case study wk 2

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Chapter 2

Strategic Management of Stakeholder Relationships

Ferrell, Thorne, Ferrell: Business in Society 7/e © 2021 Chicago Business Press. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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2-1 Define stakeholders and understand their importance

2-2 Distinguish between primary and secondary stakeholders

2-3 Discuss the global nature of stakeholder relationships

2-4 Consider the impact of reputation and crisis situations on social responsibility performance

2-5 Examine the development of stakeholder relationships

2-6 Explore how stakeholder relationships are integral to social responsibility

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Why do you think stakeholders are important to industries and organizations?

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Customers	Employees	Investors
Stockholders	Suppliers	Government
Communities

They not only are influenced by businesses

They have the ability to affect businesses

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Stakeholders

Constituents who have an interest or stake in a company’s products, industry, markets, and outcomes

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Adam Smith (A founder of capitalism)

Created the concept if of the invisible hand and spoke about self-interest

However, went on to explain that this common good is associated with psychological motives and that each individual has to produce for the common good

A notion of capitalism that reemphasizes stakeholder concerns and issues

In the 21st century, Friedman’s form of capitalism is being replaced by Smith’s original concept (now called enlightened capitalism)

Acceptance of enlightened capitalism may occur faster in developed countries

Theodore Levitt wrote that although profit is required for business, profit is not the purpose of business

Norman Bowie noted that focusing on profit alone can create an unfavorable paradox that causes a firm to fail to achieve its objectives

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enlightened capitalism

a theory of capitalism originally proposed by Adam Smith as “promoting the happiness of mankind” that emphasizes stakeholder concerns and issues

What power (if any) do you think stakeholders have over organizations?

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stakeholder engagement

the process of involving stakeholders who may be affected by an organization’s decisions or that may influence the content or implementation of the organization’s decisions

Stakeholder Issues and Interactions

New reforms to improve corporate accountability and transparency also suggest that stakeholders such as suppliers:

Can play a major role in fostering responsible decision making

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Banks

Law

Firms

Public Accounting Firms

Identifying Stakeholders

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Primary Stakeholder

They are fundamental to a company’s operations and survival; these include shareholders & investors, employees, customers, suppliers, and public stakeholders, such as government and the community

Secondary Stakeholder

They do not typically engage in direct transactions with a company and thus are not essential for its survival; these include the media, trade associations, special-interest groups, and competitors

Cannot be ignored

For example, sometimes the media can have more of an impact than a primary stakeholder

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stakeholder orientation

the degree to which a firm understands and addresses stakeholder demands

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Comprises three sets of activities

The organization-wide generation of data about stakeholder groups and assessment of the firm’s effects on these groups

The distribution of this information throughout the firm

The organization’s responsiveness as a whole to this intelligence

stakeholder orientation

the degree to which a firm understands and addresses stakeholder demands

First, relevant stakeholder communities should be analyzed on the basis of:

The power each enjoys

The ties between them

Next, firm should characterize the concerns about the business’s conduct that each relevant stakeholder group shares

Finally, the company should evaluate its impact on the issues that are important to the various stakeholders it has identified

This intelligence should be circulated throughout the firm

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A stakeholder orientation is not complete unless it includes activities that actually address stakeholder issues

Stakeholder orientation can be viewed as a continuum, in that firms are likely to adopt the concept to varying degrees

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A stakeholder has power to the extent that it can gain access to coercive, utilitarian, or symbolic means to impose or communicate its views to an organization.

Coercive power—the use of fear, suppression, punishment or some type of restraint (issue is emotionally charged & somewhat controversial)

Utilitarian power—financial or material control or based on a decision’s utility or usefulness (boycotts & lawsuits)

Symbolic power—the use of symbols that connote social acceptance, prestige, or some other attribute (letter-writing, advertising messages, & websites)

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Legitimacy is the perception or belief that a stakeholder’s actions are proper, desirable, or appropriate within a given context

Gained through the stakeholder’s ability and willingness to explore the issue from a variety of perspectives and then to communicate in an effective and respectful manner on the desire for change

Extremist views are less likely to be considered legitimate because these groups often use covert and inflammatory measures that overshadow the issues and create animosity

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Urgency is the time sensitivity and the importance of the claim to the stakeholder

Stakeholders exercise greater pressures on managers and organizations when they stress the urgency of their claims

Time sensitivity usually heightens the stakeholder’s effort and may compress an organization’s ability to research and react to a claim

How do you think a firm’s reputation relates to its stakeholder relationships?

