Questions:

Based on 5.1 in Freeman et al., (p. 30-39) assess thestakeholder powerof your three chosen stakeholders of your corporation;

Corporation: Nike Inc

Three Chosen Stakeholders of Nike Inc:

1. Customers
2. Employees
3. Suppliers

5.1 Freeman et al (p.30-39)

5.1 Assessment of Stakeholder Power:

It is not uncommon for a firm to possess more power than one of it's stakeholders because of its size, political connections, or the asymmetric information it may possess and, as mentioned in other sections, one of the ways a firm can build trust and loyalty is by not using this information to the disadvantage of that stakeholder. However it is also common for a stakeholder to possess power, even great power, owing to a number of situational factors (Porter, 1980, 1985). We are using the word power to mean a stakeholders capacity to influence the outcomes of a firm's decisions and strategies (Harrison and John, 1996). Awareness of the power of stakeholders helps a firm determine the nature of the strategies it should pursue with each of them. In general, the more a stakeholder possess, the more a firm should take actions to ensure that the stakeholder feels like a partner in value creation rather than a foe.

Power can be assessed in general terms by looking at stakeholders in broader groups such as suppliers or customers, but it is frequently more useful to assess power at the individual "names-and-faces" level.

The Economic power of stakeholders is influenced by a firm's dependence on the resources they provide to value creating processes. That is, resource dependence is foundational to many of the specific factors that give stakeholders economic power (Preffer and Salancik, 1978).

Economic Power of Customers:

Although all customers are important, some have more economic power than others. Economic power can give stakeholders a great deal of influence over the decisions a firm makes and outcomes from those decisions (Frooman, 1999; Harrison and John, 1996). For instance, they can use economic power to dictate terms and conditions associated with the products and services they are buying, as well as their prices. However, they can also wield economic power to influence firms in areas such as governance, corporate responsibility, information disclosure, employee treatment, and choice of suppliers. Typically customers have more economic power if any or all of several conditions are present:

1. They are few in number, which means the firm cannot afford to lose one.

1. They make high-volume purchases, which produces an economic dependence.

1. The products they are buying from the firm are widely available from other firms.

1. They have better information about the firm they are buying from than the firm has about them. For example, the customer may know precisely the raw materials and production costs that go into a product, whereas the firm does not have reliable information about the real value of the product to the customer.

1. It is easy for a customer to switch to another supplier of the product or service. There are low switching costs. Some companies, such as IBM, built their business on the notion of making their products unique so it is hard for a customer to switch to a different vendor (Porter, 1980, 1985).

Economic Power of Suppliers:

Suppliers with a high level of economic power can influence uncertainty through the prices they charge; the terms they require; the level of service they offer; and the nature, quality, and availability of the products and services they provide. The following factors, many of which mirror the customer factors, give suppliers economic power:

1. Only one or a few suppliers provide what the firm needs.

1. They do not depend much on the firm for a large portion of their sales. They are not economically dependent.

1. The characteristics of the product or service the supplier provides are essential to the value the firm creates. This is especially true if a supplier provides products and services that are highly differentiated.

1. They have better information about the firm they are selling to than the firm has about them.

1. They have made it costly to switch to other sources of supply (Porter, 1980. 1985)

Economic Power of Employees:

Great employees are critical to the ability of the firm to create value, and they can also possess a high level of economic power under certain conditions. Factors that tend to give an employee economic power include the following:

1. There is a shortage of workers in the are in which the firm needs them.

1. Worker skills and experience are highly differentiated, and the firm needs a particular skill set that an employee possess to create value through its activities.

1. Competitors are aggressively pursuing the most valuable employees with attractive employment offers.

1. Employees have abundant information about the firm's operations, information systems, proprietary information, and profitability.

1. It is difficult or expensive to provide the additional training needed to produce in-house employees that possess the requisite skills.

There is frequently a great deal of power variance across particular employees, even within the same company location. For example, Disney hires a large number of low-skilled employees for its theme parks. It pays them low wages and frequently gives them unattractive work schedules and difficult or tedious work assignments, yet it has no trouble recruiting new employees because so many people want to work at a fun place like Disney World.

On the other hand, Disney theme parks also employ a group of highly skilled, talented performing Artists. These people have more economic power because their skills and experience are highly differentiated, and it would be difficult for Disney to give them the training in-house that they would need to perform certain tasks. Consequently, Disney considers and treats these people differently, including their compensation.

