{"id":66,"date":"2018-09-26T19:45:22","date_gmt":"2018-09-26T19:45:22","guid":{"rendered":"https:\/\/test-hcc-press-wp-multisite.pantheonsite.io\/businessethics\/chapter\/weighing-stakeholder-claims\/"},"modified":"2023-07-19T19:02:58","modified_gmt":"2023-07-19T19:02:58","slug":"weighing-stakeholder-claims","status":"publish","type":"chapter","link":"https:\/\/pressbooks.hcfl.edu\/businessethics\/chapter\/weighing-stakeholder-claims\/","title":{"raw":"Weighing Stakeholder Claims","rendered":"Weighing Stakeholder Claims"},"content":{"raw":"<div id=\"fs-idm207367168\" class=\"learning-objectives\">\r\n<h2>Learning Objectives<\/h2>\r\n<p id=\"fs-idm199018672\">By the end of this section, you will be able to:<\/p>\r\n\r\n<ul id=\"fs-idm209659568\">\r\n \t<li>Explain why stakeholders\u2019 claims vary in importance<\/li>\r\n \t<li>Categorize stakeholders to better understand their claims<\/li>\r\n<\/ul>\r\n<p id=\"fs-idm196094656\">As we saw earlier in this chapter and in Why Ethics Matter, the law only partially captures the ethical obligations firms owe their <span class=\"no-emphasis\">stakeholder<\/span>s. A particular stakeholder claim, that is, any given stakeholder\u2019s interest in a business decision, may therefore challenge the ethical stance even of an organization that complies with the law. For example, some community members may oppose the opening of a \u201cbig box\u201d chain store that threatens the livelihoods of small-business owners in the area, while shareholders, creditors, employees, and consumers within the nearby neighborhoods support it as an additional opportunity for profit and quality goods at competitive prices. Conflicts like this illustrate how complicated prioritizing stakeholder claims can be, particularly when there are ethical pros and cons on both sides. A big box store may offer a wider selection of goods at lower prices, for example, and create jobs for teens and part-time workers.<\/p>\r\n<p id=\"fs-idm183697792\">A related theme to recall is that even though all stakeholder claims are important for a company to acknowledge, not all claims are of equal importance. Most business leaders appreciate that a company\u2019s key stakeholders are essential to its efficient operation and growth, and that its overall mission, goals, and limited resources will force its managers to make choices by prioritizing stakeholders\u2019 needs. In this section, we look at ethical ways in which business managers can begin to make those decisions.<\/p>\r\n\r\n<\/div>\r\n<div id=\"fs-idm215680672\" class=\"bc-section section\">\r\n<h3>The Ethical Basis of Stakeholders\u2019 Claims<\/h3>\r\n<p id=\"fs-idm183184592\">Stakeholder claims vary in their significance for a firm. According to Donaldson and Preston,<\/p>\r\n\r\n<div class=\"delete-me\"><\/div>\r\nthere are three theoretical approaches to considering stakeholder claims: a descriptive approach, an instrumental approach, and a normative approach. The descriptive approach sees the company as composed of various stakeholder groups, each with its own interests. These interests impinge on the company to a greater or lesser degree; thus, the main point of the descriptive approach is to develop the most accurate model and act on it in ways that weigh and balance these interests as fairly as possible. The instrumental approach connects stakeholder management and financial outcomes, proposing that appropriate management of stakeholder interests is important and useful because it contributes to a positive bottom line.\r\n<p id=\"fs-idm192555248\">The normative approach considers stakeholders as ends in themselves rather than simply as means to achieve better financial results. According to Donaldson and Preston, in the normative approach \u201cthe interests of all stakeholders are of intrinsic value. That is, each group of stakeholders merits consideration for its own sake and not merely because of its ability to further the interests of some other group, such as the shareowners.\u201d<\/p>\r\n\r\n<div class=\"delete-me\"><\/div>\r\nThis approach is the one that most appropriately represents ethical stakeholder theory, according to Donaldson and Preston, and it places an objective consideration of all stakeholders\u2019 interests ahead of fiscal considerations alone.\r\n<p id=\"fs-idm190820192\">We can also view these three approaches to stakeholders as occupying levels of increasing comprehensiveness. At the lowest level is the descriptive approach, which merely sets the stage for consideration of stakeholder claims and concerns. The instrumental aspect combines a consideration for profit along with other stakeholder concerns and attempts to balance these interests with particular attention to the way the company and its shareholders might be affected. The normative approach takes the most comprehensive view of the organization and its stakeholders, putting the focus squarely on stakeholders. Although Donaldson and Preston stress that the descriptive and instrumental approaches are integral to stakeholder theory, they contend that the fundamental basis of stakeholder theory is normative.<\/p>\r\n\r\n<div class=\"delete-me\"><\/div>\r\n<p id=\"fs-idm182799616\">Of course, these are theoretical approaches, and the extent to which any of them is implemented in a given company will vary. But unfortunately, the decision to disconnect from stakeholders is both real and expensive for a corporation. A 2005 survey of customers of 362 companies is demonstrative: \u201cOnly 8% of customers described their experience as \u2018superior.\u2019 However, 80% of the companies surveyed believe that the experience they have been providing is indeed superior.\u201d<\/p>\r\n\r\n<div class=\"delete-me\"><\/div>\r\nAnother study found significant links between levels of customer satisfaction and a firm\u2019s performance, including rates of retention, overall revenue, and stock price.\r\n<div class=\"delete-me\"><\/div>\r\nEnlightened companies spend time and resources testing their stakeholders\u2019 concerns and eliciting their feedback while there is time to incorporate it into management decisions.\r\n<div id=\"fs-idm201930064\" class=\"link-to-learning\">\r\n<p id=\"fs-idm212337344\">This <a href=\"https:\/\/openstax.org\/l\/53VideoUnited\">article discusses a recent video showing United Airlines removing ticketed, seated passengers from a plane to make room for four of its employees who needed to fly to another airport<\/a> igniting debate over company policies and how they are implemented. This related <a href=\"https:\/\/openstax.org\/l\/53United\">article about the United Airlines overbooking situation<\/a> provides some more information.<\/p>\r\n<p id=\"fs-idm231912336\">Upon being asked to deplane and take a later flight, should a customer who has booked the fare for the earlier flight have the right to refuse? Which stakeholder(s) do you think United valued more in this incident? Why?<\/p>\r\n<p id=\"fs-idm197966048\">Airlines overbook to ensure that despite any no-shows or cancellations, any given flight will have as many occupied seats as possible, because an unoccupied seat represents lost revenue. In terms of valuing stakeholders, does this strategy make sense to you? Why or why not?<\/p>\r\n\r\n<\/div>\r\n<p id=\"fs-idm184078976\">A classic example of negative consumer reaction is the response that met Ford Motor Company\u2019s 1958 introduction of the Edsel (<a class=\"autogenerated-content\" href=\"#OSX_Ethics_03_02_Edsel\">(Figure)<\/a>). Ford had done extensive research to create a luxury family sedan aimed at an upper-income segment of the market then dominated by Buick, Oldsmobile, and Chrysler. However, the market did not identify Ford products with high status, and the Edsel did not last three years in the marketplace. Ford failed to serve the investors, suppliers, and employees who depended on the company for their livelihoods. Of course, the corporation survived that failure, perhaps because it learned the lessons of stakeholder management the hard way.