THE CORPORATION AND

ITS STAKEHOLDERS
Learning objectives
• Understanding the relationship between business and
society, and the ways in which they are part of an
interactive system
• Considering the purpose of the modern corporation
• Knowing what is stakeholder, and who are corporation’s
market and nonmarket stakeholders
• Conducting a stakeholder analysis, and understanding
how it can be used to build collaborative relationships
• Analyzing the forces of change that continually reshape
the business and society relationship

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 BUSINESS AND SOCIETY
• BUSINESS
any organization that is engaged in making a
product or service for a profit

ORGANISASI PROFIT = PERUSAHAAN

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 Business vs. Nonprofit
Organization
• Business • Nonprofit
– An individual or Organization
organization that – Provides products,
tries to earn a especially services,
profit by for some purpose
providing other than profits
products that
satisfy people’s
needs

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 BUSINESS AND SOCIETY

• SOCIETY
human beings and the social structures they
collectively create

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Business and Society:
An Interactive System

Society

Business

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 A Systems Perspective

• General System Theory (1940s)

all organisms are open to, and interact
with, their external environments.

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 A Systems Perspective
• Management Theory
business firms (social organism) are
embedded in a broader social structure
(external environment) with which they
constantly interact.

Corporations have ongoing boundary

exchanges with customers, governments,
competitors, the media, communities, and
many other individuals and groups.

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 A Systems Perspective
• System Theory
provides a powerful tool to help managers
conceptualize the relationship between their
companies and their external environment.

Systems theory helps us understand how

business and society, taken together, form an
interactive social system. Each needs the
other, and each influences the other.

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THE STAKEHOLDER THEORY
OF THE FIRM
What is the purpose of the modern corporation?
To whom, or what, should the firm be responsible?

• The ownership theory of the firm ( property

or finance theory)

• The Stakeholder theory of the firm

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Three core arguments
for the stakeholder theory of the firm:

• Descriptive argument
• Instrumental argument
• Normative argument

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 The Ownership vs The Stakeholder
Theory of The Firm
A basis for both the ownership and stakeholder theories
of the firm exists in law.

Fiduciary (legal term): a person who exercises power on

behalf of another; that is, who acts as the other’s
agent.

While the law requires managers to act of behalf

of stockholders, it also gives the wide discretion –
and in some instances require them – to manage
on behalf of the full range of stakeholder group.

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 The Stakeholder Concept
• Stakeholder
persons and groups that affect, or are
affected by, an organization’s decisions,
policies, and operations

• stake
an interest in – or claim on –
a business enterprise
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 Market and Nonmarket
Stakeholder
• Market stakeholders (primary stakeholders)
those that engage in economic transactions with the
company as it carries out its primary purpose of
providing society with goods and services.
– Stockholders
– Creditors
– Suppliers
– Customers
– Distributors, wholesalers, retailers
– Employees

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 Market and Nonmarket
Stakeholder
• Nonmarket stakeholders (secondary stakeholders)
people and groups who – although they do not engage
in direct economic exchange with the firm – are
nonetheless affected by or can affect its actions.
– Communities
– Governments
– Activist groups
– Media
– Business support groups
– General public

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 A Stakeholder Network
• Some theorists suggested that a more
accurate way to visualize the relationship is to
show the business firm embedded in a
complex network of stakeholders, many of
which have independent relationships with
each other.

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 A Stakeholder Network
STAKEHOLDER

STAKEHOLDER
BUSINESS FIRM

STAKEHOLDER
STAKEHOLDER

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 STAKEHOLDER ANALYSIS
AND ENGAGEMENT
• Stakeholder Analysis
to identify relevant stakeholders and to
understand both their interests and the power
they may have to assert these interests.

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Stakeholder Analysis

4 key questions:
• Who are the relevant stakeholders?
• What are the interests of each stakeholders?
• What is the power of each stakeholders
– Voting power
– Economic power
– Political power
– Legal power
• How are coalitions likely to form?

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Stakeholder Engagement
• Inactive
• Reactive
• Proactive
• Interactive: companies actively engage with stakeholders
in an ongoing relationship of mutual respect, openness, and
trust

Stakeholder Engagement is used to refer to this

process of ongoing relationship building between a business
and its stakeholders.

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Stakeholder Engagement
• Stakeholder dialogue
a business and its stakeholders come
together for face-to-face conversations about
issues of common concern.
– describe their core interests and concerns
– define a common definition of problem
– invent innovative solutions for mutual gain
– establish procedures for implementing solution

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THE DYNAMIC ENVIRONMENT
OF BUSINESS
The external environment of business is dynamic and
ever changing.

6 Forces that Shape the Business and Society

Relationship:
• Changing societal expectations
• Growing emphasis on ethical values
• Globalization
• Evolving governmental regulation of business
• Dynamic natural environment
• Explosion of new technology

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 CREATING VALUE IN A
DYNAMIC ENVIRONMENT
• The relationship between business and society is
continuously changing in new and often unpredictable
ways.

• To be effective, corporations must meet the

reasonable expectations of stakeholders and society
in general.

• A successful business must meet both its economic

and social objectives.
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 The purpose of the firm is not simply to
make a profit, but to create value for all
its stakeholders.

Business success is judged, not simply by

a company’s financial performance, but
by how well it serves broad social
interest.

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"I must do my part, Allah will do His part"
(Amien Rais)

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