Transcript Stakeholder Management

The Context of Business Ethics:
Stakeholders, Issues,
and Social
Responsibility
A stakeholder is
any group or individual who can affect or is
affected by the achievement of the firm’s
objectives.
(R. Edward Freeman, 1984)
Who Are a Company’s Stakeholders?
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Employees
Customers
Shareholders
Suppliers
Communities
Government units
NGOs
And….
Stakeholder Interests: Simple Model
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Employees want higher wages, easier work.
Customers want lower prices, better quality.
Suppliers want higher prices, faster payment.
Stockholders want price growth & dividends.
Governments want taxes & legal compliance.
Communities want jobs, clean air, civic
contributions.
NGOs want money, cooperation.
Stakeholder Interests: Complex Model
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In reality, stakeholders within a class may
want different things:
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Some customers may want low prices,
Some may want high quality,
Some may want union-made products,
Some may want less polluting production,
Some may want …. (what else?)
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Stakeholders may want a combination of
things:
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Investors may want dividends, growth, protection
of the environment and human rights….
Employees may want wages, meaningful work,
job security, promotion opportunities, cleaner and
safer technology….
Communities may want ….
Ways of Parsing the Stakeholder Set
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Primary stakeholders are those that have
placed something at risk on behalf of the
company, or without whose support the
company would not survive.
Secondary stakeholders may affect or be
affected by the company’s operations, but
their participation and support are not
essential to the firm’s success.
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Voluntary stakeholders intend to place
something at risk, or mean to participate in
the company’s operations.
Involuntary stakeholders benefit or are
harmed by the company’s actions without
their permission, and sometimes without their
knowledge.
An Ethical Company….
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Engages voluntary stakeholders in free (not
coerced), fair, and fully informed
relationships, and
Does not cause harm to involuntary
stakeholders.
This is a very high standard!
Stakeholder Salience:
Who and What Matters to Managers?
Managers attribute some combination of these
three characteristics to their stakeholders:
 Power – the stakeholder’s ability to influence
the focal firm’s behavior.
 Legitimacy – the stakeholder’s social
standing or acceptability
 Urgency – the degree to which stakeholder
claims have time-sensitivity and importance
to the stakeholder.
Mitchell, Agle & Wood:
The Stakeholder Salience Model
Dormant
Stakeholders
Dominant
Stakeholder
s
Immediate Core
Stakeholders
POWER
LEGITIMACY
Dangerous
Stakeholders
URGENCY
Discretionary
Stakeholders
“Mosquitoes”
Dependent
Stakeholders
Stakeholders with one attribute:
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Dormant stakeholders possess power only (money, media
access, bombs…); they have no legitimate standing with the
firm and no urgent claim on the firm.
Discretionary stakeholders possess legitimacy, but have no
power to influence the firm and no urgent claims. There is
absolutely no pressure on managers to engage in an active
relationship with such a stakeholder, although managers can
choose to actively engage. Charitable or arts organizations are
often discretionary stakeholders.
“Mosquitoes” have an urgent claim but no power or
legitimacy. These stakeholders may be irritating but they’re not
dangerous unless and until they manage to acquire power
and/or legitimacy.
ANY OF THESE CAN ACQUIRE ANOTHER ATTRIBUTE….
Stakeholders with two attributes:
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Dependent stakeholders are legitimate and
have urgent claims, but have no power to
enforce their will.
Dangerous stakeholders have power and
urgent claims, but no legitimate standing.
Dominant stakeholders have power and
legitimate standing, but no urgent claims.
Stakeholders with all three attributes:
Immediate core stakeholders have power,
legitimacy, and an urgent claim. Managers
will normally attend to and give priority to that
stakeholder's claim.
Stakeholder Relationship Management
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All companies need to manage their relationships
with stakeholders,
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To avoid harms and ensure legitimate benefits to
stakeholders,
To monitor the latent stakeholders,
To prevent stakeholders from harming the company,
To reap the benefits that stakeholders can offer the
company.
Stakeholder engagement – two-way communication – is key.
The Clarkson Principles:
Segue from Stakeholders to Social Responsibility
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Principle 1: Managers should acknowledge and
actively monitor the concerns of all legitimate
stakeholders, and should take their interests
appropriately into account in decision-making and
operations.
Principle 2: Managers should listen to and openly
communicate with stakeholders about their
respective concerns and contributions, and about the
risks that they assume because of their involvement
with the corporation.
Principle 3: Managers should adopt processes and
modes of behavior that are sensitive to the concerns
and capabilities of each stakeholder constituency.
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Principle 4: Managers should recognize the
interdependence of efforts and rewards among
stakeholders, and should attempt to achieve a fair
distribution of the benefits and burdens of corporate
activity among them, taking into account their
respective risks and vulnerabilities.
Principle 5: Managers should work cooperatively
with other entities, both public and private, to insure
that risks and harms arising from corporate activities
are minimized and, where they cannot be avoided,
appropriately compensated.
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Principle 6: Managers should avoid altogether
activities that might jeopardize inalienable human
rights (e.g., the right to life) or give rise to risks
which, if clearly understood, would be patently
unacceptable to relevant stakeholders.