<\/p>\r\n\r\n<div id=\"OSX_Ethics_03_02_Edsel\" class=\"scaled-down\">\r\n<div class=\"bc-figcaption figcaption\">This Edsel Pacer was manufactured in 1958, the first year of production of the ill-fated Ford model, which ceased production in November 1959. (credit: modification of \u201cEdsel Pacer 2-door Hardtop 1958 front\u201d by \u201cRedsimon\u201d\/Wikimedia Commons, CC BY 2.5)<\/div>\r\n<span id=\"fs-idm199344032\">\r\n<img src=\"https:\/\/pressbooks.hcfl.edu\/wp-content\/uploads\/sites\/19\/2018\/09\/OSX_Ethics_03_02_Edsel.jpg\" alt=\"This image shows a Ford Edsel car from 1958.\" \/><\/span>\r\n\r\n<\/div>\r\n<p id=\"fs-idm227761424\">Entertainers too (as well as their clubs, venues, and studios) are sensitive to the views of their stakeholders\u2014that is, fans and the consuming public as a whole. Scarlett Johansson recently signed on to play the role of Dante \u201cTex\u201d Gill in a biographical film (or \u201cbiopic\u201d). Gill had been identified as female at birth but spent much of his professional career self-identifying as male. When the casting was announced in July 2018, it provoked a controversy among transgender rights groups, and within a few days, Johansson announced she had withdrawn from the role.<\/p>\r\n\r\n<div class=\"delete-me\"><\/div>\r\n\u201cIn light of recent ethical questions raised surrounding my casting as Dante Tex Gill, I have decided to respectfully withdraw my participation in the project. . . . While I would have loved the opportunity to bring Dante\u2019s story and transition to life, I understand why many feel he should be portrayed by a transgender person, and I am thankful that this casting debate, albeit controversial, has sparked a larger conversation about diversity and representation in film,\u201d she said.\r\n<h3>Defining Stakeholder Categories<\/h3>\r\n<\/div>\r\n<div id=\"fs-idm210119680\" class=\"bc-section section\">\r\n\r\nTo better understand <span class=\"no-emphasis\">stakeholder<\/span> theory and, ultimately, manage stakeholder claims and expectations, it may be helpful to take a closer look at categories of stakeholders. One way to categorize stakeholders is by defining their impact. For example, regulatory stakeholders including stockholders, legislatures, government regulators, and boards of directors are enabling stakeholder<strong>s<\/strong> because they permit the firm to function. Normative stakeholders such as competitors and peers influence the norms or informal rules of the industry; functional stakeholder<strong>s<\/strong> are those who influence inputs, such as suppliers, employees, and unions, and those influencing outputs such as customers, distributors, and retailers. Finally, diffused stakeholder<strong>s<\/strong> include other organizations such as nongovernmental organizations (NGOs), voters, and mass media organizations with less direct relationships but potential for meaningful impacts on firms (<a class=\"autogenerated-content\" href=\"#OSX_Ethics_03_02_Grunig\">(Figure)<\/a>).\r\n<div class=\"delete-me\"><\/div>\r\n<div id=\"OSX_Ethics_03_02_Grunig\" class=\"bc-figure figure\">\r\n<div class=\"bc-figcaption figcaption\">Grouping stakeholders into meaningful categories according to relationship types allows an organization to prioritize stakeholders\u2019 claims. (attribution: Copyright Rice University, OpenStax, under CC BY 4.0 license)<\/div>\r\n<span id=\"fs-idm194123744\">\r\n<img src=\"https:\/\/pressbooks.hcfl.edu\/wp-content\/uploads\/sites\/19\/2022\/12\/OSX_Ethics_03_02_Grunig.jpg\" alt=\"This graphic shows a circle in the center with four boxes branching out from it. The circle in the center is titled \u201cOrganization.\u201d Starting with the box at the top, it is titled \u201cEnabling Stakeholders,\u201d with four bullets that say \u201cstockholders,\u201d \u201clegislators,\u201d \u201cgovernment regulators,\u201d and \u201cboards of directors.\u201d Going clockwise, the next box is \u201cDiffused Stakeholders,\u201d with three bullets that say \u201cnongovernmental organizations,\u201d \u201cvoters,\u201d and \u201cmass media.\u201d Next is \u201cFunctional Stakeholders,\u201d with six bullets that say \u201csuppliers,\u201d \u201cemployees,\u201d \u201cunions,\u201d \u201ccustomers,\u201d \u201cdistributors,\u201d and \u201cretailers.\u201d Last is \u201cNormative Stakeholders,\u201d with three bullets that say \u201ccompetitors,\u201d \u201cpeers,\u201d and \u201cprofessional associations.\u201d\" \/><\/span>\r\n\r\n<\/div>\r\n<p id=\"fs-idm207665360\">As the <a class=\"autogenerated-content\" href=\"#OSX_Ethics_03_02_Grunig\">(Figure)<\/a> shows, enabling and functional stakeholders are those active in design, production, and marketing. They provide input for the products or services the organization distributes in the form of output. Companies should identify <em>all<\/em> the stakeholders shown in the figure and consider how they are linked to the firm. Although the diffused linkage stakeholders will vary according to place and time, the enabling, functional, and normative linkage stakeholders are constant, because they are integral to the operation of the firm. Stakeholders, in turn, can exert some control and authority by serving on the board of directors, by exercising their power as purchasers, by being elected to public office, or by joining employees\u2019 unions.<\/p>\r\n<p id=\"fs-idm184052032\">In many cases, if one stakeholder effects a change in the firm, other stakeholders will be affected. For example, if an NGO raises concerns about unequal pay of laborers on a rubber plantation that provides raw materials for gasket makers, the supplier may be forced to equalize pay, incurring additional expense. The supplier has taken the ethical action, but ultimately the cost is likely passed through the supply chain to the end user, the retail purchaser at the local car dealer. The supplier could also have absorbed the additional cost, diminishing the bottom line and reducing returns for stockholders, who may withdraw their investment from the company. Although this model of stakeholder relationships is complex, it is useful in understanding the impact of each individual group on the organization as a whole.<\/p>\r\n<p id=\"fs-idm211253520\">James E. Grunig, now professor emeritus at University of Maryland, and Todd Hunt, who together developed the organizational linkage model in <a class=\"autogenerated-content\" href=\"#OSX_Ethics_03_02_Grunig\">(Figure)<\/a>, looked at these relationships through the lens of four \u201cpublics\u201d or cohorts: the nonpublic, the latent, the aware, and the active. These publics are distinguished by their degree of awareness of a problem and ability to do something about it. In the nonpublic cohort, no problem is recognized or exists. For the latent public, a problem is there but the public does not recognize it. The aware public recognizes that a problem exists. The active public is aware of the problem and organizes to respond to it. These categories help the organization design its message about a problem and decide how to communicate. Herein lies the ethical significance. If an organization is aware of a problem and the public is not, the organization has an opportunity to communicate and guide the public in recognizing and dealing with it, as the example of Johnson &amp; Johnson\u2019s Tylenol product in the following box illustrates.