Balancing Responsibilities to Shareholders and Stakeholders

The Shareholder Value Approach

n  Historically strong in the UK and USA

n  Sees the firm as the private property of its owners

n  Managers should serve needs of customers and shareholders

n  Links to the concept of competitive advantage

n  Customer needs come first

n  Profits are gained by satisfying these needs

n  Shareholder needs are satisfied by dividends and capital growth

Changing Shareholder Expectations of Value over Time

Life Cycle of a Business

n  Start Up

n  Finance comes from venture capitalists, banks etc

n  Backers hope for high growth in capital value; no dividends

n  Growth

n  Growth equity investors buy out the venture capitalists

n  Backers expect moderate to high capital growth; no dividends

n  Maturity

n  Public limited company, shares traded on stock market

n  Backers expect dividends and hope for some capital growth

n  Decline

n  Capital value declines and the firm can no longer pay dividends

The Stakeholder Value Approach

n  Instrumental form: embraces economic interest groups

n  Trading partners

n  Financiers and shareholders

n  Board of directors, top management teams and employees

These are de Wit and Meyer’s primary stakeholders (Handout p. 274)

n  Normative form: also embraces groups with wider social or environmental interests

n  Governments

n  Community groups

n  Environmental activists and/or human rights protesters

These are de Wit and Meyer’s secondary stakeholders (Handout p. 274)

Balancing Shareholder and Stakeholder Values:
The Triple Bottom Line

n  People

n  Planet

n  Profits

An important agenda for the UN and NGOs

n  Brundtland Report (1987) Our Common Future

n  John Elkington (1997) Cannibals with Forks

n  UN Global Compact (2000): Businesses are invited to sign up to 10 principles relating to human rights, labour, environment and corruption

                (Lawrence and Beamish 2013: source text for Coursework Component Two case study)

The 10 Principles of the UN Global Compact

Human Rights

n  Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and

n  Principle 2: make sure that they are not complicit in human rights abuses.  

Labour

n  Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;

n  Principle 4: the elimination of all forms of forced and compulsory labour;

n  Principle 5: the effective abolition of child labour; and

n  Principle 6: the elimination of discrimination in respect of employment and occupation. 

Environment

n  Principle 7: Businesses should support a precautionary approach to environmental challenges;

n  Principle 8: undertake initiatives to promote greater environmental responsibility; and

n  Principle 9: encourage the development and diffusion of environmentally friendly technologies.   

Anti-Corruption

Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery

Corporate Social Responsibility

n  Moving beyond compliance with laws and benchmark standards

n  Distinctive mission and values integrated with management practice

n  Differing stakeholder interests reconciled

n  Reputation with consumers enhanced by evident care for human rights and dignity, workforce welfare and ecological sustainability

n  Relationships with governments strengthened by positive contribution to national economic and social development

Key differences between levels of social innovation (Frynas and Mellahi 2011: 394)

	Strategic planning	Investment	Example
In-market Innovation	Short term	Small- to medium-scale funding	Petroleum company develops low-emission fuel
New Market Creation	Medium term	Medium- to large-scale funding, may involve new resources/capabilities	Shell’s investments in solar energy
Leadership	Long term	Large-scale funding, requires new resources/capabilities	BP’s initiative to combat climate change

Identifying Stakeholders
(Adapted from HARRISON J.S. (2003) Strategic Management of Resources and Relationships. Chichester: Wiley, p. 37)

Stakeholders of Shell International 

(Frynas and Mellahi 2011: 385)

Analysing Stakeholder Interactions

n  Identify the strategic issue and the facts of the case

n  Generate a range of options for managing the problem

n  Identify the stakeholders who have a direct interest in the outcome

n  Analyse the nature of each stakeholder’s interest and decide how to manage the firm’s interactions with this player on this issue

Consider:

n  What is the nature of each group’s interest in the case?

n  Do they all agree on ‘the facts’?

n  Which are critical, and which are supportive, of the management’s current approach? What values do they express in justifying their positions?

n  For each group, ask how much influence it is likely to have over the outcome: is it

n  Internal/Connected/External to the organisation?

n  Strong or weak in its Power/Influence?

n  Intensely or only casually interested in the outcome?

                 

Stakeholder Mapping: The Mendelow Grid