GMGT 1010: THE

Class 8 day of
SHAREHOLDER/STAKEHOLDER quiz 2
DEBATE
 ROAD MAP

 What and who are stakeholders?

 The broader debate between a shareholder or
stakeholder focus
 The arguments in favor of a stakeholder focus
 The business case for stakeholder management and
analysis
 Issue management
 Stakeholder mapping
 The challenges of a“true” stakeholder focus
 Moving toward a stakeholder focus
 WHAT ARE STAKEHOLDERS?

 an individual, or group, who can influence and/or is

influenced by the achievement of an organization's
purpose
 WHO ARE STAKEHOLDERS

The first step for business is to identify the

stakeholders that influence the corporation
and/or that are influenced by the corporation
OWNERS/SHAREHOLDERS
DIRECTORS
EMPLOYEES
CUSTOMERS
LENDERS/CREDITORS
SUPPLIERS
GOVERNMENT
NGOS
 OTHERS…

 Service professionals
 Dealers, Distributors, and Franchisees
 The Media
 Business Organizations
 Educational Institutions
 Competitors
 Joint-venture partners
 Religious groups
 Society at large
 Charities
 Other Associations
 CATEGORIZING STAKEHOLDERS

Internal vs external
Internal: employees, shareholders
External: society at large, local communities
Normative vs derivative stakeholders
Normative: employees, customers
Derivative: NGOs, the media
STAKEHOLDERS AT TIM HORTON’S
 THE SHAREHOLDER/
STAKEHOLDER DEBATE
WHO SHOULD COMPANIES FOCUS ON
SATISFYING?

Shareholders Stakeholders
THE SHAREHOLDER AND STAKEHOLDER
VIEW IN COMPARISON
The Shareholder view
 shareholders advance capital to a company's
managers, who are supposed to spend corporate
funds only in ways that have been authorized by the
shareholders
The Stakeholder view
 managers have a duty to both the corporation's
shareholders and "individuals and constituencies that
contribute, either voluntarily or involuntarily, to [a
company's] wealth creating capacity and activities,
and who are therefore its potential beneficiaries
and/or risk bearers”
THE ARGUMENTS FOR
A STAKEHOLDER
APPROACH
STAKEHOLDER RELATIONS AND
ANALYSIS
 ISSUE MANAGEMENT

 ISSUE - a point in question or a matter that is in

dispute where different views are held of what is or
what ought to be corporate performance -based
management or stakeholder expectations
 ISSUE MANAGEMENT – a systematic process by
which the corporation can identify, evaluate, and
respond to those economic, social, and
environmental issues that may impact significantly
upon it
STAKEHOLDER MATRIX MAPPING
 WAL-MART ENTERS SMALL COMMUNIT Y

 Stakeholders
 Existing competitors (EC), including small businesses
 Municipal government (MG), mostly likely supporter; considers
development desirable
 Consumers (CO), most likely supporter as prices lower and selection
increases
 Chamber of Commerce (CC), supporter but some members may
oppose
 Residents (RE) in area of the development
 NGOs (NG), especially environmental ones, would oppose
 Possible employees (PO) in development view as opportunity
 Employees (EE) of existing retailers
 Media (ME) would outline both positions
STAKEHOLDER MATRIX MAPPING FOR
WAL-MART
 THE STRATEGIC IMPLICATIONS OF
STAKEHOLDER MAPPING

Once stakeholders have been mapped,

companies can take steps to try to
influence stakeholders
 BUT…

The fundamental distinction is that the

stakeholder theory demands that interests of
all stakeholders be considered even if it
reduces company profitability
In other words, under the shareholder theory,
non-shareholders can be viewed as "means" to
the "ends" of profitability; under the
stakeholder theory, the interests of many non-
shareholders are also viewed as “ends."
 WHY DOES SHAREHOLDER VALUE
DOMINATE IN THE US AND CANADA?
 ASSERTION #1: IT’S WHAT WE ARE TAUGHT

Neoclassical economics, business school

curriculum, accounting and finance
 HOWEVER…

 Many managers have traditionally viewed their role

as satisfying customer and employee interests as
well as shareholder interests as their mandate
 ASSERTION 2: INCENTIVES FOR
SHAREHOLDER MAXIMIZATION

Executive compensation tied to share price

 HOWEVER…

Artificial inflation of share price is being

increasingly de-legitimized
 ASSERTION 3: IT’S THE LAW

The laws give primacy to shareholders over

other stakeholders
 HOWEVER…

The laws are not clear in their support for

shareholders…
In the US, directors have a:
 Duty to care – directors should gather the necessary
information before making decisions
 Duty of loyalty – directors should act appropriately
and not engage in conflicts of interest
As long as they fulfil these duties, courts will
not challenge their decisions
“Stakeholder laws”
 ASSERTION #4: MARKET DISCIPLINE

Markets will force managers into embracing

shareholder value since not doing so will lead
to their removal
 HOWEVER…

Research indicates that managers are not

always likely to be removed for failing to
maximize shareholder value
Hostile takeovers are proving increasingly
ineffective
ARE THINGS MOVING AWAY FROM A
STAKEHOLDER MODEL?
MOVING TOWARD A STAKEHOLDER VALUE
MODEL

Changing the language

Changing attitudes and behaviours
Clear communication in the organization
Larger changes in board composition and
structure
Larger changes in laws, regulations, and firm
financing
 CHANGING THE LANGUAGE

Maximizing our company’s value

Instead of

Maximizing shareholder value

CHANGING ATTITUDES AND BEHAVIOURS

Given the current legal wording around the

responsibilities of CEOs and the low
effectiveness of hostile takeovers, CEOs
should be more free to openly pursue a
stakeholder value approach given that the
board approves it
 CLEAR COMMUNICATION

Communication of a stakeholder (or

shareholder) approach, should be clearly
communicated throughout the organization to
ensure alignment of objectives
CHANGES IN BOARD STRUCTURE AND
COMPOSITION
 BOARD COMPOSITION AND DIVERSIT Y

Inside Directors
Members of the board of directors who are
current employees, major shareholders, former
employees, or family members of employees
Outside Directors
Members of the board who are not directly
connected with the company, yet have existing or
potential business relationships with the
company
BOARD DIVERSIT Y
WOMEN ON CORPORATE BOARDS
WOMEN ON CORPORATE BOARDS BY
COUNTRY
EXECUTIVE COMPOSITION
CODETERMINATION
 BROADER STRUCTURAL CHANGES

In law
In Regulations
In firm-financing
Check out these videos
 https://www.youtube.com/watch?v=VHGTsEwbOJY
https://www.youtube.com/watch?v=bIRUaLcvPe8
https://www.youtube.com/watch?v=_sNKIEzYM7M