<\/p>\r\n\r\n<div id=\"fs-idm206172800\" class=\"real-world\">\r\n<div>The Chicago Tylenol Murders<\/div>\r\n<p id=\"fs-idm228112624\">In the fall of 1982, Johnson &amp; Johnson faced a public relations nightmare when customers in Cook County, Illinois, began dying\u2014eventually, a total of seven people died\u2014after taking over-the-counter, Tylenol-branded acetaminophen capsules. Analysis showed the presence of potassium cyanide, a fatal poison in no way connected with the production of the pill. Johnson &amp; Johnson voluntarily removed all Tylenol products from the U.S. marketplace and offered to pay full retail price for any pills returned to the company. This represented about thirty million bottles of capsules worth more than $100 million. (Significantly, too, Johnson &amp; Johnson decided on this wide-ranging action despite the fact that it and law enforcement realized the cyanide poisoning was limited to Cook County, Illinois.)<\/p>\r\n<p id=\"fs-idm228366480\">Because Tylenol was a flagship product bringing in significant revenue, this was an extreme action but one based on the company\u2019s ethics, rooted in its corporate credo. Investigation showed that someone had tinkered with the bottles and injected cyanide into the product in stores. Although no one was ever apprehended, the entire drug industry responded, following Johnson &amp; Johnson\u2019s lead, by introducing tamper-proof containers that warned consumers not to use the product if the packaging appeared in any way compromised.<\/p>\r\n<p id=\"fs-idm212367856\">The strong ethical stance taken by Johnson &amp; Johnson executives resulted in immediate action that reassured the public. When the company eventually returned Tylenol to the market, it introduced it first to clinics, hospitals, and physicians\u2019 offices, promoting medicine\u2019s professional trust in the product. The strategy was successful. Before the poisonings, Tylenol had 37 percent of the market of over-the-counter analgesics. That plunged to 7 percent in fall 1982 but was resurrected to 30 percent by fall 1983.<\/p>\r\n<p id=\"fs-idm191381440\"><strong>Critical Thinking<\/strong><\/p>\r\n\r\n<ul id=\"fs-idm233245152\">\r\n \t<li>In its corporate credo, Johnson &amp; Johnson identifies multiple stakeholders: users of its products (output), employees (input), employees\u2019 families (diffused linkage), and the government (enabling linkage). Applying Grunig and Hunt\u2019s theory, do you believe Johnson &amp; Johnson acted as an enlightened company that includes and communicates with a variety of publics?<\/li>\r\n \t<li>U.S. business leaders are often accused of acting on a short-term obsession with profitability at the expense of the long-term interests of their corporation. Which aspects of the Tylenol crisis demonstrate a short-term perspective? Which show the value of a longer-term perspective?<\/li>\r\n<\/ul>\r\n<\/div>\r\n<div id=\"fs-idm195728608\" class=\"link-to-learning\">\r\n<p id=\"fs-idm233155728\">With the adoption of its credo, Johnson &amp; Johnson became one of the first corporations to create something like a mission statement. Read the <a href=\"https:\/\/openstax.org\/l\/53J&amp;JCredo\">Johnson &amp; Johnson credo<\/a> to learn more.<\/p>\r\n\r\n<\/div>\r\n<p id=\"fs-idm226302016\">On the other hand, a company might try to manage a problem by covering it up or denying it. For example, Volkswagen had data that showed its diesel engine\u2019s emissions exceeded U.S. pollution standards. Rather than redesign the engine, Volkswagen engineers installed a unit in each car to interpret the emissions as if they met Environmental Protection Agency standards. When the fraud was discovered, Volkswagen was required to buy back millions of cars. As of September 2017, the company had incurred fines and expenses in excess of $30 billion, and some employees had gone to jail. Such damage is bad enough, but loss of reputation and the trust of consumers and stockholders has hurt the company\u2019s value and share price.<\/p>\r\n\r\n<div class=\"delete-me\"><\/div>\r\nVolkswagen\u2019s management of stakeholder relationships was poor and extremely expensive. Once-loyal stakeholders became part of an aware and active public\u2014a group of people united by a common problem and organized for satisfaction, sometimes demanding compensation.\r\n\r\n&nbsp;\r\n<p id=\"fs-idm196088192\">A challenge for business leaders is to assign appropriate weights to stakeholder claims on their companies in an ethical manner. This task is even more difficult because a claim is not necessarily a formal process. \u201cEssentially, stakeholders \u2018want something\u2019 from an organization. Some want . . . to influence what the organization does . . . and others are, or potentially could be, concerned with the way they are affected by the organization.\u201d<\/p>\r\n\r\n<div class=\"delete-me\"><\/div>\r\n<p id=\"fs-idm227907232\">If a stakeholder has its own identity or voice, or if members of a stakeholder group are many, the claim can be clear and direct, such as in the case of a union negotiating for better pay and benefits, or a community trying to lure a corporation to open operations there. Think of the enormous effort communities around the world make to try to get the Olympics or World Cup organizers to bring the competition to their locale. In spite of significant investment and debt, these communities see a real advantage to their local economy.<\/p>\r\n<p id=\"fs-idm196311408\">Many stakeholder claims are indirect, or \u201cvoiceless,\u201d due perhaps to their representing relatively few individuals relative to the size and power of the organization and the time required to evoke a response from a large, bureaucratic company. If you have ever had a problem with a cable television or satellite company, you can immediately understand this stakeholder relationship, because it is so difficult to find someone with enough authority to make a decision on behalf of the company. Some companies count on individuals\u2019 growing frustrated and giving up on the claim. An indirect stakeholder claim might also be one that affects future generations, such as concerns about air and water pollution. For example, University of Southern California law professor Christopher D. Stone introduced in 1972 what was then a radical concept for the law in the United States, that the environment itself is entitled to legal standing in the courts. If this were so, then the environment might also be eligible for certain protections under the law. Appearing at the dawn of increasing social awareness of ecologic concerns, Stone\u2019s influential law review article \u201cShould Trees Have Standing?\u201d gave many environmentalists a new legal philosophy to harness in defense of the natural world.<\/p>\r\n\r\n<div class=\"delete-me\"><\/div>\r\n<div id=\"fs-idm232250784\" class=\"link-to-learning\">\r\n<p id=\"fs-idm197916256\">Try playing a <a href=\"https:\/\/openstax.org\/l\/53Gamestorming\">game of stakeholder identification, mapping, and analysis, such as this one from the \u201cGamestorming\u201d website<\/a> to learn more.<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<div id=\"fs-idm216837552\" class=\"section-summary\">\r\n<h3>Summary<\/h3>\r\n<p id=\"fs-idm205948032\">There are three approaches to stakeholder theory: the descriptive approach, the instrumental approach, and the normative approach. The normative approach takes the most comprehensive view of the organization and its stakeholders and is the fundamental basis of stakeholder theory. Organizations can analyze stakeholder claims by classifying them on the basis of their intensity and impact on the firm, as well as on the basis of their relationship to the firm. Such classifications may include enabling stakeholders, normative stakeholders, functional stakeholders, and diffused stakeholders. Using the lens of the four \u201cpublics\u201d (the nonpublic, the latent, the aware, and the active), we can also understand a stakeholder claim on the basis of the public\u2019s degree of awareness of a problem and ability to do something about it.