Chapter 3
The Stakeholder Approach to Business, Society, and Ethics
LEARNING OUTCOMES
After studying this chapter, you should be able to:
1. Identify origins of the stakeholder concept by explaining what a stake is and what a
stakeholder is.
4. Identify and explain the three values of the stakeholder model.
5. Name and describe the five key questions that capture the essence of stakeholder
management.
TEACHING SUGGESTIONS
INTRODUCTION – In the face of increasingly complex business environments and operations,
the models by which businesses are managed are also becoming more complex. Perhaps the
KEY TALKING POINTS – The primacy of ownership interest in business organizations is still
very much the norm in the United States. When students are asked why shareholders should
normatively receive the profits of a business, their standard answer is that the shareholders own
the company. The idea that an ownership position entitles privileged treatment is almost
universal among U. S. residents. Realization that other groups also have legitimate claims on the
corporation is a nearly foreign concept for some students. Introduction of the stakeholder model
of the firm is an excellent opportunity to make a significant difference in how students think
about the firm and its responsibilities. Students should begin to think of the corporation in a
different light, with claims on it from many different constituencies. In addition to introducing
(the strategic approach), the real point of stakeholder theory is lost. All that would mean is that
managers have a broader group to manage, but their end is still the same—benefit the firm.
Conversely, if managers see stakeholders as groups that have a claim on the firm, and recognize
that the firm should provide benefits to them as well as the owners (the multifiduciary approach),
the true power of the stakeholder model will be released.
PEDAGOGICAL DEVICES – In this chapter, instructors may utilize a combination of:
Cases:
1-Wal-Mart- The Main Street Merchant of Doom
2-The Body Shop (A) – Pursuing Social and Environmental Change
12-Banned if You Do, Banned if You Don’t
19-Should Directors Shine Light on Dark Money?
23-McDonald’s Coffee Spill
24-The Betaseron Decision (A)
25-The Hudson River Cleanup and GE
26-Cloud Computing – Earth’s Friend or Foe
39-To Take or Not to Take
Ethics in Practice Cases:
Are Plants and Flowers Stakeholders? Do They Have Rights?
Chickens or Employees? Which Is the Most Important Stakeholder?
Something’s Rotten in Hondo
Spotlight on Sustainability:
Engaging Stakeholders on Sustainability
LECTURE OUTLINE
I. ORIGINS OF THE STAKEHOLDER CONCEPT
A. What is the Stake in Stakeholder?
B. What is a Stakeholder?
II. WHO ARE BUSINESS’S STAKEHOLDERS?
C. Important Stakeholder Attributes: Legitimacy, Power, Urgency
III. S TAKEHOLDER APPROACHES: STRATEGIC, MULTIFIDUCIARY, AND
SYNTHESIS
IV. THREE VALUES OF THE STAKEHOLDER MODEL
A. Descriptive Value
V. STAKEHOLDER MANAGEMENT: FIVE KEY QUESTIONS
A. Who Are the Organization’s Stakeholders?
1. McDonald’s Continuing Experience
2. Wool Industry under Fire
B. What Are Our Stakeholders’ Stakes?
1. Nature or Legitimacy of a Group’s Stakes
C. What Opportunities and Challenges Do Our Stakeholders Present?
1. Potential for Cooperation or Threat
D. What Responsibilities Does a Firm Have toward Its Stakeholders?
E. What Strategies or Actions Should Management Take?
1. Type 1: Supportive Stakeholder
VI. EFFECTIVE STAKEHOLDER MANAGEMENT
A. Stakeholder Thinking
B. Developing a Stakeholder Culture
C. Stakeholder Management Capability
D. Stakeholder Engagement
1. Ladder of Stakeholder Engagement
VII. STRATEGIC STEPS TOWARD GLOBAL STAKEHOLDER MANAGEMENT
A. Implementation
VIII. SUMMARY
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
Students should recognize that their answers to these discussion questions should be well
reasoned and supported with evidence. Although some answers will be more correct than others,
students should be aware that simplistic answers to complex questions, problems, or issues such
as these will never be “good” answers.
1. Question: Explain the concepts of stake and stakeholder from your perspective as an
individual. What kinds of stakes and stakeholders do you have? Discuss.
Answer: As college students, the people in class may have a widely varied list of stakes
and stakeholders. Stakeholders may include parents, a spouse or significant other, possibly
children, classmates, the instructor, employers or employees, and many others. The stakes
2. Question: Explain in your own words the differences between the production, managerial,
and stakeholder views of the firm. Which view is best and why?
Answer: The production view of the firm was the earliest, most simplistic model. In it, the
only groups considered were those who dealt directly with the firm in a business capacity,
either supplying factors of production or buying the firm’s products. As business firms
became more complex and management functions separated from ownership, a more
sophisticated model, the managerial view of the firm, was developed. In addition to the
3. Question: Differentiate between primary and secondary social and nonsocial stakeholders
in a business situation. Give examples of each.
Answer: Primary stakeholders are those groups or persons who have a direct stake in the
organization. Secondary stakeholders have more public or special interests in the firm,
rather than direct stakes. Social stakeholders appear to encompass entities that humans
consider human-related, i.e., individuals and groups of individuals. Nonsocial stakeholders
Ch 3, Instructor’s Manual, Business & Society, Carroll 10e
4. Question: What are the five key questions that must be answered for stakeholder
management to be successful?
Answer: 1. Who are our organization’s stakeholders? 2. What are our stakeholder’s stakes?
5. Question: What are the three levels of stakeholder engagement that a company might use?
Explain each.
Answer: Lower levels of stakeholder engagement can be used for informing and
explaining. New coverage, publications, and reports are forms of low-level engagement.
6. Question: Is the stakeholder corporation a realistic model for business firms? Will
stakeholder corporations become more prevalent in the 21st century? Why or why not?
Answer: A cynic would look at the current business climate and declare that the
stakeholder corporation is an impractical dream that will not come to fruition any time
soon. Recent failures in the financial services and automotive industries (among others)
and the continuing disparity in CEO and worker pay provide much evidence that primary
consideration is given to enriching those in control of the organization at the expense of all
GROUP ACTIVITY
Divide students into groups of four to five students. Have each group review the corporate social
responsibility report of a different company. Ask the students to determine the stakeholders
addressed by the company’s CSR report. Students should then select one stakeholder group and
determine how the company addressed the five key questions of stakeholder management with
regards to the selected stakeholder: (1) Who Are Our Stakeholders? (Students should indicate
Ch 3, Instructor’s Manual, Business & Society, Carroll 10e
the selected stakeholder group here); (2) What Are Our Stakeholders’ Stakes?; (3) What
Opportunities and Challenges Do Our Stakeholders Present?; (4) What Responsibilities Does the
Firm Have to Its Stakeholders? and (5) What Strategies or Actions Should Management Take?
INDIVIDUAL ASSIGNMENT
Have students read the following scenario and use the five key questions in stakeholder
management to determine how Starbuck’s should handle this stakeholder.
A few years ago, Starbucks identified three areas in which government could impact the
company’s ability to maximize profits in its Corporate Social Responsibility Report: (1) U.S.
Tax Policy, (2) U.S. Trade Policy and (3) U.S. Healthcare Policy. Starbucks notes that (1) sound