Economic Power of Financiers:

With regard to value creation, financiers include primarily banks and other financial institutions that provide a great deal of the operating capital for firms. These financiers can also include firms that facilitate the sale of bonds or the bondholders themselves. These types of stakeholders are a central part of the value-creating process precisely because they provide needed operating capital, and especially if the firm intends to grow, which is part of creating new value for stakeholders. Financiers have more economic power under the following conditions:

1. The firm is young and does not have a strong financial track record yet.

1. The industry in which the firm is competing is considered unstable, new, or otherwise unattractive.

1. There are not many financiers interested in making loans or investments in the particular industry segment or to the firm

1. The firm has had some financial difficulties in the past.

1. The firm is already highly leveraged, which makes it a riskier investment.

Shareholders are different from other types of financiers (Stout, 2012). After a shareholder buys a share of stock, thus providing needed capital, he or she is pretty much out of the picture with regard to the value-creating activities of the firm. That is, he or she does not participate in these processes on an ongoing and regular basis. If the firm works with its other stakeholders to create more value, the shareholders should be happy because the stock should perform well. This means also that the share price should be relatively high, which makes the company an attractive investment if it decides to issue more shares of stock.

After the shares are bought, most shareholders have very little economic power because shares of stock tend to be widely distributed. The exception to this rule occurs when an individual shareholder or investing institution purchases a large block of stock.

After the shares are bought, most shareholders have very little economic power because shares of stock tend to be widely distributed. The exception to this rule occurs when an individual shareholder or investing institution purchases a large block of stock. Large-block shareholders have more power than individual shareholders because they can influence stock prices by selling off their shares of stock. In some cases, they may even threaten to buy out the rest of the corporation through a tender offer. These factors give large-block shareholders power, which is sometimes manifest in strategic planning processes, board meetings, and through direct communications with managers; however, in our experience managers often give too much credence to this power, and it causes them to take a short profit maximising perspective that destroys value. Our recommendation is not to ignore shareholder interests, but to not let them dictate decisions that destroy value or prevent decisions that can create more value for stakeholders. Again, shareholders do very little to participate in ongoing value-creating processes. In many ways, they become more like a secondary "influencer" stakeholder after their shares are purchased.

Economic Power of Local Communities:

When we consider the community stakeholder as a group, we are talking primarily about the leaders of local government, political, and social organisations that most influence the local operating environment for the firm. Communities can be central to creating value because they provide much of the infrastructure a firm needs to operate value because they provide much of the infrastructure a firm needs to operate (Freeman et al.,2007a). In addition, the attractiveness of a community can attract or deter potential employees. Perhaps even more important, local communities can influence the "rules of the game" through regulation and taxation. In general, communities have a great deal of economic power under the following conditions:

1. They are in a prime, unique location for the business activities of the firm because of proximity to suppliers, customers, distribution channels, employees with special skills, educational institutions, or for some other firm-specific reason.

1. Other firms, which may include competitors, are highly interested in locating within that particular community.

1. Community leaders have accurate and abundant information about firm's operations, policies, employment and profitability.

1. The firm is experiencing significant growth and must therefore expand its operations.

1. The structure of local taxation is easily changed. This can happen, for instance, if the voters in the community have a record of regularly supporting new tax initiatives.

1. A firm's leases or other location-specific contracts are about to expire.

Economic Power of Competitors:

Although we tend to look at competitors as secondary stakeholders, they can also have a great deal of economic power (Porter, 1980, 1985). Economically powerful competitors can wield their power through strategies such as aggressive innovation or marketing programs, poaching valuable employees from other firms, or price cutting. Competition is a more powerful force in industries that are growing slowly and in those that have high fixed costs, very little product differentiation, or high exit barriers (what you lose if you leave the industry).

Oligopolies, in which only a few firms control most of the sales, contain large firms with a great deal of economic power. There are many factors that can give a competitor economic power (Freeman et al., 2007a; Porter, 1980, 1985; Wasserman and Faust, 1994).

1. They are large and therefore possess numerous resources with which they can overwhelm their competitors.

1. The resources they possess are rare, such as unusually good locations or superior technology that is hard to imitate and/or legally protected through patents.

1. They have a strong reputation established over a long time period. The reputation is frequently associated with an especially strong brand image combined with a logo or trademark (e.g., Coke, Nike, Disney).

