BAM 193: Good Governance & Social Responsibility

Teachers Guide Module #5

Name: _______________________________________________ Class number: _________________

Section: ____________ Schedule: _________________________ Date: ________________________

Lesson title: Stockholders, Stakeholders, and Goodwill Materials:

Activity Sheet
Lesson Objectives:
1. Differentiate between stockholder and stakeholder References:
Business Ethics
2. Discuss the relationship among ethical behavior, goodwill, and By: Stephen M. Byars & Kurt
profit Stanberry

Productivity Tip:
“If you yearn to learn, you’ll learn to earn.” ― Israelmore Ayivor

A. LESSON PREVIEW/REVIEW

Introduction

In earlier lessons, we discussed that stakeholders are all the individuals and groups affected by a
business’s decisions. Among these stakeholders are stockholders (or shareholders), individuals and
institutions that own stock (or shares) in a corporation.

Understanding the impact of a business decision on the stockholder and various other stakeholders
is critical to the ethical conduct of business. Indeed, prioritizing the claims of various stakeholders in
the company is one of the most challenging tasks business professionals face. Considering only
stockholders can often result in unethical decisions; the impact on all stakeholders must be
considered and rationally assessed.
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B. MAIN LESSON
Content and Skill Building

Below are the notes about the lesson for today. You may underline or highlight words or phrases that
you think is the main focus of the lesson.

LO 1. Differentiate between stockholder and stakeholder

Stockholders, Stakeholders, and Goodwill

Managers do sometimes focus predominantly on stockholders, especially those holding the

largest number of shares, because these powerful individuals and groups can influence whether
managers keep their jobs or are dismissed (e.g., when they are held accountable for the
company’s missing projected profit goals). And many believe the sole purpose of a business is,
in fact, to maximize stockholders’ short-term profits. However, considering only stockholders and
short-term impacts on them is one of the most common errors business managers make. It is
often in the long-term interests of a business not to accommodate stockowners alone but rather

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 BAM 193: Good Governance & Social Responsibility
Teachers Guide Module #5

Name: _______________________________________________ Class number: _________________

Section: ____________ Schedule: _________________________ Date: ________________________

to take into account a broad array of stakeholders and the long-term and short-term
consequences for a course of action.

Here is a simple strategy for considering all your stakeholders in practice. Divide your screen or
page into three columns; in the first column, list all stakeholders in order of perceived priority
(Figure 1). Some individuals and groups play more than one role. For instance, some employees
may be stockholders, some members of the community may be suppliers, and the government
may be a customer of the firm. In the second column, list what you think each stakeholder group’s
interests and goals are. For those that play more than one role, choose the interests most directly
affected by your actions. In the third column, put the likely impact of your business decision on
each stakeholder. This basic spreadsheet should help you identify all your stakeholders and
evaluate your decision’s impact on their interests. If you would like to add a human dimension to
your analysis, try assigning some of your colleagues to the role of stakeholders and reexamine
your analysis.

The positive feeling stakeholders have for any particular company is called goodwill, which is an
important component of almost any business entity, even though it is not directly attributable to
the company’s assets and liabilities. Among other intangible assets, goodwill might include the
worth of a business’s reputation, the value of its brand name, the intellectual capital and attitude
of its workforce, and the loyalty of its established customer base. Even being socially responsible
generates goodwill. The ethical behavior of managers will have a positive influence on the value
of each of those components. Goodwill cannot be earned or created in a short time, but it can
be the key to success and profitability.

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 BAM 193: Good Governance & Social Responsibility
Teachers Guide Module #5

Name: _______________________________________________ Class number: _________________

Section: ____________ Schedule: _________________________ Date: ________________________

A company’s name, its corporate logo, and its trademark will necessarily increase in value as
stakeholders view that company in a more favorable light. A good reputation is essential for
success in the modern business world, and with information about the company and its actions
readily available via mass media and the Internet (e.g., on public rating sites such as Yelp),
management’s values are always subject to scrutiny and open debate. These values affect the
environment outside and inside the company. The corporate culture, for instance, consists of
shared beliefs, values, and behaviors that create the internal or organizational context within
which managers and employees interact. Practicing ethical behavior at all levels – from CEO to
upper and middle management to general employees – helps cultivate an ethical corporate
culture and ethical employee relations.