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Corporate reputation, image, and brands are among the most critical aspects of sustaining relationships with constituents

Investors

Media

Government watchdogs

Customers

Financial analysts

Company’s reputation is affected by every contact with a stakeholder

Companies can take decades to build their reputation and one mistake can cause significant reputational damage

Reputation Management

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Reputation Management

The process of building and sustaining a company’s good name and generating positive feedback from stakeholders

Reputation Management Process

Process of reputation management involves four components that work together:

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Identify how the organization wants to be viewed by stakeholders

Determine how stakeholders evaluate the company and their impressions of its image

Evaluate other’s impressions of organizational performance

Understand the company’s reputation

Most firms will, at one time or another, experience crisis situations

How a company reacts to the situation is indicative of its commitment to and implementation of social responsibility

The acceptance and implementation of reputation management strategies may bring challenges to the marketplace of ideas

An ideas marketplace assumes that ideas compete against one another for truth and acceptability

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What could a company facing a crisis do to satisfy its stakeholders & protect its reputation?

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Ethical Misconduct Disaster (EMD)

Unexpected organizational crisis that results from:

Employee misconduct

Illegal activities (fraud)

Unethical decisions that significantly disrupts operations and threatens or is perceived to threaten the firm’s continuity of operations

Organizational crises are far-reaching events that can have dramatic effects on both the organization and its stakeholders

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Stressful	Uncertain
Emotional	Demanding context

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Crisis Management

The process of handling a high-impact event characterized by ambiguity and the need for swift action

Crisis usually leads to both success and failure outcomes for a business and its stakeholders

Provides information for making improvements to future crisis management and social responsibility efforts

Requires a firm’s leadership to communicate in an often:

Crisis Management Process

Fundamental difficulty that a company faces is how to communicate effectively to stakeholders during and after a disaster

Crisis events are often so chaotic that a company’s leadership may not be certain of the cause of the situation before the media and other relevant groups demand a statement

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Crisis Management Process

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First

Leadership should express concern and/or remorse for the event

Second

Organization should delineate guidelines regarding how it intends to address the crisis so that stakeholders can be confident that the situation will not escalate or reoccur

Third

Company should provide explicit criteria to stakeholders regarding how each group will be compensated for any negative effect it experiences as a result of the crisis

Firm’s leadership should try to communicate as much accurate information to stakeholder groups as possible to minimize their uncertainty

When firm fails to do so, its credibility, legitimacy, and reputation in the eyes of stakeholders often suffer

The needs of various stakeholder groups may conflict

Firms have the responsibility to manage the competing interests of stakeholders to ensure that all stakeholder groups are treated fairly in the aftermath of a crisis

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Why do you think that developing strong relationships with stakeholders is so important?

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Instead of just pursuing one-time transactions

Companies are now searching for ways to develop long-term and collaborative relationships with their customers and business partners

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Some investments are tangible, such as buildings, equipment, & other elements dedicated to a particular relationship

Other investments are less tangible, such as the time, effort, trust, and commitment required to develop relationships

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Social Capital

An asset that resides in relationships and is characterized by mutual goals and trust

Like financial and intellectual capital, social capital facilitates internal and external transactions and processes

Unlike financial and intellectual capital, social capital is not tangible or the obvious property of one organization

Why might developing a process for implementing a stakeholder perspective be beneficial for an organization?

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Implementing a Stakeholder Perspective in Social Responsibility

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Step 1: Assessing the Corporate Culture

Social responsibility program must align with the corporate culture of the organization

Step 2: Identifying Stakeholder Groups

Important to recognize stakeholder needs, wants, and desires

Identify the organizational mission, values, and norms that are likely to have implications for social responsibility

Stakeholders have some level of power over a business because they are in the position to withhold, or threaten to withhold, organizational resources

Implementing a Stakeholder Perspective in Social Responsibility (cont.)

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Step 3: Identifying Stakeholder Issues

Steps 1 & 2 - identify the stakeholders who are both powerful and legitimate, determines the degree of urgency in addressing their issues

Step 4: Assessing the Organization’s Commitment to Social Responsibility

Arrive at an understanding of social responsibility that specifically matches the organization of interest

Step 3 - understanding the nature of the main issues of concern to these stakeholders

Used to evaluate current practices and to select concrete social responsibility initiatives

Implementing a Stakeholder Perspective in Social Responsibility (cont.)

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Step 5: Identifying Resources and Determining Urgency

Levels of financial and organizational investments required by different actions should be determined

Step 6: Gaining Stakeholder Feedback

General assessment obtained through satisfaction or reputation surveys

When prioritizing social responsibility challenges factor in levels of urgency

Stakeholder-generated media can be assessed

Formal research conducted by using focus groups, observations, and surveys

What motivates companies to pursue stakeholder relationships?

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Without a solid understanding of stakeholders and their interests, a firm may miss important trends and changes in its environment and not achieve strategic social responsibility

The Reactive-Defensive-Accommodative-Proactive Scale provides a method for assessing a company’s strategy and performance with each stakeholder

Scale is based on a continuum of strategy options and performance outcomes with respect to stakeholders

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The Reactive-Defensive-Accommodative-Proactive Scale is useful because it:

Evaluates real practice

Allows an organization to see its strengths and weaknesses within each stakeholder relationship

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Social Audit

The process of assessing and reporting a firm’s performance in adopting a strategic focus for fulfilling the economic, legal, ethical, and philanthropic social responsibilities expected of it by its stakeholders