Principle 7: Managers should acknowledge the
potential conflicts between (a) their own role as
corporate stakeholders, and (b) their legal and moral
responsibilities for the interests of stakeholders, and
should address such conflicts through open
communication, appropriate reporting and incentive
systems and, where necessary, third party review.
Issues Management
Issues management is a set of processes that
allow a company to identify, analyze, and act
on the social or political issues that may
affect it significantly.
May be in public affairs
May be in strategic planning
May be in its own unit
How do you know something is an
issue?
Look for expectational gaps: inconsistencies in
views of what is and/or what ought to be.
 a factual gap: an inconsistency between
what is and what is.
 a conformance gap: an inconsistency
between what is and what ought to be.
 an ideals gap: an inconsistency between
what ought to be and what ought to be.
Two more factors
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Controversy, or intensity, is necessary for an issue
to exist. Controversy is generated by stakeholders
exercising voice through: (1) their willingness and
ability to confront the relevant parties in an
expectational gap, or (2) their willingness and ability
to push their concerns into a broader public forum.
Impact is necessary for an issue to exist, because
expectational gaps can develop and be controversial, but unless there is some impact on the
organization, there is no issue for that organization.
The Issue Life Cycle
Resolution or
Abandonment
Public
Attention
Trigger
Event
TIME
Issues Management Process
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Identify expectational gaps.
Assess controversy and salience.
Develop response, depending on the type of
expectational gap.
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A factual gap (what is vs. what is) calls for responses such as
objective studies to clarify the facts, and not debates with
stakeholder groups over what ought to be the company's
operations or policies.
An ideals gap (what ought to be vs. what ought to be) calls for
discussions over the values and ideals at stake; facts are not
the issue.
A conformance gap, (what is vs. what ought to be) requires
attempts to adjust the positions of one or both or all conflicting
parties. Can be unilateral change, negotiated responses,
legislative and regulatory public policy processes, arbitration,
mediation, collaborative problem solving, etc.
Corporate Social Responsibility
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Corporate social responsibility (CSR) can be
defined as the set of duties that companies owe to
their stakeholders and to society.
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Corporate social performance (CSP)is a process
and outcome measure. It is defined as “a business
organization’s configuration of principles of social
responsibility, processes of social responsiveness,
and observable outcomes as they relate to the firm’s
societal relationships.” (Wood, 1991)
Milton Friedman’s Challenge
“The view has been gaining widespread acceptance that
corporate officials … have a ‘social responsibility’ that goes
beyond serving the interest of their stockholders…. This view
shows a fundamental misconception of the character and
nature of a free economy. In such an economy, there is one
and only one social responsibility of business – to use it
resources and engage in activities designed to increase its
profits so long as it stays within the rules of the game, which is
to say, engages in open and free competition without deception
or fraud…. Few trends could so thoroughly undermine the very
foundations of our free society as the acceptance by corporate
officials of a social responsibility other than to make as much
money for their stockholders as possible.”
--Capitalism and Freedom, 1962
What’s your response?
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Arguments pro-Friedman
Arguments anti-Friedman
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Theory vs. reality: stakeholders do exist, do have
claims, do have power and legitimacy, and
companies must deal with them.
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Friedman was really talking about corporate charity.
What do you think about that?
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Carroll’s CSR Model and
Kang’s Modification
Wood’s Model of Corporate Social
Performance
PRINCIPLES OF SOCIAL RESPONSIBILITY
 Legitimacy: businesses that abuse the power
society grants them will lose that power.
 Public Responsibility: Businesses are responsible
for outcomes related to their primary and secondary
areas of involvement with society.
 Managerial Discretion: Managers and other
employees are moral actors and have a duty to
exercise discretion toward socially responsible,
ethical outcomes.
PROCESSES OF SOCIAL RESPONSIVENESS
 Environmental Scanning: gather the information
needed to understand and analyze the firm’s social,
political, legal, and ethical environments.
 Stakeholder Management: active and constructive
engagement in relationships with stakeholders.
 Issues/Public Affairs Management: a set of
processes that allow a company to identify, analyze,
and act on the social or political issues that may
affect it significantly.
OUTCOMES & IMPACTS OF PERFORMANCE
 Effects on people and organizations.
 Effects on the natural and physical
environments.
 Effects on social systems and institutions.
Kang’s Model Mapped to Wood’s
Stakeholders are key to understanding
CSR and CSP:
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Stakeholders are the source of expectations about
what constitutes desirable and undesirable firm
performance.
Stakeholders experience the effects of corporate
behavior, that is, they are the recipients of
corporate actions and output.
Stakeholders evaluate how well firms have met
expectations and/or how firms' behaviors have
affected the groups and organizations in their
environment. (Wood & Jones, 1995)
Connect the Dots
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Stakeholders have power, standing, &
claims.
Stakeholder interests will generate issues for
companies.
Corporate social responsibility defines a
firm’s duties to stakeholders and society.
Corporate social performance is a template
for evaluating a firm’s fulfillment of CSR and
effectiveness at managing stakeholder
relations and issues.