LO 1. Discuss the relationship among ethical behavior, goodwill, and profit

Positive goodwill generated by ethical business practices, in turn, generates long-term business
success. As recent studies have shown, the most ethical and enlightened companies in the United
States consistently outperform their competitors. Thus, viewed from the proper long-term
perspective, conducting business ethically is a wise business decision that generates goodwill for
the company among stakeholders, contributes to a positive corporate culture, and ultimately
supports profitability.

You can test the validity of this claim yourself. When you choose a company with which to do
business, what factors influence your choice? Let us say you are looking for a financial advisor
for your investments and retirement planning, and you have found several candidates whose
credentials, experience, and fees are approximately the same. Yet one of these firms stands
above the others because it has a reputation, which you discover is well earned, for telling clients
the truth and recommending investments that seemed centered on the clients’ benefit and not on
potential profit for the firm. Wouldn’t this be the one you would trust with your investments?

Or suppose one group of financial advisors has a long track record of giving back to the community
of which it is part. It donates to charitable organizations in local neighborhoods, and its members’
volunteer service hours toward worthy projects in town. Would this group not strike you as the
one worthy of your investments? That it appears to be committed to building up the local
community might be enough to persuade you to give it your business. This is exactly how a long-
term investment in community goodwill can produce a long pipeline of potential clients and
customers.

Skill-building

Explain the relationship of ethical behaviour and the lack thereof to goodwill and profit

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 BAM 193: Good Governance & Social Responsibility
Teachers Guide Module #5

Name: _______________________________________________ Class number: _________________

Section: ____________ Schedule: _________________________ Date: ________________________

CASES FROM THE REAL WORLD

The Equifax Data Breach

In 2017, from mid-May to July, hackers gained unauthorized access to servers used by Equifax, a major credit
reporting agency, and accessed the personal information of nearly one-half the U.S. population. Equifax
executives sold off nearly $2 million of company stock they owned after finding out about the hack in late July,
weeks before it was publicly announced on September 7, 2017, in potential violation of insider trading rules.
The company’s shares fell nearly 14 percent after the announcement, but few expect Equifax managers to be
held liable for their mistakes, face any regulatory discipline, or pay any penalties for profiting from their actions.
To make amends to customers and clients in the aftermath of the hack, the company offered free credit
monitoring and identity-theft protection. On September 15, 2017, the company’s chief information officer and
chief of security retired. On September 26, 2017, the CEO resigned, days before he was to testify before Congress
about the breach. To date, numerous government investigations and hundreds of private lawsuits have been
filed as a result of the hack.

Critical Thinking

Question 1
Which elements of this case might involve issues of legal compliance? Which elements illustrate acting legally
but not ethically?

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Question 2
What would acting ethically and with personal integrity in this situation look like?

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Question 3

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 BAM 193: Good Governance & Social Responsibility
Teachers Guide Module #5

Name: _______________________________________________ Class number: _________________

Section: ____________ Schedule: _________________________ Date: ________________________

How do you think this breach will affect Equifax’s position relative to those of its competitors? How might it
affect the future success of the company?
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Question 4
Was it sufficient for Equifax to offer online privacy protection to those whose personal information was hacked?
What else might it have done?
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Check for Understanding

WHAT WOULD YOU DO?

Which Corporate Culture Do You Value?

Imagine that upon graduation you have the good fortune to be offered two job opportunities. The first is with
a corporation known to cultivate a hard-nosed, no-nonsense business culture in which keeping long hours
and working intensely are highly valued. At the end of each year, the company donates to numerous social
and environmental causes. The second job opportunity is with a nonprofit recognized for a very different
culture based on its compassionate approach to employee work-life balance. It also offers the chance to
pursue your own professional interests or volunteerism during a portion of every work day. The first job offer
pays 20 percent more per year.

