STAKEHOLDER THEORY

Whose interests should a business serve? While many tend to view companies as "citizens" with civic responsibilities. The refutation of corporate "socially responsibility" lies in the premise that individual property owners' interests (stockholders) are the only relevant interests for a business - as business is fundamentally a profit-making entity. In recent years a contrary view of the firm has emerged: there are multiple and competing interests with whom the firm must attempt to service. This is the "stakeholder" theory.

Stakeholder theory is a political view of the firm in which objectives of the firm are contested and influenced by groups who are not investors but who have an interest or stake in a business. Stakeholders are any groups who profess a claim to the operations, value creation or being of the firm. While this may sound, at first, unreasonable. It is the view that has evolved in our laws and is now an accepted business model. While there is no consistent theory as to which groups are legitimate claimants, at a minimum stakeholders include:

A more developed stakeholder model identifies internal and external coalitions as claimants, as follows:

External Coalitions-

• Buyers have an interest in the firm's products or services. A firm has an obligation to buyers to sell products that cause them no harm and are consistent with what is represented at the time of sale.
• Suppliers depend upon the firm as a buyer of their goods and services. A firm has an obligation to pay the products and services it procures from suppliers and to comply with contracts.
• Employee associations, such as unions and professional associations, have a stake in the earnings of the firm. A firm is obligated to pay workers and treat workers in a way that is fair.
• Publics, such as community and public interest groups, have a variety of interests including economic development, product and environmental safety, and an interest in a competitive market. Firms have an obligation to pay taxes, comply with local laws, to not destroy environments and exploit resources, and to not inhibit the free expression of speech and organizing, even when these are contrary to the firm's financial interests. Communities express interest in firms through tax incentives (absorbed by all citizens) and by concerns that local firms contribute to the local economy.

Internal Coalitions-

• Owners hold legal title to the firm, and they govern through a Board of Directors who exercise legal control to advance their interests which are primarily, but not singularly, financial.
• Chief Executive Officer and Top Management have operational responsibilities to manage in the interests of owners, but have their own interests in personal status, income, and a "well managed" enterprise.
• Operators who produce the goods and services have an income interest, but also have a stake in production processes and efficiencies.
• Line managers who supervise the execution of day-to-day work, of course, have an interest in heir own income, but also have a stake in the company's rules, operations, and safety.
• Support staff and clerical staff, in addition to pay, have a stake in how their work is performed, the amount of work they perform, and their treatment at work.
• Sales force personnel, especially if they work on commission, have a stake in product prices and product availability.

Coalitions compete for influence within an organization, or at least each attempts to exercise influence on decisions and on the allocations of resources - such as the organization's budget. Over time, a coalition or group of coalitions come to dominate an organization - although this power may continue to be contested by other coalitions.

Organizational objectives mirror the concerns and interests of the dominant coalition, or at least represent some compromise among competing coalitions. The mission or purpose of the firm, therefore, is "rationality" in that some interests are attempting to be maximized, but in the stakeholder perspective the organization's interests are those of the dominant groups. The organizational and decision-making model is political, rather than economic.
Different organizations have different stakeholders. The nature of the organization may invest in more or less power in specific groups and coalitions. In a university, for example, the faculty may hold a greater claim over the goals and purposes of the organization, than administrative staff. A hospital may empower doctors and nurses over the claims of patients. An innovative firm dependent upon research and development may empower engineers and product development groups over managers and production groups. But, even these examples provide a context in which claims can be contentious and different stakeholders compete. Within universities, an interest by alumni and students for greater attention to athletics competes with claims for increased scholarship or faculty salaries.


CORPORATE CODES OF CONDUCT

Do the same ethical dictates that govern society also operate within business organizations? Should they? If we assume, as the egoist does, that the social good is maximized by individual self-interest, why should this not also be the case for behavior within organizations. What are standards of conduct for employees sanctioned by firms? The amount of real literature on this subject is meager. Here are the findings of two such studies:

1). Fred R. David. "An Empirical Study of Codes of Business Ethics: A Strategic Perspective", paper presented to Annual Academy of Management Conference, Aug. 1988. David examined data from 83 corporations. Performing a factor analysis, he identified the following clusters of values across businesses:

Clusters of Variables Found in 83 Corporate Codes of Business Ethics
Cluster 1. Be a Dependable Organizational Citizen	Cluster 2. Do Not Do Anything Unlawful or Improper that Will Harm the Organization	Cluster 3. Be Good to Customers
1. Comply with safety, health, and security   regulations.	1. Conduct business in compliance with all laws.	1. Convey true claims in product advertisements
2. Demonstrate courtesy, respect, honesty, and fairness.	2. Payments for unlawful purposes are prohibited.	2. Perform assigned duties to the best of your ability.
3. Illegal drugs and alcohol at work are prohibited.	3. Bribes are prohibited.	3. Provide products and services of the highest quality
4. Manage personal finances well.	4. Avoid outside activities that impair duties.
5. Exhibit god attendance and punctuality	5. Maintain confidentiality of records.
6. Follow directives of supervisors.	6. Comply with all antitrust and trade regulations.
7. Do not use abusive language.	7. Comply with accounting rules and controls.
8. Dress in businesslike attire.	8. Do not use company property for personal benefit.
9. Firearms at work are prohibited.	9. Employees are personally accountable for company funds.
	10. Do not propagate false or misleading information.
	11. Make decisions without regard for personal gain.

2) Susan J. Herrington, "What Corporate America is Teaching About Ethics", Academy of Management Executive, Feb. 1991, p. 71.

Harrington's work can be summarized:

Study of 202 Fortune 500 firms identified important missing elements: 75% failed to address personal character issues, with most emphasizing client relations and conflict of interest. issues. Herrington observed that most codes of conduct addressed issues related to profit maximizing behavior.

What the David's research shows is that within business organizations conduct is regulated by codes of conduct. The desired outcomes fall in three broad clusters: organizational citizenship (conforming to normative behavior that advances the business's image and day to day operations); behavior that protects the organization legally; and, behavior that advances the business' relationships with customers.

Herrington's study (a larger study) found that most business codes of conduct were directly related to the organization's need to maximize profits.

Both studies support the conclusion that business Codes of Conduct tend to regulate employee conduct to protect the interests of the business. This brings up an interesting issue: In the pursuit of its interests, the firm abandons the notion of competitive self-interests within its organizational boundaries. The organization is not a market of individuals. It is an organization that maintains itself through control and collaborative efforts - an entity to be managed. Codes of Conduct pose one way to prescribe behavior, what other mechanisms exist?

If business Codes of Conduct have as their primary objective to regulate employee conduct to advance the interests of the company, what interests are protected with the Hampton University Code of Conduct?

Let's look at HU Code of Conduct:

1. To respect himself or herself.
2. To respect the dignity, feelings, worth and values of others.
3. To respect the rights and property of others and to discourage vandalism and theft.
4. To prohibit discrimination, while striving to learn from differences in people, ideas and opinions.
5. To practice personal, professional, and academic integrity, and to discourage all forms of dishonesty, plagiarism, deceit, and disloyalty to the Code of Conduct.
6. To foster a personal and professional work ethic within the Hampton University Family.
7. To foster an open, fair, and caring environment.
8. To be fully responsible for upholding the Hampton University Code.

 

What is the interest being advanced? Is it profit maximization?
What are the interests of the "owners"? Who are the "owners"? Stakeholders?
How is the Code of Conduct enforced?
How ought it be enforced?