Ethical Decision-Making and Prioritizing Stakeholders Quiz

PDF page 88: If we carry the idea of stakeholder to the extreme, every person is a stakeholder of every company. The first step in stakeholder management, the process of accurately assessing stakeholder claims so an organization can manage them effectively, is therefore to define and prioritize stakeholders significant to the firm. Then, it must consider their claims. Given that there are numerous types of stakeholders, how do managers balance these claims? Ethically, no group should be treated better than another, and managers should respond to as many stakeholders as possible. However, time and resource limitations require organizations to prioritize claims as stakeholder needs rise and fall.

PDF page 88: First, it may help to speak to the expectations that any stakeholders may have of a particular business or institution. It depends on particular stakeholders, of course, but we can safely say that all stakeholders expect a form of satisfaction from an organization. If these stakeholders are shareholders (stockowners), then they generally wish to see a high return on their purchase of company shares. If, on the other hand, they are employees, they typically hope for interesting tasks, a safe work environment, job security, and rewarding pay and benefits. If, yet again, the stakeholders are members of the community surrounding a business, they

PDF page 88: First, it may help to speak to the expectations that any stakeholders may have of a particular business or institution. It depends on particular stakeholders, of course, but we can safely say that all stakeholders expect a form of satisfaction from an organization. If these stakeholders are shareholders (stockowners), then they generally wish to see a high return on their purchase of company shares. If, on the other hand, they are employees, they typically hope for interesting tasks, a safe work environment, job security, and rewarding pay and benefits. If, yet again, the stakeholders are members of the community surrounding a business, they

PDF page 88: First, it may help to speak to the expectations that any stakeholders may have of a particular business or institution. It depends on particular stakeholders, of course, but we can safely say that all stakeholders expect a form of satisfaction from an organization. If these stakeholders are shareholders (stockowners), then they generally wish to see a high return on their purchase of company shares. If, on the other hand, they are employees, they typically hope for interesting tasks, a safe work environment, job security, and rewarding pay and benefits. If, yet again, the stakeholders are members of the community surrounding a business, they

PDF page 88: First, it may help to speak to the expectations that any stakeholders may have of a particular business or institution. It depends on particular stakeholders, of course, but we can safely say that all stakeholders expect a form of satisfaction from an organization. If these stakeholders are shareholders (stockowners), then they generally wish to see a high return on their purchase of company shares. If, on the other hand, they are employees, they typically hope for interesting tasks, a safe work environment, job security, and rewarding pay and benefits. If, yet again, the stakeholders are members of the community surrounding a business, they

PDF page 89: After establishing that a key stakeholder group is being represented, the manager should identify what the company needs from the stakeholder. This simply helps clarify the relationship. If nothing is needed immediately or for the foreseeable future, this does not mean the stakeholder group does not matter, but it can be a good indication that the stakeholder need not be prioritized at the moment. Note that managers are often considering these questions in real time, usually with limited resources and power, and that circumstances can change in a matter of moments. In one sense, all representatives of a company are constantly practicing stakeholder prioritization. It need not be a formal process. At times, it is a question of which supplier should be praised or prodded or which customer has a larger order to fill or a special request that might be met. What matters is establishing that someone is a stakeholder, that the concern is currently important, and that the relationship matters for the growth of the business. If the firm cannot survive without this particular stakeholder or replace him or her relatively easily, then such a person should have priority over other stakeholders who do not meet this criterion. Key suppliers, lucrative or steady customers, and influential regulators must all be attended to but not necessarily capitulated to. For example, a local state legislator representing the district where a business is located may be urging the legislature to raise business taxes to generate more revenue for the state. By him- or herself, the legislator may not have sufficient political clout to persuade the legislature to raise taxes. Yet wise business leaders will not ignore such a representative and will engage in dialogue with him or her. The legislator may eventually be able to win others over to the cause, so it behooves perceptive management to establish a working relationship with him or her. Not every stakeholder can command constant attention, and no firm has unlimited time or resources, so in one sense, this prioritizing is simply the business of management. Combine the inherent priority of the stakeholder relationship with the level of exigency, that is, the level of urgency of a stakeholder claim, to arrive at a decision about where to begin focusing resources and efforts. Stakeholder prioritization will also vary based on time and circumstance. For example, a large retailer facing aggressive new competitors must prioritize customer service and value. With Amazon acquiring Whole Foods and drastically cutting prices, the grocery chain’s customer base may very well grow because prices could become more attractive while the perception of high quality may persist. Potential customers may no longer