<\/p>\r\n\r\n<\/div>\r\n<div id=\"fs-idm208635952\" class=\"assessment-questions\">\r\n<h3>Assessment Questions<\/h3>\r\n<div id=\"fs-idm208658784\">\r\n<div id=\"fs-idm196092896\">\r\n<p id=\"fs-idm208770864\">A shareholder is a stakeholder who ________.<\/p>\r\n\r\n<ol id=\"fs-idm199392240\" type=\"A\">\r\n \t<li>holds stock for investment<\/li>\r\n \t<li>has a general interest in the fate of all publicly traded companies<\/li>\r\n \t<li>focuses on the means by which firms get their products to market<\/li>\r\n \t<li>always purchases the product or service of a particular company<\/li>\r\n<\/ol>\r\n<\/div>\r\n<div>\r\n<p id=\"fs-idm213640528\">A<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<div id=\"fs-idm232732272\">\r\n<div id=\"fs-idm229183984\">\r\n<p id=\"fs-idm227109376\">A stakeholder claim ________.<\/p>\r\n\r\n<ol id=\"fs-idm232565776\" type=\"A\">\r\n \t<li>is usually a complaint<\/li>\r\n \t<li>is always financial<\/li>\r\n \t<li>is any matter of concern for the corporation or company<\/li>\r\n \t<li>is the same as a lawsuit<\/li>\r\n<\/ol>\r\n<\/div>\r\n<div id=\"fs-idm198735152\">\r\n<p id=\"fs-idm197838624\">C<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<div id=\"fs-idm195480592\">\r\n<div id=\"fs-idm231674864\">\r\n<p id=\"fs-idm195359792\">Explain how the normative approach to stakeholder theory informs the instrumental aspect and the descriptive approach.<\/p>\r\n\r\n<\/div>\r\n<div id=\"fs-idm208597392\">\r\n<p id=\"fs-idm230918176\">The normative approach is the fundamental basis of stakeholder theory and argues that stakeholders are ends unto themselves rather than means to an end. Thus, they have inherent value and cannot be looked at merely as instruments or as functional parts in an economic engine intended solely to generate profit for stockowners. That said, the instrumental and descriptive approaches also have their role in helping us to understand stakeholders and are mutually supportive of the normative approach.<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n<div id=\"fs-idm226613968\" class=\"references\">\r\n<h3>Endnotes<\/h3>\r\n<div><a href=\"#rf-001-a\">1<\/a>Thomas Donaldson and Lee E. Preston, \u201cThe Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications,\u201d <em>The Academy of Management Review<\/em> 20, no. 1 (1995): 65\u201391.<\/div>\r\n<div><a href=\"#rf-002-a\">2<\/a>Thomas Donaldson and Lee E. Preston, \u201cThe Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications,\u201d <em>The Academy of Management Review<\/em> 20, no. 1 (1995): 65\u201391.<\/div>\r\n<div><a href=\"#rf-003-a\">3<\/a>Thomas Donaldson and Lee E. Preston, \u201cThe Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications,\u201d <em>The Academy of Management Review<\/em> 20, no. 1 (1995): 65\u201391.<\/div>\r\n<div><a href=\"#rf-004-a\">4<\/a>Christopher Meyer and Andre Schwager, \u201cUnderstanding Customer Experience,\u201d <em>Harvard Business Review<\/em>, February 2007. https:\/\/hbr.org\/2007\/02\/understanding-customer-experience.<\/div>\r\n<div><a href=\"#rf-005-a\">5<\/a>Paul Williams and Earl Naumann, \u201cCustomer Satisfaction and Business Performance: A Firm-Level Analysis,\u201d <em>Journal of Services Marketing<\/em> 25, no. 1 (2011): 20\u201332.<\/div>\r\n<div><a href=\"#rf-006-a\">6<\/a>Mia Galuppo, \u201cScarlett Johansson Drops Out of \u2018Rub &amp; Tug\u2019 Trans Film Following Backlash,\u201d <em>Hollywood Reporter<\/em>, July 13, 2018. https:\/\/www.hollywoodreporter.com\/news\/scarlett-johansson-drops-trans-film-rub-tug-backlash-1127003.<\/div>\r\n<div><a href=\"#rf-007-a\">7<\/a>Aaron Hicklin, \u201cExclusive: Scarlett Johansson Withdraws from <em>Rub &amp; Tug<\/em>,\u201d <em>Out<\/em>, July 13, 2018. https:\/\/www.out.com\/out-exclusives\/2018\/7\/13\/exclusive-scarlett-johansson-withdraws-rub-tug.<\/div>\r\n<div><a href=\"#rf-008-a\">8<\/a>Brad L. Rawlins, \u201cPrioritizing Stakeholders for Public Relations,\u201d Institute for Public Relations, March 2006. https:\/\/www.instituteforpr.org\/wp-content\/uploads\/2006_Stakeholders_1.pdf.<\/div>\r\n<div><a href=\"#rf-009-a\">9<\/a>Charles Riley, \u201cVolkswagen's Diesel Scandal Costs Hit $30 Billion,\u201d <em>CNN Money<\/em>, September 29, 2017. http:\/\/money.cnn.com\/2017\/09\/29\/investing\/volkswagen-diesel-cost-30-billion\/index.html.<\/div>\r\n<div><a href=\"#rf-010-a\">10<\/a>Miles Brignall, \u201cVolkswagen\u2019s US Compensation Deal Leaves British Drivers Fuming,\u201d <em>The Guardian<\/em>, October 29, 2016. https:\/\/www.theguardian.com\/money\/2016\/oct\/29\/volkswagen-us-compensation-deal-british-drivers-fuming; Soraya Sarhaddi Nelson, \u201cGerman Consumers Fight Automakers for Compensation in Emissions Scandal,\u201d All Things Considered, November 10, 2017. https:\/\/www.npr.org\/2017\/11\/10\/563378729\/german-consumers-fight-automakers-for-compensation-in-emissions-scandal.<\/div>\r\n<div><a href=\"#rf-011-a\">11<\/a>P1 Examining Team, \u201cAll About Stakeholders \u2013 Part 1,\u201d ACCA. http:\/\/www.accaglobal.com\/us\/en\/student\/exam-support-resources\/professional-exams-study-resources\/p1\/technical-articles\/stakeholders-part1.html (accessed August 5, 2018).<\/div>\r\n<div><a href=\"#rf-012-a\">12<\/a>Christopher D. Stone, \u201cShould Trees Have Standing? Toward Legal Rights for Natural Objects,\u201d <em>Southern California Law Review<\/em> 45, (1972): 450\u2013501.<\/div>\r\n<\/div>\r\n<div class=\"textbox shaded\">\r\n<h3>Glossary<\/h3>\r\n<dl id=\"fs-idm227300208\">\r\n \t<dt>descriptive approach<\/dt>\r\n \t<dd id=\"fs-idm232930496\">a theory that views the company as composed of various stakeholders, each with its own interests<\/dd>\r\n<\/dl>\r\n<dl id=\"fs-idm201538288\">\r\n \t<dt>diffused stakeholder<\/dt>\r\n \t<dd id=\"fs-idm217962080\">a stakeholder with an interest in a company\u2019s decisions and whose impacts on a firm can be large even if the relationship is generally weaker than other types<\/dd>\r\n<\/dl>\r\n<dl id=\"fs-idm227327168\">\r\n \t<dt>enabling stakeholder<\/dt>\r\n \t<dd id=\"fs-idm196169440\">a stakeholder who permits an organization to function within the economic and legal system<\/dd>\r\n<\/dl>\r\n<dl id=\"fs-idm228280448\">\r\n \t<dt>functional stakeholder<\/dt>\r\n \t<dd id=\"fs-idm199385696\">a stakeholder whose relationships influence or govern an organization\u2019s inputs and outputs<\/dd>\r\n<\/dl>\r\n<dl id=\"fs-idm229247904\">\r\n \t<dt>instrumental approach<\/dt>\r\n \t<dd id=\"fs-idm233003856\">a theory proposing that good management of stakeholders is important because it can help the bottom line<\/dd>\r\n<\/dl>\r\n<dl id=\"fs-idm233505904\">\r\n \t<dt>normative approach<\/dt>\r\n \t<dd id=\"fs-idm196032640\">a theory that considers stakeholders as ends unto themselves rather than means to achieve a better bottom line<\/dd>\r\n<\/dl>\r\n<dl id=\"fs-idm221746032\">\r\n \t<dt>normative stakeholder<\/dt>\r\n \t<dd id=\"fs-idm195640192\">a stakeholder in the organization\u2019s industry who influences its norms or informal rules<\/dd>\r\n<\/dl>\r\n<dl id=\"fs-idm228093184\">\r\n \t<dt>stakeholder claim<\/dt>\r\n \t<dd id=\"fs-idm230216416\">a particular stakeholder\u2019s interest in a business decision<\/dd>\r\n<\/dl>\r\n<\/div>","rendered":"<div id=\"fs-idm207367168\" class=\"learning-objectives\">\n<h2>Learning Objectives<\/h2>\n<p id=\"fs-idm199018672\">By the end of this section, you will be able to:<\/p>\n<ul id=\"fs-idm209659568\">\n<li>Explain why stakeholders\u2019 claims vary in importance<\/li>\n<li>Categorize stakeholders to better understand their claims<\/li>\n<\/ul>\n<p id=\"fs-idm196094656\">As we saw earlier in this chapter and in Why Ethics Matter, the law only partially captures the ethical obligations firms owe their <span class=\"no-emphasis\">stakeholder<\/span>s. A particular stakeholder claim, that is, any given stakeholder\u2019s interest in a business decision, may therefore challenge the ethical stance even of an organization that complies with the law. For example, some community members may oppose the opening of a \u201cbig box\u201d chain store that threatens the livelihoods of small-business owners in the area, while shareholders, creditors, employees, and consumers within the nearby neighborhoods support it as an additional opportunity for profit and quality goods at competitive prices. Conflicts like this illustrate how complicated prioritizing stakeholder claims can be, particularly when there are ethical pros and cons on both sides. A big box store may offer a wider selection of goods at lower prices, for example, and create jobs for teens and part-time workers.