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CHAPTER 1
THE CORPORATION AND ITS
STAKEHOLDERS
INTRODUCTION
Business corporations have complex relationships with many individuals and
organizations in society. The term stakeholder refers to all those that affect, or are
affected by, the actions of the firm. An important part of management’s role is to identify
a firm’s relevant stakeholders and understand the nature of their interests, power, and
alliances with one another. Building positive and mutually beneficial relationships across
organizational boundaries can help enhance a company’s reputation and address critical
social and ethical challenges. In a world of fast-paced globalization, shifting public
expectations and government policies, growing ecological concerns, and new
technologies, managers face the difficult challenge of achieving economic results while
simultaneously creating value for all of their diverse stakeholders.
PREVIEW CASE
Walmart Stores, Inc.
CHAPTER OUTLINE
I. BUSINESS AND SOCIETY
A. A Systems Perspective
II. THE STAKEHOLDER THEORY OF THE FIRM
Teaching Tip: Preview Case Video
The Walmart example that opens the chapter illustrates the challenges
of managing successfully in a complex global network of stakeholders.
It may also be used to illustrate how different stakeholders may
perceive a corporation differently, depending on their vantage point.
Instructors that wish to explore this theme more fully may wish to use
material from the several films about the company. “Wal–Mart Nation”
(www.walmartnation.com) takes a highly critical stance. “Why Wal–
Mart Works and Why That Makes Some People Crazy” (available on
www.amazon.com) was made by the company to respond to its critics.
“Is Wal–Mart Good For America,” a Frontline documentary
(www.pbs.org), tries to take a balanced view.
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B. Different Kinds of Stakeholders
III. STAKEHOLDER ANALYSIS
D. Stakeholder Salience and Mapping
IV. THE CORPORATION’S BOUNDARY-SPANNING DEPARTMENTS
Teaching Tip: Stakeholder Engagement and Dialogue
“The Clayoquot Controversy: A Stakeholder Dialogue Simulation” by
Anne T. Lawrence and Ann Svendsen, is designed to teach the skills of
stakeholder engagement and dialogue. Through an experiential
exercise, students are taught to find common ground when facing
complex conflicts involving business firms and their stakeholders.
The particular situation involves a leading forest products company in
Canada, MacMillan Bloedel. During the 1990s, this company was
involved in a difficult and protracted dispute with several of its
stakeholders, including environmentalists, local communities, native
peoples, labor unions, and government agencies. At issue was the
company’s logging practices in Clayoquot Sound on the western side
of Vancouver Island, located off the coast of British Columbia. At the
time, Clayoquot Sound was home to one of the largest remaining
stands of old-growth, temperate rainforest in the world. The case
situation is presented as it appeared to the parties in 1998.
The controversy is left deliberately unresolved, and student teams must
engage in a simulated stakeholder dialogue process in an effort to find
common ground. An epilogue in the instructor’s manual provides
information about how the controversy played out in real life. The time
allotted to the exercise may range from two-and-a-half to eight hours.
A full instructor’s manual is available. The case materials are provided
on a PC-compatible CD-ROM, but may also be delivered to students
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V. THE DYNAMIC ENVIRONMENT OF BUSINESS
A. Creating Value in a Dynamic Environment
GETTING STARTED
KEY LEARNING OBJECTIVES
LO 1-1: Understanding the relationship between business and society and the ways
in which business and society are part of an interactive system.
Business firms are organizations that are engaged in making a product or providing a
service for a profit. Society, in its broadest sense, refers to human beings and to the
social structures they collectively create. Business is part of society and engages in
ongoing exchanges with its external environment. Together, business and society
form an interactive social system in which the actions of each profoundly influence
the other.
LO 1-2: Considering the purpose of the modern corporation.
into account.
LO 1-3: Knowing what a stakeholder is and who a corporation’s market and non–
market stakeholders are.
LO 1-4: Conducting a stakeholder analysis and understanding the basis of
stakeholder interests and power.
