What Is a Stakeholder?

Stakeholder Ethics

This report covers stakeholder ethics, how the topic is defined and how companies should handle the same in a way that satisfies the right people and disregards others that are not reputable and/or reasonable.

While a general set of ethics and behaviors is easily and agreeably called for, satiating and satisfying every group of stakeholders involved is often a losing game but the right groups of stakeholders can and should be satisfied and catered to.

First Point-of-View

Ethics that are based only on the law and compliance with it and nothing else

Second Point-of-View

Ethics that mandate compliance with the law and extensive circumstances that take all internal and external stakeholders into account. The environment and animals can also be "stakeholders

Third Point-of-View

a. A balance between complying with the law and corporate/social responsibility while not getting ridiculous and/or spending money that give little/no benefit to the firm and/or puts the firm at risk of not serving clients effectively.

Class/Section

13 March 2014

Stakeholder Ethics

Gone are the days of black and white ethics as it pertains to operating a business while at the same time retaining the utmost in integrity and stewardship for all stakeholders involved. The main reason for this is the entrenched and pervasive polarization that now exists within the American and global business sphere. Words like "stakeholder" and "ethics" as it pertains to whomever those "stakeholders" are literally differ from group to group or even person to person. Simple compliance with the law is far from being the only concern when terms like "blood diamonds" and "corporate farming" are tossed around, among many others. While a general set of ethics and behaviors is easily and agreeably called for, satiating and satisfying every group of stakeholders involved is often a losing game but the right groups of stakeholders can and should be satisfied and catered to.

The United States and the rest of the industrialized world has clearly broken into two major strains of thought. Whether one classify or refer to it as "left vs. right," "Keynes vs. supply-siders" or some other set of terms and buzzwords, it is clear that there are two extremely divergent viewpoints that exist out there as it pertains to how a business can and should operate and their burdens to stakeholders. Indeed, there is a disagreement in many circles as to who the stakeholders even are to begin with. There are the obvious stakeholders such as investors, employees, executives and stockholders. However, one can easily lump in groups like city residents, state residents, and national residents. Depending on the reach and operational structure, whether it is based on what is being done or where it is being done, the people potentially impacted by a firm's operations is by no means limited to a small geographical area or even just to the customers, owners and employees of the firm in question. A good example of this would be the pending merger of Comcast and Time Warner. While some may yawn at yet another group of firms merging, the ramifications and implications of two major media heavyweights that touch many corners of television, internet access and movies (just to name a few) are not hard to decipher if one simply pays attention. Many of the same questions and implications were posed before the recent merger attempt between AT&T and T-Mobile was shot down by antitrust regulators.

However, while arguments can be made all day about more abstract and convenience-oriented business structures, one can paint a much more dire and mine-filled picture when speaking of business sectors like construction, mining and energy. Even if it was patently illegal, the price manipulation of Enron laid bare that the "stakeholders" impacted their depraved deeds are quite wide-ranging and the damage knows little bounds within the affected areas. However, the examples offered thus far are fairly extreme and exceedingly rare. Even so, it is a good and proper point of argument and analysis to look at what it truly means to be ethical and morally upstanding as it relates to a business and who the affected stakeholders truly are. In the end, the identification of these stakeholders can and should lead to how those situations and people will be treated in terms of how the business does or does not choose to operate.

What causes such strife a lot of times is that the more traditional stakeholders of a firm are those that have "skin" in the game, those being the employees who rely on a job and the investors who want return on the money that they are pitching in. While many or even most industries have a fairly clear playing field as it relates to who the stakeholders are and how to ethically and properly serve them, there are some fields that are often demonized and assailed for their opportunism and their overall business tactics. Common examples would be pawn shops and payday loan companies. The former gives people a fraction of what a product is worth to someone that is typically hard up (if not desperate) for money while the latter charges interest rates in the hundreds of percent (annualized) to people that often cannot get loans from more reputable lenders that charge much lower rates like banks and credit unions (Read). The behaviors of these two types of businesses are heavily regulated but many say that even if a pawn shop or payday loan place follows the law to the letter, they are still being unethical and are exploiting people that are in need. However, the devil's advocate response would be what those people would do in the same situation if the pawn shops and payday loan shops disappear. It is hard to be certain, but it would probably be chaotic…if not violent…as it is clear that poverty and desperation are often precursors to crimes like robbery, burglary and larceny in general although some disagree with such causality at least to some degree (Riggs). Another caveat to demonizing these businesses is that people are not being forced to do anything and the laws involved are rather stringent. Indeed, emergencies do happen, credit ratings are sometimes poor and there are plenty of other examples that are at least similar to these "bad" ones in one or more ways such short sales, foreclosures and repossessions (Wiggin). Banks and such often care not all that much if they do not get paid for a certain amount of time even if a loss of a job, the death of a breadwinner or a disability is involved…the world still goes on.