<\/p>\n<p id=\"fs-idm183697792\">A related theme to recall is that even though all stakeholder claims are important for a company to acknowledge, not all claims are of equal importance. Most business leaders appreciate that a company\u2019s key stakeholders are essential to its efficient operation and growth, and that its overall mission, goals, and limited resources will force its managers to make choices by prioritizing stakeholders\u2019 needs. In this section, we look at ethical ways in which business managers can begin to make those decisions.<\/p>\n<\/div>\n<div id=\"fs-idm215680672\" class=\"bc-section section\">\n<h3>The Ethical Basis of Stakeholders\u2019 Claims<\/h3>\n<p id=\"fs-idm183184592\">Stakeholder claims vary in their significance for a firm. According to Donaldson and Preston,<\/p>\n<div class=\"delete-me\"><\/div>\n<p>there are three theoretical approaches to considering stakeholder claims: a descriptive approach, an instrumental approach, and a normative approach. The descriptive approach sees the company as composed of various stakeholder groups, each with its own interests. These interests impinge on the company to a greater or lesser degree; thus, the main point of the descriptive approach is to develop the most accurate model and act on it in ways that weigh and balance these interests as fairly as possible. The instrumental approach connects stakeholder management and financial outcomes, proposing that appropriate management of stakeholder interests is important and useful because it contributes to a positive bottom line.<\/p>\n<p id=\"fs-idm192555248\">The normative approach considers stakeholders as ends in themselves rather than simply as means to achieve better financial results. According to Donaldson and Preston, in the normative approach \u201cthe interests of all stakeholders are of intrinsic value. That is, each group of stakeholders merits consideration for its own sake and not merely because of its ability to further the interests of some other group, such as the shareowners.\u201d<\/p>\n<div class=\"delete-me\"><\/div>\n<p>This approach is the one that most appropriately represents ethical stakeholder theory, according to Donaldson and Preston, and it places an objective consideration of all stakeholders\u2019 interests ahead of fiscal considerations alone.<\/p>\n<p id=\"fs-idm190820192\">We can also view these three approaches to stakeholders as occupying levels of increasing comprehensiveness. At the lowest level is the descriptive approach, which merely sets the stage for consideration of stakeholder claims and concerns. The instrumental aspect combines a consideration for profit along with other stakeholder concerns and attempts to balance these interests with particular attention to the way the company and its shareholders might be affected. The normative approach takes the most comprehensive view of the organization and its stakeholders, putting the focus squarely on stakeholders. Although Donaldson and Preston stress that the descriptive and instrumental approaches are integral to stakeholder theory, they contend that the fundamental basis of stakeholder theory is normative.<\/p>\n<div class=\"delete-me\"><\/div>\n<p id=\"fs-idm182799616\">Of course, these are theoretical approaches, and the extent to which any of them is implemented in a given company will vary. But unfortunately, the decision to disconnect from stakeholders is both real and expensive for a corporation. A 2005 survey of customers of 362 companies is demonstrative: \u201cOnly 8% of customers described their experience as \u2018superior.\u2019 However, 80% of the companies surveyed believe that the experience they have been providing is indeed superior.\u201d<\/p>\n<div class=\"delete-me\"><\/div>\n<p>Another study found significant links between levels of customer satisfaction and a firm\u2019s performance, including rates of retention, overall revenue, and stock price.<\/p>\n<div class=\"delete-me\"><\/div>\n<p>Enlightened companies spend time and resources testing their stakeholders\u2019 concerns and eliciting their feedback while there is time to incorporate it into management decisions.<\/p>\n<div id=\"fs-idm201930064\" class=\"link-to-learning\">\n<p id=\"fs-idm212337344\">This <a href=\"https:\/\/openstax.org\/l\/53VideoUnited\">article discusses a recent video showing United Airlines removing ticketed, seated passengers from a plane to make room for four of its employees who needed to fly to another airport<\/a> igniting debate over company policies and how they are implemented. This related <a href=\"https:\/\/openstax.org\/l\/53United\">article about the United Airlines overbooking situation<\/a> provides some more information.<\/p>\n<p id=\"fs-idm231912336\">Upon being asked to deplane and take a later flight, should a customer who has booked the fare for the earlier flight have the right to refuse? Which stakeholder(s) do you think United valued more in this incident? Why?<\/p>\n<p id=\"fs-idm197966048\">Airlines overbook to ensure that despite any no-shows or cancellations, any given flight will have as many occupied seats as possible, because an unoccupied seat represents lost revenue. In terms of valuing stakeholders, does this strategy make sense to you? Why or why not?<\/p>\n<\/div>\n<p id=\"fs-idm184078976\">A classic example of negative consumer reaction is the response that met Ford Motor Company\u2019s 1958 introduction of the Edsel (<a class=\"autogenerated-content\" href=\"#OSX_Ethics_03_02_Edsel\">(Figure)<\/a>). Ford had done extensive research to create a luxury family sedan aimed at an upper-income segment of the market then dominated by Buick, Oldsmobile, and Chrysler. However, the market did not identify Ford products with high status, and the Edsel did not last three years in the marketplace. Ford failed to serve the investors, suppliers, and employees who depended on the company for their livelihoods. Of course, the corporation survived that failure, perhaps because it learned the lessons of stakeholder management the hard way.<\/p>\n<div id=\"OSX_Ethics_03_02_Edsel\" class=\"scaled-down\">\n<div class=\"bc-figcaption figcaption\">This Edsel Pacer was manufactured in 1958, the first year of production of the ill-fated Ford model, which ceased production in November 1959. (credit: modification of \u201cEdsel Pacer 2-door Hardtop 1958 front\u201d by \u201cRedsimon\u201d\/Wikimedia Commons, CC BY 2.5)<\/div>\n<p><span id=\"fs-idm199344032\"><br \/>\n<img decoding=\"async\" src=\"https:\/\/pressbooks.hcfl.edu\/wp-content\/uploads\/sites\/19\/2018\/09\/OSX_Ethics_03_02_Edsel.jpg\" alt=\"This image shows a Ford Edsel car from 1958.