Responsibilities accepted by a Business

The influences determining which responsibilities are accepted by a business and which are not

The stakeholders of a business all have different amounts of power; some are more powerful than others. The firm’s decision makers are more likely to take into account the social responsibility that the most powerful stakeholder’s would like to implement.  Firms will accept responsibility for some stakeholders, however it won’t for others. For example a firm may treat customers well but are late at paying the suppliers. There are many factors that affect the amount of responsibility a firm takes for the different stakeholders.

One factor that affects the amount of responsibility a firm accepts to the stakeholders is the Legislation that is imposed. Abiding by legislation is the minimum requirement for firms however it can be the most influential factor determining the responsibility accepted by the firms. This is to make sure businesses are socially responsible to the minimum extent; however it is down to firms to accept the responsibility and possibly go beyond this. This impact of a business of enforcing legislation is the added costs to the business. There are many laws that a business has to abide by, many guarantee rights for the firm’s employees. One law that protects employees is the 1970 Equal Pay Act, which ensures that employees are provided with equal pay for different genders and the disabled. The impacts of the Equal Pay Act being imposed on a business is that the costs of wages will increase as everyone would have to be paid the same. However this is not necessarily bad for the firm as some people, dependant on the type of worker they are, may be financially motivated. If the workers are theory X workers then they will be more motivated and so in turn the productivity for the business will increase. Therefore the overall unit cost may drop as the wages are being spread amongst more products.

Sometimes firms will try to sidestep the law and so aren’t being socially responsible. If firms don’t comply with certain laws then there will be fines imposed. Another example would be the 1990 Environmental Protection Act and the 1995 Environment Act which gives companies fines for pollution, encourages environmental waste management and encourages firms to have the responsibility to clean up their own land and make sure it isn’t contaminated.

Fines are imposed in order to encourage compliance with the law. If they aren’t significant enough, in relation to the size of the business or their savings if they don’t abide by the law, then they won’t work. Also whether the firm would accept the fine would be down to the costs to the firm of not accepting against the actual fine. It is questionable whether the fines incurred by firms actually make them more socially responsible in the long run or whether it has no effect over the way they operate. If the fine that is imposed creates a lot of media attention for the business then they will be more willing to pay the fine as they wouldn’t want to damage the reputation of the business.

An example of when a company has received fines for not acting responsibly is Toyota when they incurred major fines due to defects in their cars. Due to many defects in the floor mats pushing down on the accelerator pedals in cars made by the company Toyota have caused many deaths. However later it was found that there was default in the making of the cars and it was not due to the floor mats. Toyota has recalled 8.5m vehicles worldwide over accelerator problems. Whether or not Toyota would pay the fines incurred from these faults would be down to whether the fine outweighed the cost of litigation because if it did then they would not pay this and just pay the litigation fees. However Toyota has paid its £20.9m to the US government for failing to swiftly recall millions of vehicles with faulty brakes and steering.

The different types of Stakeholders exert a lot of power and interest over a firm and how it is run, however different stakeholders can exert more power than others. Stakeholders can be categorised by the level of power and interest that they have over a firm. This is shown by the Power Interest Matrix. Those stakeholders that have a high level of interest and or power are referred to as key players, these would generally include shareholders. However those with a low level of power and interest are said to have minimal effort, an example for most firms would be the community. Those that have a high level of power and low interest the firm needs to keep satisfied and those with high interest and low power the firm needs to keep informed.

Shareholders have a high level of power over firms as they invest money into the firm and so have the right to vote on issues. Also shareholders have power over the firm as they can sell their shares and if a large number decide to sell theirs then it means there would be a fall in the share price. This ultimately would mean that the company would become worthless and so more vulnerable to takeover.  Due to the problems with the recalls of the cars the share price for Toyota dropped significantly by 5.6% as many shareholders sold their shares. This may be due to the fact that they didn’t was to invest in a business that was deemed risky or because they didn’t want to invest in a business that wasn’t socially responsible and was causing harm to consumers. Due to the shareholders selling their shares reduced the company’s market by billions. 

The amount of power that a firm has over the firm is dependent on the amount of shares that they own, the more shares they own the more say they will have in the business. Shareholders can also have power by threatening to sell their shares and so reducing the worth of the business, therefore if the firm wants to prevent his then they must keep the shareholders happy. Even though the shareholders can vote for decision they want to happen, if they have a low amount of share then they individually may not have a large influence over the firm.

Another stakeholder that has a lot of power over the business is customers. The customers have a lot of power over the business as they have the power to withhold purchases and so can be a significant threat to the business if large numbers of people don’t buy from them. This would obviously reduce their sales and so therefore have a significant impact on their profits. Many firms may also rely on repeat custom and word of mouth recommendations and so can’t afford to alienate the customers. After the cars made by Toyota were recalled the sales for the company fell by 16%. This is because customers no longer trust the brand as there has been so many accidents caused by faults with Toyotas cars. Also consumers have a legal right over the business. The 1987 Consumer Protection Act was enforced to ensure that the firm is liable for faulty products that cause harm to the customer.   

The amount of power the customers have over a firm is dependent on whether there are other substitute products available to them, if there are substitutes then they will have a lot of power as they can buy other products instead. Therefore the business will want to keep to customers happy so that this doesn’t happen. The level of power will also depend on how dominant the firm is, if they have low prices then they may have advantage over others. If larger firms slash their prices then other firms that are smaller may not be able to compete with them and so this eliminated the amount of choice that a customer has.

               

There are other stakeholders such as the community, that don’t have as much power over the firm. As the community is a non-connected stakeholder then it is bound to be in a weak position. The community however does have some legal protection against pollution and planning permission for example. The 1990 Environmental Protection Act and the 1995 Environment Act which gives companies fines for pollution, encourages environmental waste management and encourages firms to have the responsibility to clean up their own land and make sure it isn’t contaminated.

In conclusion most businesses, except form the most responsible and committed firms will generally only accept responsibility which is enforced by law and regulation. However this is only the minimum requirement of the firm and if they want to be socially responsible then they would have to go beyond this, the firm could incorporate their own code of conduct and so contributes to being more socially responsible. The amount of power the stakeholders have is shown by the Power Interest Matrix. The shareholders are obviously key players as they have a large amount of power over the firm. The customers are said to have high power but a low level of interest and so need to keep satisfied. Therefore they are not key players in the business, however if they aren’t kept satisfied then they can have a major impact on the firm. This was shown when customers weren’t satisfied with Toyota’s cars as they withdrawn from purchasing their products. The most influential stakeholder to Toyota would be the shareholders, however they also need to keep other happy otherwise they could also have more of an impact on the productivity of the business.

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