1. They have unusually strong and beneficial relationships, particularly with stakeholders who possess knowledge or other resource of great value. They may also have long-term contracts with these stakeholders, providing exclusive rights over an extended period of time.

1. They possess network centrality, in that they are leaders at the centre of an interdependent network of companies that work together to create value.

1. They are aggressive in their strategies and willing to take risks.

1. They are extremely well connected politically

Political Power of Stakeholders:

Although economic power is important, it is not the only the kind of power a stakeholder may possess. Political power comes from the ability of a stakeholder to influence the political process in its favour and/or against the firm (Cummings and Doh, 2000; Freeman, 1984). Lobbying, political contributions, family relationships, or long-time friendships with politicians; alliances with political parties, public relations and advertising, or membership in industry associations; and support from interest groups, activists, or NGOs can enhance a stakeholder's political power. This sort of power is available to any of a firm's stakeholders, and firms are wise to acknowledge it in their planning and decision-making processes.

An illustration of the influence of political power, at a group level, exists in the automobile industry in the United States. One might think that the large manufacturers possess a great ability to influence regulation in the industry. Because of their size, lobbying, and political contributions they are not powerless; however, when issues put the big manufacturers in conflict with automobile dealers, it is a different matter. This is because the big manufacturers are concentrated in particular parts of the nation, and those areas are represented by few legislators in Congress compared with dealers, who are totally spread out across the nation and have representatives in each of their areas. Furthermore, the National Automobile Dealers Association is large, well organised, and powerful in its own right. So for issues in which the interests of dealers conflict with those of the automobile manufacturers, the dealers may actually have the most political power in some cases, and thus the greater ability to influence the rules of the game.

Social Influence of Stakeholders:

Some stakeholders are very adept at influencing public opinion, whether or not they have other types of political power (Cummings and Doh, 2000; Friedman 1999; Frooman, 1999; Schrempf, 2012; Schrempf-Stirling et al., 2013). Social Influence is sometimes considered a part of the general category of political power, but in some ways it is actually more pervasive in terms of its ability to affect a broader group of stakeholders. Regardless, it has become so influential that it deserves its own category.

Stakeholders may have power to influence public opinion owing to their expertise with the press or social media, their alliances with other stakeholders, the strength of their cause in the eyes of society, or the support of an interest group, activist, or NGO. Some of the common manifestations of an unhappy stakeholder with a great deal of social influence include boycotts, walkouts and strikes, damaged reputations, lost sales, community resistance to plant expansions, reduced share prices, or lost contracts with other stakeholders.

Of course, a stakeholder with much social influence might also use this influence in the form of political power in an effort to change the rules through new regulations or through government sanctions or law-suits. Ignoring stakeholders with a great deal of social influence can be hazardous. To the extent possible, a firm that manages for stakeholders will attempt to make such a stakeholder an ally rather than an adversary. Then its skill in swaying public opinion can be value producing instead of value destroying.

Legitimate, Contractual or Institutionally Based Sources of Power:

In addition to economic, political, and social influence based power, stakeholder can possess power based on a variety of other factors that are specific to their own unique contexts. One of these sources is often called legitimate power, which comes from a formal position or office held within or without the firm, the possession of which gives the stakeholder certain rights (Freeman, 1984). For instance, a CEO has certain powers because of her or his position, and these powers will vary depending on the firm.

The mayor of a local community will also possess powers that could influence firm outcomes. Similar to legitimate power, stakeholders may also have certain rights granted to them through existing contracts with the firm. The legal system provides an opportunity for remedies if contracts are not fulfilled, which gives stakeholders contractual power.

Another form of power comes from the institutions to which firms belong. An Institution, in this sense, is a group of firms that are engaged in the same line of business and pursue many of the same customers. For example, accounting firms form an institution. Firms that belong to an institution experience pressures to conform to particular norms and practices, some of them a result of tradition as the institution developed and some of them a result of societal expectations (DiMaggio and Powell, 1983). These norms can give stakeholders power. For example, in higher education it is expected that if a professor is going to be terminated, she or he will be given an entire year to find another job unless there are extreme situations such as commission of a crime. Often this is not a contractual obligation, but rather a norm that is adhered to by members of the institution of a higher education.

The kind of power shareholders possess can best be described as legitimate power combined with a broad form of institutional power, where the institution is the group of corporations that have widely distributed shares of stock (e.g., not family owned). Their legitimate power comes from their voting rights and their ability to attend board meetings and place share-holder proposals before he board in those meetings.