\" \/><\/span><\/p>\n<\/div>\n<p id=\"fs-idm227761424\">Entertainers too (as well as their clubs, venues, and studios) are sensitive to the views of their stakeholders\u2014that is, fans and the consuming public as a whole. Scarlett Johansson recently signed on to play the role of Dante \u201cTex\u201d Gill in a biographical film (or \u201cbiopic\u201d). Gill had been identified as female at birth but spent much of his professional career self-identifying as male. When the casting was announced in July 2018, it provoked a controversy among transgender rights groups, and within a few days, Johansson announced she had withdrawn from the role.<\/p>\n<div class=\"delete-me\"><\/div>\n<p>\u201cIn light of recent ethical questions raised surrounding my casting as Dante Tex Gill, I have decided to respectfully withdraw my participation in the project. . . . While I would have loved the opportunity to bring Dante\u2019s story and transition to life, I understand why many feel he should be portrayed by a transgender person, and I am thankful that this casting debate, albeit controversial, has sparked a larger conversation about diversity and representation in film,\u201d she said.<\/p>\n<h3>Defining Stakeholder Categories<\/h3>\n<\/div>\n<div id=\"fs-idm210119680\" class=\"bc-section section\">\n<p>To better understand <span class=\"no-emphasis\">stakeholder<\/span> theory and, ultimately, manage stakeholder claims and expectations, it may be helpful to take a closer look at categories of stakeholders. One way to categorize stakeholders is by defining their impact. For example, regulatory stakeholders including stockholders, legislatures, government regulators, and boards of directors are enabling stakeholder<strong>s<\/strong> because they permit the firm to function. Normative stakeholders such as competitors and peers influence the norms or informal rules of the industry; functional stakeholder<strong>s<\/strong> are those who influence inputs, such as suppliers, employees, and unions, and those influencing outputs such as customers, distributors, and retailers. Finally, diffused stakeholder<strong>s<\/strong> include other organizations such as nongovernmental organizations (NGOs), voters, and mass media organizations with less direct relationships but potential for meaningful impacts on firms (<a class=\"autogenerated-content\" href=\"#OSX_Ethics_03_02_Grunig\">(Figure)<\/a>).<\/p>\n<div class=\"delete-me\"><\/div>\n<div id=\"OSX_Ethics_03_02_Grunig\" class=\"bc-figure figure\">\n<div class=\"bc-figcaption figcaption\">Grouping stakeholders into meaningful categories according to relationship types allows an organization to prioritize stakeholders\u2019 claims. (attribution: Copyright Rice University, OpenStax, under CC BY 4.0 license)<\/div>\n<p><span id=\"fs-idm194123744\"><br \/>\n<img decoding=\"async\" src=\"https:\/\/pressbooks.hcfl.edu\/wp-content\/uploads\/sites\/19\/2022\/12\/OSX_Ethics_03_02_Grunig.jpg\" alt=\"This graphic shows a circle in the center with four boxes branching out from it. The circle in the center is titled \u201cOrganization.\u201d Starting with the box at the top, it is titled \u201cEnabling Stakeholders,\u201d with four bullets that say \u201cstockholders,\u201d \u201clegislators,\u201d \u201cgovernment regulators,\u201d and \u201cboards of directors.\u201d Going clockwise, the next box is \u201cDiffused Stakeholders,\u201d with three bullets that say \u201cnongovernmental organizations,\u201d \u201cvoters,\u201d and \u201cmass media.\u201d Next is \u201cFunctional Stakeholders,\u201d with six bullets that say \u201csuppliers,\u201d \u201cemployees,\u201d \u201cunions,\u201d \u201ccustomers,\u201d \u201cdistributors,\u201d and \u201cretailers.\u201d Last is \u201cNormative Stakeholders,\u201d with three bullets that say \u201ccompetitors,\u201d \u201cpeers,\u201d and \u201cprofessional associations.\u201d\" \/><\/span><\/p>\n<\/div>\n<p id=\"fs-idm207665360\">As the <a class=\"autogenerated-content\" href=\"#OSX_Ethics_03_02_Grunig\">(Figure)<\/a> shows, enabling and functional stakeholders are those active in design, production, and marketing. They provide input for the products or services the organization distributes in the form of output. Companies should identify <em>all<\/em> the stakeholders shown in the figure and consider how they are linked to the firm. Although the diffused linkage stakeholders will vary according to place and time, the enabling, functional, and normative linkage stakeholders are constant, because they are integral to the operation of the firm. Stakeholders, in turn, can exert some control and authority by serving on the board of directors, by exercising their power as purchasers, by being elected to public office, or by joining employees\u2019 unions.<\/p>\n<p id=\"fs-idm184052032\">In many cases, if one stakeholder effects a change in the firm, other stakeholders will be affected. For example, if an NGO raises concerns about unequal pay of laborers on a rubber plantation that provides raw materials for gasket makers, the supplier may be forced to equalize pay, incurring additional expense. The supplier has taken the ethical action, but ultimately the cost is likely passed through the supply chain to the end user, the retail purchaser at the local car dealer. The supplier could also have absorbed the additional cost, diminishing the bottom line and reducing returns for stockholders, who may withdraw their investment from the company. Although this model of stakeholder relationships is complex, it is useful in understanding the impact of each individual group on the organization as a whole.<\/p>\n<p id=\"fs-idm211253520\">James E. Grunig, now professor emeritus at University of Maryland, and Todd Hunt, who together developed the organizational linkage model in <a class=\"autogenerated-content\" href=\"#OSX_Ethics_03_02_Grunig\">(Figure)<\/a>, looked at these relationships through the lens of four \u201cpublics\u201d or cohorts: the nonpublic, the latent, the aware, and the active. These publics are distinguished by their degree of awareness of a problem and ability to do something about it. In the nonpublic cohort, no problem is recognized or exists. For the latent public, a problem is there but the public does not recognize it. The aware public recognizes that a problem exists. The active public is aware of the problem and organizes to respond to it. These categories help the organization design its message about a problem and decide how to communicate. Herein lies the ethical significance. If an organization is aware of a problem and the public is not, the organization has an opportunity to communicate and guide the public in recognizing and dealing with it, as the example of Johnson &amp; Johnson\u2019s Tylenol product in the following box illustrates.<\/p>\n<div id=\"fs-idm206172800\" class=\"real-world\">\n<div>The Chicago Tylenol Murders<\/div>\n<p id=\"fs-idm228112624\">In the fall of 1982, Johnson &amp; Johnson faced a public relations nightmare when customers in Cook County, Illinois, began dying\u2014eventually, a total of seven people died\u2014after taking over-the-counter, Tylenol-branded acetaminophen capsules. Analysis showed the presence of potassium cyanide, a fatal poison in no way connected with the production of the pill. Johnson &amp; Johnson voluntarily removed all Tylenol products from the U.S. marketplace and offered to pay full retail price for any pills returned to the company. This represented about thirty million bottles of capsules worth more than $100 million. (Significantly, too, Johnson &amp; Johnson decided on this wide-ranging action despite the fact that it and law enforcement realized the cyanide poisoning was limited to Cook County, Illinois.)