Stakeholders often have multiple interests and can exercise their economic, political,
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power. Stakeholders can exercise their voting, economic, political, legal and
informational power in ways that benefit or challenge the organization. Stakeholders
LO 1-5: Recognizing the diverse ways in which modern corporations organize
internally to interact with various stakeholders.
Modern corporations have developed a range of boundary-crossing departments and
offices to manage interactions with market and nonmarket stakeholders. The
stakeholders.
LO 1-6: Analyzing the forces of change that continually reshape the business and
society relationship.
company’s stakeholders.
KEY TERMS
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stakeholder
stakeholder analysis
INTERNET RESOURCES
DISCUSSION CASE
INSURING UBER’S APP-ON GAP
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Discussion Questions
1. Who are Uber’s relevant market and nonmarket stakeholders in this
situation?
The term stakeholder refers to persons and groups that affect, or are affected by,
The following stakeholders of Uber are mentioned in the case:
Market Stakeholders
Non-market Stakeholders
Uber employees
American Insurance Association
Uber customers
California App-Based Drivers
Association
Taxi companies
Competitors such as other ride-sharing
firms like Lyft
Consumer attorneys
The general public
Governments
High-tech trade associations and
Internet-based firms
After listing these on the board, the instructor may wish to bring out these points:
Teaching Tip: Discussion Case Video
A short video describing the accident portrayed in the opening of the
discussion case and interviewing Uber’s CEO about the company’s
liability, appears on the New York Times website. It may be used to
open the discussion of the case. The link is:
http://dealbook.nytimes.com/2015/01/21/uber-closes-a-1-6-billion
financing/
A prompt that can be used after viewing the video is: “Do you think
Uber was responsible in any way for the death of this child?”
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Not all stakeholders are relevant to this particular situation. For example, other
Nonmarket stakeholders are not necessarily less important than market
2. What are the various stakeholders’ interests? Please indicate if each
stakeholder would likely support, or oppose, a requirement that Uber extend
its insurance to cover the app-on gap.
Stakeholders FOR closing the App-On Gap:
Uber customers, American Insurance Associate, the California App-Based
Drivers, and Consumer Attorneys: There is less risk of insurance non-
for consumers
Taxi Companies: increased liability for Uber decreases their competitive
insurance.
Government: Legislator Bonilla introduced the bill to close the App-On Gap and
regions.
Stakeholders AGAINST the App-On Gap:
Competitors (such as Lyft): Closing the App-on Gap would set precedence and
insurance at a cost
High-tech trade associations and Internet-based firms: Increased responsibilities
3. What sources of power do the relevant stakeholders have?
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City, state and national Governments have the political power to enforce laws
that protect the consumer, in this case, ensuring adequate insurance coverage.
the gap.
Uber Customers have legal power to file lawsuits against Uber. In fact, many
transportation services.
The American Insurance Association and the California App-Based Drivers
customers.
High-tech trade associations and Internet-based firms can use political power
4. Based on the information you have, draft a stakeholder map of this case
showing each stakeholder’s position on the issue and degree of salience.
What conclusions can you draw from the stakeholder map?
A stakeholder map is a useful tool, because it enables managers to see quickly
likely to form, and what outcomes are likely. In this example, Uber executives
might conclude from the stakeholder map that customers, insurance companies
5. What do you think Uber should do in response to the bill introduced by
Susan Bonilla, and why?
It is likely that the relevant stakeholders have enough salience to enact the new
law that would close the App-On Gap. Rather than fighting the majority opinion,
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of enhancing the company’s reputation as a good corporate citizen.
this dispute. These might include:
Adding the liability insurance
Subsidizing employee private insurance
Working with insurance companies to create a new kind of coverage
and customers
Working with “smart car” experts that seek to avoid all accidents through the
use of technology
Offering special training to drivers
After generating such a list, the instructor may wish to point out that students
multiple stakeholder interests in creative ways.
Epilogue
After strenuously opposing Susan Bonilla’s bill, Uber backed off, apparently
recognizing that the company did not have the political strength to defeat it.
Inside, the company entered into negotiations over the specific terms of the
importantly, what public policy should be—a collective process for all
stakeholders to contribute.”
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press release, September 17, 2014;
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