Stakeholders and Stakeholding

1. Stakeholder classifications and definitions
2. Shareholder and stakeholder paradigms
3. How should stakeholders be managed?
4. Models of Corporate Responsibilities -Carroll’s model/ Reidenbach and Robin’s model

Stakeholder Model

Freeman E & Reed D (1983) Stockholders and stakeholders: A new perspective on corporate governance, California Management Review Vol 25 No 3

n        Two classifications:

n        Wide sense: “any identifiable group or individual who can affect the achievement of an organization’s objectives or who is affected by the achievement of an organization’s objectives”

n        Narrow sense: “any identifiable group or individual on which the organisation is dependent for its continued survival”

Other Classifications

n        Internal v External (says nothing about relative importance).

n        Campbell (1997) distinguishes between

•          active : those who can affect the performance of the company and whose demands are unquenchable

•          passive : have less active influence on the company and do not have daily transactions with the company.

Weiss (2003), Business Ethics, Thompson refers to :

–        primary : owners, suppliers, customers and employees

–        secondary : media, society, environmental groups,consumer groups, special interest groups and local interest groups.

Atkinson (1997)

n        identifies 5 prominent stakeholder groups : customers, employees, suppliers, owners and the community in 2 sets :

•          - environmental stakeholders : customers, owners and the community.

•          - process stakeholders : employees and suppliers

What do these differences indicate?

n        The differences between authors just highlight the definitional and classification problems

Shareholder and Stakeholder Paradigms

In whose interest?
The Traditional Answer

n        The shareholders/owners

–        Managers have a fiduciary relationship to the owners to look after their interests

–        Legal constraints on this duty

–        Problems with this understanding of single view of responsibility

Owners / Shareholders

n        Their stake:

–         stocks, bonds, equity, etc.

n        Their expectation:

–        some ROI

A shareholder mission statement

n        From Coca-Cola:

–        We exist to create value for our share owners on a long term basis by building a business that enhances the Coca-Cola company’s trademark. This is also our ultimate commitment.

In whose interest?
 the stakeholder alternative

n        Stockholders are one group among many.

n        Stakeholders are those groups that have a “stake in” or claim on the resources / activities of the company.

n        Each has a right to be treated as a end itself not just means for enrichment of the stockholders.

A stakeholder mission statement

n        John Lewis: Our purpose is 'the happiness of all our members, through their worthwhile, satisfying employment in a successful business'

n        Tesco: Our core purpose is to create value for customers to earn their lifetime loyalty

Stakes and expectations:
Employees

n        Their stake:

–        jobs, livelihood, career, human capital investments

n        Their expectation:

–        decent wages, security, benefits and meaningful work

Stakes and expectations:
Customers

n        Their stake:

–        need for / purchases of products and services

n        Their expectations:

–        honesty, quality goods, fair pricing

Stakes and expectations:
Suppliers

n        Their stake:

–        income from goods and services

n        Their expectation:

–        fairness, mutual prosperity, honesty

Stakes and expectations:
The Community

n        Their stake:

–        the environment, taxes, payroll, infrastructure improvements

n        Their expectations:

–        good citizenship, open partnership

How should stakeholders be managed?

How to decide in cases of conflicting interests?

n        The traditional answer – shareholder paradigm

–         simple

n        The stakeholder model

–        Much more difficult

–        Each stakeholder group will have different claims/expectations with regard to the business.

–        Cannot address all claims.

–        Need to organise and prioritise

Power / Interest Matrix

Benefits of Stakeholder Mapping

n        Identifies likely ‘blockers’ and `facilitators’ of change & thus whether strategies need to be developed to reposition certain stakeholder groups.

n        Identifies the extent of ‘maintenance’ needed to avoid certain groups repositioning.

Questions

n        Which stakeholders are most crucial for corporate success?

n        How much of what they want are they like to get under this alternative?

n        What are they likely to do if they do not get what they want?

n        What is the probability they will do so?

Models of Corporate Responsibilities

Carroll’s Pyramid of Social Responsibility

Source: A Carroll (1991) The pyramid of corporate social responsibility, Business Horizons, July-August, pp 39-48

Level 1                 ECONOMIC

Responsibilities

Be profitable

The foundation upon which all other levels rest

Economic Components

u        It is important to perform in a manner consistent with maximising earnings per share

u        It is important to be committed to being as profitable as possible

u        It is important to maintain a strong competitive position

u        It is important to maintain a high level of operational efficiency

u        It is important that a successful firm be defined as one that is consistently profitable.