Shareholder activists have taken advantage of these rights, with some success, especially if they can draw the attention of the business press. However, much of shareholder power is institutional (Heminway, 2017). Society believes shareholders have power. Business people believe they have power. It is an institutional norm. Nonetheless, as we suggested previously, we believe that managers should minimise the influence of short-termism on their decisions, which is often associated with a focus on shareholder wealth maximisation, and instead focus on how to create more value for stakeholders over the long and shorter terms.

To summarise, stakeholders with a great deal of social influence or economic, political, legitimate, contractual, and/or institutionally based power can have a large impact on the value-creating activities of the firm.

Stakeholder Behaviour and Perspective Analysis:

An understanding of stakeholder power can help a firm anticipate stakeholder behaviour to some degree; that is, a stakeholder with a great deal of power is likely to behave differently in its interactions with the firm than one with little power. However, it may be helpful also to identify specific stakeholder behaviours, or possible future behaviours, in terms of their value creating or harmful potential.

In addition, while most managers believe they understand why stakeholders are behaving in a particular way, firms should dig deeper to understand their perspectives in more depth. Both of these analysis techniques can help a firm engage with stakeholders in a more productive and value-creating way.

Segmenting Stakeholder Behaviour:

Managers who interact directly with stakeholders need to think through the range of stakeholder reactions and behaviours. Many have found it useful to identify a stakeholder's current behaviours and then to think through how changes in those behaviours can help the firm or, alternatively, how changes could hurt the firm (Freeman et al.,2007a). Segmenting stakeholder behaviour into these categories can lead to a more in-depth understanding of the value creation process.

The first category, current behaviour, asks the manager to set forth those behaviours that describe the current state of the relationship between the firm and the stakeholder on the issue in question. For example, an important employee issue may be productivity or a supplier issue could be quality of parts provided. Current behaviour may even describe responses to existing strategies for dealing with these issues, where such programs are underway.

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Prof_TimothyAnswered17 hours ago

Assessment of Stakeholder Power

Customers

i.Customers being the end-users for the goods any company produces have a huge influence on the terms and conditions that go with certain products or services that they occasionally consume.

ii.Customers can also dictate the prices of goods and services as they are the intended end-users for them. When prices are fair, customers will flock to buy the goods and services but when they feel the prices are high, they will instead seek for cheaper alternatives for them.

iii.Customers also use their incredible economic power to influence the governance procedures and corporate responsibility of a said company, compelling the management of companies to disclose material information concerning pertinent issues.

iv.Customers also influence employee treatment at factories and may avoid a commodity whose company is under scrutiny for unfair treatment of employees and ugly production processes that exploit employees.

v.Customers also dictate the choice of suppliers a company can work with owing to ethical behaviour of the supplier.

vi.Customers have a high social influence and can air certain issues that they feel the company is doing or not doing right especially over any media sparking wide public attention.

Employees

i.Employees playing a crucial role in the production of goods and services of any company wield most of the crucial information about a company's operations, information and security systems and any information on profitability of the company. This should be a reality of any firm's management and treat them as partners in the production process.

ii.Some employees may have differentiated skill-sets making them assets to the company due to the rarity of what they can do. This puts them in a position to negotiate for better pay and have actual influence on decision making in the firm.

iii.Companies invest a lot in employee training giving it a feeling of loss in the case where employees want to leave. Employees may seek representation and air out issues affecting them and the company gives a keen ear. The employer does not wish to conduct training to new employees and distort a consistent learning curve.

iv.Employees with particular skill sets in a company such as those in accounting may come together to form a union that agitates for their rights as employees. This includes minimum wages based on industry set wages, maximum working hours and any other form of special treatment.

v.Unionized employees can form a nationwide labour union that may go to such length as agitate for Government policy change that may influence rules and regulations at the work place. They can also sue a company concerning certain practices that contravene any set Government policy.

Suppliers

i.Suppliers knowing what a firm really needs in its supply chain may dictate the minimum prices for raw materials putting them at a higher plane in negotiations. They can also dictate the terms and conditions of engagement as the firm or company cannot do without them.

ii.If a supplier is economically independent meaning, they do not depend on the company to make large sales, the supplier can dictate the nature and quality of products and services they can offer the company.

iii.Certain suppliers may have incredible political power owing to their connections with other firms and suppliers to dictate certain issues.