Critical Thinking

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 BAM 193: Good Governance & Social Responsibility
Teachers Guide Module #5

Name: _______________________________________________ Class number: _________________

Section: ____________ Schedule: _________________________ Date: ________________________

Question 1.
Which of these opportunities would you pursue and why?

Question 2.
How important an attribute is salary, and at what point would a higher salary override for you the
nonmonetary benefits of the lower-paid position?

C: LESSON WRAP-UP

FAQs

1. How can you please all stakeholders?

You can’t always please all stakeholders but you can find middle ground, thereby prevent
dissatisfaction. This way as the company grows and more options and avenues open up you’ll be able
to address more issues which will be pleasing to all.

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 BAM 193: Good Governance & Social Responsibility
Teachers Guide Module #5

Name: _______________________________________________ Class number: _________________

Section: ____________ Schedule: _________________________ Date: ________________________

2. What happens when you lose goodwill due to a few bad decisions?

Any company just like people can make mistakes, what is important is that the company and its
management take responsibility and take good and fair corrective action, which will be viewed
positively by the stakeholders. This in turn will repair and restore lost goodwill and if the company is
steadfast on the corrective path will probably gain additional goodwill, making them stronger than
before.

Thinking about Learning

A. Work Tracker
You are done with this session! Let’s track your progress. Shade the session number you just
completed.

B. Think about your learning

Does the learning target achieve? If yes, why? If No, do you still have questions?
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 BAM 193: Good Governance & Social Responsibility
Teachers Guide Module #5

Name: _______________________________________________ Class number: _________________

Section: ____________ Schedule: _________________________ Date: ________________________

KEY TO CORRECTIONS
Activity 3.
Question 1. Answer may vary
Case Question 1
Legal Compliance issues would include
- Insider Trading
- Personal Law suits being brought against the members of the senior management for the mis-
handling and possible consequences suffered by customers and client Legally but not ethically
- Delaying the announcement of the hack, even after getting to know about it
- The Chief Information Officer and Chief of Security retiring almost immediately after the public
announcement, without taking responsibility and waiting to figure out corrective action which
could be effected to compensate customers and clients
- The resignation of the CEO just before he was supposed to testify before Congress, again
avoiding taking responsibility

Question 2.
- Identifying and taking corrective security measures to prevent serious harm and prevent possible
future attacks as soon as the hack was detected
- Announcing the security breach, along with the corrective action taken as soon as it was possible
- The Senior Management personnel staying and facing the situation and putting into place proper
corrective action
- Testifying to government and regulatory bodies with complete information on how and what
happened so that those entities can ascertain how to prepare a national frame work of security and
legislation to prevent or deal with future incidents of this nature.

Question 3
To Equifax directly
- Loss of faith in the company
- Loss of customers and clients
- Loss of revenue
- Weakness in future product/service pricing
To the industry
- Doubt and fear that if this could happen to Equifax, it could happen to others as well
- Fear of allowing such companies to hold valuable sensitive personal information
- Constant scrutiny and stricter operational requirements and guidelines by government and
regulatory bodies

Question 4
- Well that depends on the exact nature of the product/service they offer, as they have to frame
whatever compensation within the scope of their capabilities and what they can financially afford
in the long run, as it is important for customers and clients who remain, that the company function
uncompromised and our able to employ the right human resources, deploy the correct
hardware and software infrastructure to prevent possible future attacks or incidents

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 BAM 193: Good Governance & Social Responsibility
Teachers Guide Module #5

Name: _______________________________________________ Class number: _________________

Section: ____________ Schedule: _________________________ Date: ________________________

Note: Essay type answers are only sample answers, student answers may be worded differently,
but should ideally capture the essence of the meaning.

Activity 5.
The answer to this question will depend on the personal viewpoints and preferences of the student,
based on their motivations, personal backgrounds, home situations in terms of their parents’
financial stability, competitiveness, ambition, etc.

What is important to understand is if the students understand why they are making the choices they
are making and if they are taking the correct relevant factors into consideration, also they choice
may be dependent on the fact that since this is going to be their first job they may chose ambition
and building a carrier and later when they are more stable chose differently.