<\/p>\n<p id=\"fs-idm228366480\">Because Tylenol was a flagship product bringing in significant revenue, this was an extreme action but one based on the company\u2019s ethics, rooted in its corporate credo. Investigation showed that someone had tinkered with the bottles and injected cyanide into the product in stores. Although no one was ever apprehended, the entire drug industry responded, following Johnson &amp; Johnson\u2019s lead, by introducing tamper-proof containers that warned consumers not to use the product if the packaging appeared in any way compromised.<\/p>\n<p id=\"fs-idm212367856\">The strong ethical stance taken by Johnson &amp; Johnson executives resulted in immediate action that reassured the public. When the company eventually returned Tylenol to the market, it introduced it first to clinics, hospitals, and physicians\u2019 offices, promoting medicine\u2019s professional trust in the product. The strategy was successful. Before the poisonings, Tylenol had 37 percent of the market of over-the-counter analgesics. That plunged to 7 percent in fall 1982 but was resurrected to 30 percent by fall 1983.<\/p>\n<p id=\"fs-idm191381440\"><strong>Critical Thinking<\/strong><\/p>\n<ul id=\"fs-idm233245152\">\n<li>In its corporate credo, Johnson &amp; Johnson identifies multiple stakeholders: users of its products (output), employees (input), employees\u2019 families (diffused linkage), and the government (enabling linkage). Applying Grunig and Hunt\u2019s theory, do you believe Johnson &amp; Johnson acted as an enlightened company that includes and communicates with a variety of publics?<\/li>\n<li>U.S. business leaders are often accused of acting on a short-term obsession with profitability at the expense of the long-term interests of their corporation. Which aspects of the Tylenol crisis demonstrate a short-term perspective? Which show the value of a longer-term perspective?<\/li>\n<\/ul>\n<\/div>\n<div id=\"fs-idm195728608\" class=\"link-to-learning\">\n<p id=\"fs-idm233155728\">With the adoption of its credo, Johnson &amp; Johnson became one of the first corporations to create something like a mission statement. Read the <a href=\"https:\/\/openstax.org\/l\/53J&amp;JCredo\">Johnson &amp; Johnson credo<\/a> to learn more.<\/p>\n<\/div>\n<p id=\"fs-idm226302016\">On the other hand, a company might try to manage a problem by covering it up or denying it. For example, Volkswagen had data that showed its diesel engine\u2019s emissions exceeded U.S. pollution standards. Rather than redesign the engine, Volkswagen engineers installed a unit in each car to interpret the emissions as if they met Environmental Protection Agency standards. When the fraud was discovered, Volkswagen was required to buy back millions of cars. As of September 2017, the company had incurred fines and expenses in excess of $30 billion, and some employees had gone to jail. Such damage is bad enough, but loss of reputation and the trust of consumers and stockholders has hurt the company\u2019s value and share price.<\/p>\n<div class=\"delete-me\"><\/div>\n<p>Volkswagen\u2019s management of stakeholder relationships was poor and extremely expensive. Once-loyal stakeholders became part of an aware and active public\u2014a group of people united by a common problem and organized for satisfaction, sometimes demanding compensation.<\/p>\n<p>&nbsp;<\/p>\n<p id=\"fs-idm196088192\">A challenge for business leaders is to assign appropriate weights to stakeholder claims on their companies in an ethical manner. This task is even more difficult because a claim is not necessarily a formal process. \u201cEssentially, stakeholders \u2018want something\u2019 from an organization. Some want . . . to influence what the organization does . . . and others are, or potentially could be, concerned with the way they are affected by the organization.\u201d<\/p>\n<div class=\"delete-me\"><\/div>\n<p id=\"fs-idm227907232\">If a stakeholder has its own identity or voice, or if members of a stakeholder group are many, the claim can be clear and direct, such as in the case of a union negotiating for better pay and benefits, or a community trying to lure a corporation to open operations there. Think of the enormous effort communities around the world make to try to get the Olympics or World Cup organizers to bring the competition to their locale. In spite of significant investment and debt, these communities see a real advantage to their local economy.<\/p>\n<p id=\"fs-idm196311408\">Many stakeholder claims are indirect, or \u201cvoiceless,\u201d due perhaps to their representing relatively few individuals relative to the size and power of the organization and the time required to evoke a response from a large, bureaucratic company. If you have ever had a problem with a cable television or satellite company, you can immediately understand this stakeholder relationship, because it is so difficult to find someone with enough authority to make a decision on behalf of the company. Some companies count on individuals\u2019 growing frustrated and giving up on the claim. An indirect stakeholder claim might also be one that affects future generations, such as concerns about air and water pollution. For example, University of Southern California law professor Christopher D. Stone introduced in 1972 what was then a radical concept for the law in the United States, that the environment itself is entitled to legal standing in the courts. If this were so, then the environment might also be eligible for certain protections under the law. Appearing at the dawn of increasing social awareness of ecologic concerns, Stone\u2019s influential law review article \u201cShould Trees Have Standing?\u201d gave many environmentalists a new legal philosophy to harness in defense of the natural world.<\/p>\n<div class=\"delete-me\"><\/div>\n<div id=\"fs-idm232250784\" class=\"link-to-learning\">\n<p id=\"fs-idm197916256\">Try playing a <a href=\"https:\/\/openstax.org\/l\/53Gamestorming\">game of stakeholder identification, mapping, and analysis, such as this one from the \u201cGamestorming\u201d website<\/a> to learn more.<\/p>\n<\/div>\n<\/div>\n<div id=\"fs-idm216837552\" class=\"section-summary\">\n<h3>Summary<\/h3>\n<p id=\"fs-idm205948032\">There are three approaches to stakeholder theory: the descriptive approach, the instrumental approach, and the normative approach. The normative approach takes the most comprehensive view of the organization and its stakeholders and is the fundamental basis of stakeholder theory. Organizations can analyze stakeholder claims by classifying them on the basis of their intensity and impact on the firm, as well as on the basis of their relationship to the firm. Such classifications may include enabling stakeholders, normative stakeholders, functional stakeholders, and diffused stakeholders. Using the lens of the four \u201cpublics\u201d (the nonpublic, the latent, the aware, and the active), we can also understand a stakeholder claim on the basis of the public\u2019s degree of awareness of a problem and ability to do something about it.<\/p>\n<\/div>\n<div id=\"fs-idm208635952\" class=\"assessment-questions\">\n<h3>Assessment Questions<\/h3>\n<div id=\"fs-idm208658784\">\n<div id=\"fs-idm196092896\">\n<p id=\"fs-idm208770864\">A shareholder is a stakeholder who ________.<\/p>\n<ol id=\"fs-idm199392240\" type=\"A\">\n<li>holds stock for investment<\/li>\n<li>has a general interest in the fate of all publicly traded companies<\/li>\n<li>focuses on the means by which firms get their products to market<\/li>\n<li>always purchases the product or service of a particular company<\/li>\n<\/ol>\n<\/div>\n<div>\n<p id=\"fs-idm213640528\">A<\/p>\n<\/div>\n<\/div>\n<div id=\"fs-idm232732272\">\n<div id=\"fs-idm229183984\">\n<p id=\"fs-idm227109376\">A stakeholder claim ________.