and the board.
External: includes customers, competitors and suppliers.
Primary v Secondary Stakeholders - Define
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)
Active v Passive Stakeholders - Define
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.
Voluntary v Involuntary Stakeholders - Define
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)
Legitimate v Illegitimate Stakeholders - Define
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.
Recognised v Unrecognised Stakeholders - Define
If an organisation considers a stakeholder’s claim to be illegitimate, it is likely that its claim will not be recognised.
Known v Unknown Stakeholders - Define
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.
What is the difference between the Instrumental and Normative view of stakeholders?
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.
What are the four different positions when analysing Stakeolders using Mendelow’s Matrix?
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.
What are the rights and responsibilities of the organisation as a corporate citizen
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
What are the Gray, Owens and Adams Seven positions on social responsibility?
- Pristine capitalist
- Expedients
- Proponents of social contract
- Social ecologist
- Socialist
- Radical Feminist
- Deep ecologist
Define “sustainability” in the context of social and environmental issues
Sustainability - “meeting the needs of the present without compromising the ability of future generations to meet their needs”.
What is the environmental perspective of sustainability?
the effective management of environmental resources so that they continue to be available for future generations
What is the social perspective of sustainability?
This perspective recognises that organisations have an impact on communities and may in fact change their social make-up.
What is the economic perspective of sustainability?
Ensuring that the organisation will continue to be in existence for the foreseeable future. (sustainable business practices)
Define Environmental footprint
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”
What is the definition of a social audit?
A process that enables an organisation to assess and demonstrate its social, economic and environmental benefits and limitations.
What is the purpose of an environmental audit?
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
What is the difference between environmental audit and environmental accounting?
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
What is the main purpose of an Integrated Report?
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.
What are the 6 types of capital in the Integrated Report
- ) Financial Capital – money
- ) Manufactured Capital – material goods or assets which contribute to the production process e.g. tools, machines and buildings
- ) Intellectual Capital – Employee knowledge, business training and proprietary information.
- ) Human Capital – people’s health, knowledge, skills and motivation
- ) Social Capital – Institutions that develop human capital – families, communities, businesses, trade unions, schools and charities. “Giving back to society”
- ) Natural Capital – the value that nature provides for us e.g. land, water, energy, climate change, CO2 emissions.