Level 2                  LEGAL

Responsibilities

Obey the Law

Law is society’s codification of right and wrong; Play by the rules

Legal Components

u        It is important to perform in a manner consistent with expectations of government and the law.

u        It is important to comply with various national and supra-national laws and regulations.

u        It is important to be a law-abiding corporate citizen.

u        It is important that a successful firm be defines as one that fulfils its legal obligations.

u        It is important to provide goods and services that at least meet the minimal legal requirements

Level 3                    ETHICAL

Responsibilities

Be Ethical

Obligation to do what is right, just and fair; Avoid harm

Ethical Components

u        It is important to perform in a manner that is consistent with the expectations of societal mores and ethical norms.

u        It is important to recognise and respect new or evolving ethical/moral norms adopted by society.

u        It is important to prevent ethical norms from being compromised in order to achieve corporate goals.

u        It is important that good corporate citizenship be defined as doing what is expected morally or ethically.

u        It is important to recognise that corporate integrity and ethical behaviour go beyond mere compliance with laws and regulations.

Level 4                PHILANTHROPIC

Responsibilities

Be  a Good Corporate Citizen

Contribute resources to the community; improve quality of life

Philanthropic Components

u        It is important to perform in a manner consistent with the philanthropic and charitable expectations of society.

u        It is important to assist the fine and performing arts.

u        It is important that managers and employees participate in voluntary and charitable activities within their local communities.

u        It is important to provide assistance to public and private educational institutions.

u        It is important to assist voluntarily those projects that enhance a community’s ‘quality of life’.

Compare that with this model...

Ethical Balance in Business Operations

Stage 1 - Amoral Companies

n        At the base are the Amoral Companies - these companies are ethically challenged.

n        They are around for the short term and are characterised by winning at all costs

n        At its heart is the philosophical conviction that business is not subject to the same rules as individuals

n        Greed is good

Stage 2 - Legalistic 1

Legalistic companies:

n        Obey the law.

n        Ethical concerns are judged on the basis of the adherence to the letter of the law rather than the spirit of the law.

n        No breach in the law equates with no breach of ethics. The prevailing view is that  - ‘if its legal then it must be OK.’

n        Legalistic companies see no need for an ethics code. Most legalistic companies would set ethical concerns aside until they become a problem. Only then would they consider remedial action.

n        BUT:

n        All organisations have ethical standards even if they are not made explicit

n        Waiting for a problem to occur is not sound management practice

Stage 3 – Responsive

n        Managers understand the value of not acting solely on a legal basis even though they believe that they can win

n        Such companies are striving to reflect the concerns of their wider stakeholders

n        A growing sense of balance between ethics and profits is emerging

n        Typically such firms may have:

n        Ethical review committees

n        Employee hotlines

n        Ethical audits

n        Ethical counsellors or ombudsmen

Stage 4 - Emerging Ethical

n        Managers in these companies have an active concern for ethical outcomes. “ We want to do the right things.”

n        Values are shared

n        Ethical perceptions are developing and emerging in the overall strategic thinking of the firm

n        Typically: Codes of ethics; conduct; core values etc. express the ethos of the firm.

n        This represents what can be called the ‘ethical organisation’.

n        Here we have a firm with a total ethical profile, a set of considered core values and a policy that reflects its ethical stance.

n        A suitable balance between ethics and profits is present that guides the business policy of the company.

Ethics and the Individual

n        Often we are faced with ‘ethical dilemmas’

n        Frequently we need to consider our position

n        It is often easier to reconcile ethical dilemmas in terms of the morals of the firm.

n        The danger is that OUR behaviour can have very personal consequences to our careers.

n        How do you reconcile opposing moralities ?

Practical Issues

Obviously underlying many of these models is a tension between -

Concern for profits

    vs Concern for ethics

Stakeholder theory

o        Freeman, R.E. 1984, Strategic Management: A stakeholder approach. Boston: Pitman.

o         Friedman, A.L. & Miles, S. 2002 Developing Stakeholder Theory. Journal of Management Studies, v 39, n 1, pp 1-21.

n        * Mitchell, R.K., Agle, B.R., & Wood, D.J. 1997. Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts. Academy of Management Review, v 22, n 4, pp 853-886.

o         Phillips, R. 2003, "Stakeholder Theory and Organizational Ethics". San Francisco: Berrett-Koehler.

o         Minu Hemmati Minu,Felix Dodds,Jasmin Enayati, and Jan McHarry 2002. Multistakeholder Processes for Governance and Sustainability: Beyond Deadlock and Conflict. London: Earthscan.