As with all things, what has been discussed thus far is that depravity and the definition of a stakeholder can differ quite a bit. Also, the ethics of how said stakeholder should or should not be treated also differs. However, simply leaving the market to form and shape itself can be a bad idea and one need only look at black markets like stolen cars and drugs to see what can happen if greed alone is allowed to be the only driver of whether something is worth doing or not. At the same time, some "advocate" and talking heads go entirely too far and/or push a very narrow view on others. To some, the word "profit" is obscene and many actually view businesses as the piggy banks of the populace and government as a means to fund social safety net and wealth redistribution frameworks. Even in the United States, roughly one half of the federal budget it going to just three transfer payment programs, those being Social Security, Medicare and Medicaid. Such frameworks are much more protracted and advanced in areas like Canada and Western Europe. A major theme that should become clear by now is that there is a way to strike a balance. The presence of pawn shops and payday loans may not be optimal, but they are heavily regulated and they do serve a purpose of giving people an outlet they otherwise would not have. The social safety net programs of the world get a lot of money sunk into them and a lot of that money goes to waste, but the alternative would be soulless.

However, the yardsticks that some people are using are odd to insane. The aforementioned use of the word "profit" as if it is a dirty word and that the root goal of a business is to make a profit is nonsensical. Also, many people presuppose that government is the solution and that business is always evil and must be reined in. This is also a fallacy because government is often ridiculously inefficient, their good intentions get laid to waste by laughable results and government seems entirely too willing to try and keep raising budgets and tightening the regulation noose more and more. It is true that businesses can be evil but they fund all taxes paid in countries in one way or another and perhaps government should not deign to tell customers what they should or should not like or buy unless there is an overarching health or other similar concern.

A good example would be petroleum. Many world leaders, past and present, have tried to push the idea that petroleum is evil and that it needs to be done away with. However, any idea that petroleum is going anywhere in the next century, let alone the next decade or two, is a joke on its face as the product is used all over the place including in gas, tires, plastics and others. Add this to the fact that businesses are being taxed and regulated based on the fact that pollution is supposedly causing global warming to accelerate and potentially doom the planet despite the fact that many hold that the science is far from definitive or final is exasperating to say the least to anyone who might step back and wonder what the real agenda is and whether the argument is about ethics or if it's about control and money from the government's perspective. Another common fallacy that is trumpeted all of the time is that businesses are evil and unions are the "good guys." However, unions have done some rather odd to immoral things as of late like tell heroin-using teachers to not submit to drug tests, to resist the idea that sex offenders should not be employed in schools as enforced by a background check and telling a business to go spit when it was made clear to them that the business would fold if wage/benefit concessions were not given up. The author of this report by no means suggests that businesses are always on the right side of an argument nor is the author saying that organized labor is the problem. However, to put all of the onus and/or blame on business is wrong-headed and short-sighted.

As for what this all is coming to, the author of this report has several suggestions and guidelines that businesses should follow. First, the bare minimum framework that a business should always operate in is to remain within the laws of the relevant cities, states and nations in which they operate. This alone will preclude many businesses from working in certain areas such as Iran, North Korea and Cuba just to name a few. Second, it has to be understood that no matter what is done (or not done) by a business as far as its stakeholder ethics or anything else, not everyone is going to be happy. Any restaurant that sells meat is going to get heat from PETA, any pawn shop is going to get heat about taking advantage of the poor/desperate and so forth.

