Good Governance and Corporate Social Responsibility

Chapter 7:STAKEHOLDER & SOCIAL CONTRACT

In this chapter student should able to :

 Know the difference between STAKEHOLDER & SOCIAL

CONTRACT
 Understand the process on its aspect
 Discuss analysing Stakeholders relationship
 Explain the environment as a Stakeholder

INTRODUCTION

Although we considered the social contract in the last chapter we now need to consider it in
relationship to stake holder and to stakeholder theory. This theory is one of the major influence on
CSR.

What is the difference between stakeholder & social contract?

There are several definitions. The most common ones are:

For Stakeholder:

 Those groups without whose support the organization would cease to exist
 Any group or individual who can affect or affected by the achievement of the
organization

For Social Contract:

 In political philosophy, an actual or hypothetical compact, or agreement, between

the ruled and their rulers, defining the rights and duties of each.
 Some were designed to justify the power of the sovereign, while others were
intended to safeguard the individual from oppression by a sovereign who was all too
powerful

We can see form these definition that a lot of people can be a stakeholder to an organization. The
most common groups who we consider to be stakeholder include:

 Managers-it is the one who manage and analyse the organization and its employees
and also it is the one who set the data precisely.
 Employees-they are the one set and look up the data of their organization and
maintaining it in its proper analysis to had a stable outcome on it.
 Customer- it is the one  that buys goods or services from a store or business.
and also they are the one who make the organization or company in a long
run.
  Investor-it is the person or other entity (such as a firm or mutual fund) who
commits capital with the expectation of receiving financial returns.
 Share Holders-it is the one who owned one share of the company stock, which is
known as a equity.
 Suppliers-the one who supply the needs by company who supply them, and it is the
one who give a good service for your organization because of their item and high
quality products.

Then there are some more generic groups who are often included:

 Government - an organization in which at least 51% of the paid up share

capital is held by the central government or the state government or partly by
both central and state government.
 Society at large- Its activities are bound to impact the society as the society’s
values would have an impact on the corporation. Therefore, they have mutual
rights and obligations to discharge for the benefit of one another.

Multiple Stake holding

It is normal to consider all of these stake holder should groups separately. It should be noted hoe
that each person will belong to several stakeholder groups at the same time.

For example: a single person might be a customer of an organization and also an employee and a
member of the local community and of society at large. He or she may also be a share holder and a
member of local environment association and therefore concerned about the environment.

Internal V.S External

Internal stakeholders are those included within the organization such as employees or managers
where as external stakeholder are such groups as a suppliers or customer who are not generally
consider to be part of the organization. Although this classification is fine it becomes increasingly
difficult in a modern organization to distinguish the two types when employees might be
subcontractors and suppliers might be another organisation within the same group.
3.5 Stake Holder Theory

• The argument for stakeholder theory- the maximizing wealth for stakeholders fails to maximize
wealth for society and all it’s members and that only concern with managing all stakeholder
interests achieving this.

• Fundamental aspect of stakeholder theory- is normative and involves acceptance of the following
some ideas.

• Individual action- large number of people, as individuals, are concerned about some issues, either
in general or about specific issues, but do not associate with others in a pressure group.

• Individual as costumers- individuals acting alone are costumers of some organizations and their
action can affect the behavior of these organizations.

• Internal v internal- this classification becomes increasingly difficult in a modern organization to

distinguish the two types when employees might be subcontractors and suppliers might be another
organization within the same group.

• Voluntary v involuntary- voluntary stakeholders can choose whether or not to be a stakeholder to

an organization where’s involuntary stakeholders cannot. 3.5.1 Details of Stakeholder Theory

• Environmental issues and stakeholders- a number of important issues concerning the

environment.

• Water- access to water is forecast to become a major source of conflict in the twenty first century.

• Resource depletion- the resources of the planet is finite and this is a limiting factor to growth and
development.

• Informational needs- stakeholder management has significant informational needs.

3.5.2 Informational needs

 Performance Measures
- If an organization has no measurement of how it has performed for those
stakeholders, it would be difficult to manage for a variety of stakeholders. Thus it is
necessary for each stakeholder to have a performance measures in which it can be
considered
 Customer Satisfaction
- Are sometimes based on surveys and sometimes on statistical performance measures
such as numbers of complaints or returns, or market share or customer retention.
 Balanced Scorecard
- A multi-dimensional framework that specifically considers the first and two
stakeholders as means to achieving superior financial results.
 Service Quality
- It is argued that satisfied and motivated employees are essential if service quality is to
be of a high standard and hence customers are to be satisfied, which is true. Furthermore,
satisfied customers are argued that they provide the base for superior financial results.
 Stakeholder Management
 - Used in order to improve financial performance or social or ethical performance
howsoever these may be measured.

3.6 Regulation and its implications

•The disclosure of the actions of the firm in terms of their impact upon the external environment is
essentially voluntary in nature – but this does not necessarily mean that the actions themselves are
always voluntary.

•The regulatory regime which operates in any particular country means that certain actions must
betaken by firms which affect their influence upon the external environment.

•The actions and prohibitions are controlled by means of regulation imposed by the government of
that country – both the national government and local government.

•The regulatory regime which operates in every country is continuing to change and become more
restrictive as far as the actions of an organisation and its relationship with the external environment
are concerned.

•These regulations tend to require reporting of the activities of organisations and such reporting also
involves an accounting connotation.

•This accounting need is both to satisfy regulatory requirements but also to meet the internal needs
of the organisation.

•Planning future business activities, must have accounting data to help manage the organisational
activities in this respect.

•The growth of environmental data, as part of the management information systems of

organisations, 3.6.1 Environmental Impact Reporting

•Forward looking and proactive organisations might be expected to have a tendency to extend their
environmental impact reporting in anticipation of future regulation.

•Increase in stature and prominence accorded to environmental accounting and reporting among
organisations is driven entirely by present and anticipated regulations.

•To a large extent the external reporting of such environmental impact is not determined by
regulations – these merely require reporting to the appropriate regulatory body.

•Organisations which choose to report externally upon the impact of their activities on the external
environment tend to do so voluntarily.

•The concept of regulation was devised, with appropriate bodies formed, to compensate for the
imperfections of competition in the quasi-markets which came into being.

•One of the functions of the regulators created in this manner was to control the prices charged by
these privatised utilities.

•The regulators were to act as the very visible, “invisible” hand of the market.
•The main mechanism for this has been achieved by means of a periodic review of pricing policy.
•For other industries however the effects of regulation vary in extent but in general terms can be
stated to be increasing over time and this increase can be expected to continue into the future.