PDF page 89: After establishing that a key stakeholder group is being represented, the manager should identify what the company needs from the stakeholder. This simply helps clarify the relationship. If nothing is needed immediately or for the foreseeable future, this does not mean the stakeholder group does not matter, but it can be a good indication that the stakeholder need not be prioritized at the moment. Note that managers are often considering these questions in real time, usually with limited resources and power, and that circumstances can change in a matter of moments. In one sense, all representatives of a company are constantly practicing stakeholder prioritization. It need not be a formal process. At times, it is a question of which supplier should be praised or prodded or which customer has a larger order to fill or a special request that might be met. What matters is establishing that someone is a stakeholder, that the concern is currently important, and that the relationship matters for the growth of the business. If the firm cannot survive without this particular stakeholder or replace him or her relatively easily, then such a person should have priority over other stakeholders who do not meet this criterion. Key suppliers, lucrative or steady customers, and influential regulators must all be attended to but not necessarily capitulated to. For example, a local state legislator representing the district where a business is located may be urging the legislature to raise business taxes to generate more revenue for the state. By him- or herself, the legislator may not have sufficient political clout to persuade the legislature to raise taxes. Yet wise business leaders will not ignore such a representative and will engage in dialogue with him or her. The legislator may eventually be able to win others over to the cause, so it behooves perceptive management to establish a working relationship with him or her. Not every stakeholder can command constant attention, and no firm has unlimited time or resources, so in one sense, this prioritizing is simply the business of management. Combine the inherent priority of the stakeholder relationship with the level of exigency, that is, the level of urgency of a stakeholder claim, to arrive at a decision about where to begin focusing resources and efforts. Stakeholder prioritization will also vary based on time and circumstance. For example, a large retailer facing aggressive new competitors must prioritize customer service and value. With Amazon acquiring Whole Foods and drastically cutting prices, the grocery chain’s customer base may very well grow because prices could become more attractive while the perception of high quality may persist. Potential customers may no longer

PDF page 90: need to economize by shopping elsewhere. Whole Foods’ competitors, on the other hand, must now prioritize customer service, whereas before they could compete on price alone. Whole Foods can become a serious competitor to discount grocery stores like ALDI and Walmart. Another way to prioritize stakeholder relationships is with a matrix of their power and interest. As Figure 3.5 shows, a stakeholder group can be weighted on the basis of its influence (or power) over and interest in its relationship to the firm. A stakeholder with a high level of both power and interest is a key stakeholder. If this type of stakeholder group encounters a problem, its priority rises.

PDF page 90: need to economize by shopping elsewhere. Whole Foods’ competitors, on the other hand, must now prioritize customer service, whereas before they could compete on price alone. Whole Foods can become a serious competitor to discount grocery stores like ALDI and Walmart. Another way to prioritize stakeholder relationships is with a matrix of their power and interest. As Figure 3.5 shows, a stakeholder group can be weighted on the basis of its influence (or power) over and interest in its relationship to the firm. A stakeholder with a high level of both power and interest is a key stakeholder. If this type of stakeholder group encounters a problem, its priority rises.

PDF page 90: On the supplier side, a small farmer or seasonal supplier could fall in the low-power, low-interest category, particularly if that farmer were selling various retailers produce from his or her fields. However, if that same farmer could connect to a huge purveyor like Kroger, he or she could sell this giant customer its entire crop. This relationship places the farmer in the low-power, high-interest category, meaning he or she will most likely have to make price adjustments to make the sale. The model’s focus on power reveals a need for any company to carefully cultivate relationships with stakeholders. Not all stakeholders have equal influence with a firm. Still, no organization can blithely ignore any stakeholder without potentially debilitating economic consequences. For example, now that Amazon has acquired Whole Foods and increased the size of the customer stakeholder group, it must also find ways to personalize its communications with this group, because personal service has traditionally been more a hallmark of Whole Foods than of Amazon. Successful business practice today hinges on the ethical acknowledgement of stakeholder claims. It is the right thing to do. Not only that, it also engenders satisfied stakeholders, whether they be customers, stockowners, employees, or the community in which a firm is located. Naturally, satisfied stakeholders lead to the financial well-being of a company.

PDF page 90: On the supplier side, a small farmer or seasonal supplier could fall in the low-power, low-interest category, particularly if that farmer were selling various retailers produce from his or her fields. However, if that same farmer could connect to a huge purveyor like Kroger, he or she could sell this giant customer its entire crop. This relationship places the farmer in the low-power, high-interest category, meaning he or she will most likely have to make price adjustments to make the sale. The model’s focus on power reveals a need for any company to carefully cultivate relationships with stakeholders. Not all stakeholders have equal influence with a firm. Still, no organization can blithely ignore any stakeholder without potentially debilitating economic consequences. For example, now that Amazon has acquired Whole Foods and increased the size of the customer stakeholder group, it must also find ways to personalize its communications with this group, because personal service has traditionally been more a hallmark of Whole Foods than of Amazon. Successful business practice today hinges on the ethical acknowledgement of stakeholder claims. It is the right thing to do. Not only that, it also engenders satisfied stakeholders, whether they be customers, stockowners, employees, or the community in which a firm is located. Naturally, satisfied stakeholders lead to the financial well-being of a company.

PDF page 91: One methodology for prioritizing stakeholder claims is the Stakeholder Circle, developed by Dr. Linda Bourne. Visit the Stakeholder Management website detailing the five key actions an organization can take using this model (https://openstax.org/l/53StakeCircle) to learn more.