<\/p>\n<ol id=\"fs-idm232565776\" type=\"A\">\n<li>is usually a complaint<\/li>\n<li>is always financial<\/li>\n<li>is any matter of concern for the corporation or company<\/li>\n<li>is the same as a lawsuit<\/li>\n<\/ol>\n<\/div>\n<div id=\"fs-idm198735152\">\n<p id=\"fs-idm197838624\">C<\/p>\n<\/div>\n<\/div>\n<div id=\"fs-idm195480592\">\n<div id=\"fs-idm231674864\">\n<p id=\"fs-idm195359792\">Explain how the normative approach to stakeholder theory informs the instrumental aspect and the descriptive approach.<\/p>\n<\/div>\n<div id=\"fs-idm208597392\">\n<p id=\"fs-idm230918176\">The normative approach is the fundamental basis of stakeholder theory and argues that stakeholders are ends unto themselves rather than means to an end. Thus, they have inherent value and cannot be looked at merely as instruments or as functional parts in an economic engine intended solely to generate profit for stockowners. That said, the instrumental and descriptive approaches also have their role in helping us to understand stakeholders and are mutually supportive of the normative approach.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<div id=\"fs-idm226613968\" class=\"references\">\n<h3>Endnotes<\/h3>\n<div><a href=\"#rf-001-a\">1<\/a>Thomas Donaldson and Lee E. Preston, \u201cThe Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications,\u201d <em>The Academy of Management Review<\/em> 20, no. 1 (1995): 65\u201391.<\/div>\n<div><a href=\"#rf-002-a\">2<\/a>Thomas Donaldson and Lee E. Preston, \u201cThe Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications,\u201d <em>The Academy of Management Review<\/em> 20, no. 1 (1995): 65\u201391.<\/div>\n<div><a href=\"#rf-003-a\">3<\/a>Thomas Donaldson and Lee E. Preston, \u201cThe Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications,\u201d <em>The Academy of Management Review<\/em> 20, no. 1 (1995): 65\u201391.<\/div>\n<div><a href=\"#rf-004-a\">4<\/a>Christopher Meyer and Andre Schwager, \u201cUnderstanding Customer Experience,\u201d <em>Harvard Business Review<\/em>, February 2007. https:\/\/hbr.org\/2007\/02\/understanding-customer-experience.<\/div>\n<div><a href=\"#rf-005-a\">5<\/a>Paul Williams and Earl Naumann, \u201cCustomer Satisfaction and Business Performance: A Firm-Level Analysis,\u201d <em>Journal of Services Marketing<\/em> 25, no. 1 (2011): 20\u201332.<\/div>\n<div><a href=\"#rf-006-a\">6<\/a>Mia Galuppo, \u201cScarlett Johansson Drops Out of \u2018Rub &amp; Tug\u2019 Trans Film Following Backlash,\u201d <em>Hollywood Reporter<\/em>, July 13, 2018. https:\/\/www.hollywoodreporter.com\/news\/scarlett-johansson-drops-trans-film-rub-tug-backlash-1127003.<\/div>\n<div><a href=\"#rf-007-a\">7<\/a>Aaron Hicklin, \u201cExclusive: Scarlett Johansson Withdraws from <em>Rub &amp; Tug<\/em>,\u201d <em>Out<\/em>, July 13, 2018. https:\/\/www.out.com\/out-exclusives\/2018\/7\/13\/exclusive-scarlett-johansson-withdraws-rub-tug.<\/div>\n<div><a href=\"#rf-008-a\">8<\/a>Brad L. Rawlins, \u201cPrioritizing Stakeholders for Public Relations,\u201d Institute for Public Relations, March 2006. https:\/\/www.instituteforpr.org\/wp-content\/uploads\/2006_Stakeholders_1.pdf.<\/div>\n<div><a href=\"#rf-009-a\">9<\/a>Charles Riley, \u201cVolkswagen&#8217;s Diesel Scandal Costs Hit $30 Billion,\u201d <em>CNN Money<\/em>, September 29, 2017. http:\/\/money.cnn.com\/2017\/09\/29\/investing\/volkswagen-diesel-cost-30-billion\/index.html.<\/div>\n<div><a href=\"#rf-010-a\">10<\/a>Miles Brignall, \u201cVolkswagen\u2019s US Compensation Deal Leaves British Drivers Fuming,\u201d <em>The Guardian<\/em>, October 29, 2016. https:\/\/www.theguardian.com\/money\/2016\/oct\/29\/volkswagen-us-compensation-deal-british-drivers-fuming; Soraya Sarhaddi Nelson, \u201cGerman Consumers Fight Automakers for Compensation in Emissions Scandal,\u201d All Things Considered, November 10, 2017. https:\/\/www.npr.org\/2017\/11\/10\/563378729\/german-consumers-fight-automakers-for-compensation-in-emissions-scandal.<\/div>\n<div><a href=\"#rf-011-a\">11<\/a>P1 Examining Team, \u201cAll About Stakeholders \u2013 Part 1,\u201d ACCA. http:\/\/www.accaglobal.com\/us\/en\/student\/exam-support-resources\/professional-exams-study-resources\/p1\/technical-articles\/stakeholders-part1.html (accessed August 5, 2018).<\/div>\n<div><a href=\"#rf-012-a\">12<\/a>Christopher D. Stone, \u201cShould Trees Have Standing? Toward Legal Rights for Natural Objects,\u201d <em>Southern California Law Review<\/em> 45, (1972): 450\u2013501.<\/div>\n<\/div>\n<div class=\"textbox shaded\">\n<h3>Glossary<\/h3>\n<dl id=\"fs-idm227300208\">\n<dt>descriptive approach<\/dt>\n<dd id=\"fs-idm232930496\">a theory that views the company as composed of various stakeholders, each with its own interests<\/dd>\n<\/dl>\n<dl id=\"fs-idm201538288\">\n<dt>diffused stakeholder<\/dt>\n<dd id=\"fs-idm217962080\">a stakeholder with an interest in a company\u2019s decisions and whose impacts on a firm can be large even if the relationship is generally weaker than other types<\/dd>\n<\/dl>\n<dl id=\"fs-idm227327168\">\n<dt>enabling stakeholder<\/dt>\n<dd id=\"fs-idm196169440\">a stakeholder who permits an organization to function within the economic and legal system<\/dd>\n<\/dl>\n<dl id=\"fs-idm228280448\">\n<dt>functional stakeholder<\/dt>\n<dd id=\"fs-idm199385696\">a stakeholder whose relationships influence or govern an organization\u2019s inputs and outputs<\/dd>\n<\/dl>\n<dl id=\"fs-idm229247904\">\n<dt>instrumental approach<\/dt>\n<dd id=\"fs-idm233003856\">a theory proposing that good management of stakeholders is important because it can help the bottom line<\/dd>\n<\/dl>\n<dl id=\"fs-idm233505904\">\n<dt>normative approach<\/dt>\n<dd id=\"fs-idm196032640\">a theory that considers stakeholders as ends unto themselves rather than means to achieve a better bottom line<\/dd>\n<\/dl>\n<dl id=\"fs-idm221746032\">\n<dt>normative stakeholder<\/dt>\n<dd id=\"fs-idm195640192\">a stakeholder in the organization\u2019s industry who influences its norms or informal rules<\/dd>\n<\/dl>\n<dl id=\"fs-idm228093184\">\n<dt>stakeholder claim<\/dt>\n<dd id=\"fs-idm230216416\">a particular stakeholder\u2019s interest in a business decision<\/dd>\n<\/dl>\n<\/div>\n","protected":false},"author":2,"menu_order":1,"template":"","meta":{"pb_show_title":"","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-66","chapter","type-chapter","status-publish","hentry"],"part":57,"_links":{"self":[{"href":"https:\/\/pressbooks.hcfl.edu\/businessethics\/wp-json\/pressbooks\/v2\/chapters\/66","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/pressbooks.hcfl.edu\/businessethics\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/pressbooks.hcfl.edu\/businessethics\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/pressbooks.hcfl.edu\/businessethics\/wp-json\/wp\/v2\/users\/2"}],"version-history":[{"count":4,"href":"https:\/\/pressbooks.hcfl.edu\/businessethics\/wp-json\/pressbooks\/v2\/chapters\/66\/revisions"}],"predecessor-version":[{"id":371,"href":"https:\/\/pressbooks.hcfl.edu\/businessethics\/wp-json\/pressbooks\/v2\/chapters\/66\/revisions\/371"}],"part":[{"href":"https:\/\/pressbooks.hcfl.edu\/businessethics\/wp-json\/pressbooks\/v2\/parts\/57"}],"metadata":[{"href":"https:\/\/pressbooks.hcfl.edu\/businessethics\/wp-json\/pressbooks\/v2\/chapters\/66\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/pressbooks.hcfl.edu\/businessethics\/wp-json\/wp\/v2\/media?parent=66"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/pressbooks.hcfl.edu\/businessethics\/wp-json\/pressbooks\/v2\/chapter-type?post=66"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/pressbooks.hcfl.edu\/businessethics\/wp-json\/wp\/v2\/contributor?post=66"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/pressbooks.hcfl.edu\/businessethics\/wp-json\/wp\/v2\/license?post=66"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}