As far as defining stakeholders, any list of stakeholders would obviously need to include employees, owners/investors and customers. However, each organization has to honestly yet reasonably look at who else might be involved. For example, a college's stakeholders would include students and even the community that is impacted by the presence and contributions of those students. The community has a vested interest in the students and the college at doing well and thus painting a good picture, reputation and outcome for the city as well as the state at large as the students graduate and enter the workforce. Another example of where the scope and reach of stakeholders will stretch a lot is energy-makers/harvesters such as electric companies, coal miners and cable companies. Basic utilities, whether they be public or private, have a ton of stakeholders as customers and non-customers will be affected greatly if the electricity, water or media services in an area hit the fritz. Lives can be endangered and business productivity can tank in an instance and this can have wide-ranging effects for a lot of people both inside of and outside of the community or section of a city in question.

The point is that using a predefined or "cookie-cutter" way to define and cater to stakeholders is not wise and it needs to be tailored and customized to the specific situation involved including what the organization does, where it does its tasks/job, who all can/will be impacted by the organization's daily operations and so forth. The list of stakeholders could be fairly narrow and easy to list or it can be rather hard and/or expansive in nature. Regardless, it is important to be fair, honest and diligent when crafting and filtering that list because that will dictate how complicated and multi-dimensional that choices will be as they are decided and actually made. Any business operation that will clearly hurt people and can be avoided should generally not be done. However, there are cases where it is simply the lesser of two evils. For example, choosing not to harvest diamonds in Sierra Leone because of the "conflict" nature of the stones is a good thing. However, not closing a factory so as to avoid loss of jobs is less than wise if the ongoing operations of the factory cannot possibly be justified from a monetary standpoint. Perhaps it can be temporary and finite in nature, but the dollars and cents of a choice have to come into play at some point even if it is not the only concern in question.

Another recommendation is to make meaningful steps to be a good social or corporate citizen. Platitudes and high-reaching language may look and sound good, but people will want tangible results and outcomes from anything that clearly takes away from the bottom line. For example, using renewable energy may sound good but it can also be expensive, often MUCH more expensive, than traditional means. For example, having a fleet of Chevrolet Volts may sounds good, but their limited range and $50k+ a piece price tag would be a buzzkill quite quickly. However, there are sustainability and environmental concerns are also good for business. Using paperless exhanges of documents such as PDF's and emails over printed statements and other communications is a great way to save money and time as is the use of refilled toner and ink cartridges over new ones that are often very expensive and there is no re-use involved in buying new.

Now comes a focus on the harder outcomes and events to pull off, and that is appeasing the ideologues and blowhards that like to get into the minutia of things that just divide and waste time more often than it does not. One thing that businesses can look to that has an obvious and wide-ranging effect on stakeholders is the handling of pension and retirement benefits. The days of defined-benefit pensions are on their way into the sunset due to the fact that many businesses and a ton of government agencies are finding out that guaranteeing a certain amount of income per month, which is how defined-benefit plans work, can be quite tricky if the money runs out. It takes the argument of whether it is wise to pay someone for years while they do not work to whether they CAN be paid at all while still allowing for the business or government agency to operate within solvency. In such a situation, at least one of the stakeholders involved is going to be left holding the bag and it will almost always be the pension recipient and not the business as the pension fund is a moot point if a business goes bankrupt.

Another key recommendation is to be very careful what is said to the public vs. what is said internally, as they should not be the same thing even in an ethical and moral environment. There is indeed situations that are "need-to-know" and there is much to be said for the idea of "appearance of impropriety." There is also much to be said for giving people something to needle a business about. For example, when McDonald's was thinking about expanding into India, they probably played things very close to the vest because they wanted to have their proverbial ducks in a row before going public. The idea of selling meat products in a country that often frowns on such consumption is but one reason and there is also the concern of the United States and their cultural transmission into the cultures and societies of peoples that are quite different as there has been blowback about that at one level or another for decades.

A tangential but different point of analysis and thought that all businesses should bear in mind when speaking of stakeholders is that there will always be resistance from at least one group of stakeholders when a major change is undertaken. This resistance can come from within and can necessitate change management strategies such as getting buy-in and so forth or it can come from customers who do not like a change being made to what they became accustomed do. An example of the former would be a sales department resisting the restructuring the department and the latter would be a restaurant change getting negative feedback about a menu or ingredient change.