Introduction

‘I CHAPTER TWO

Chapter Objectives

• To define stakeholders and understand their importance

• To distinguish between primary and secondary stakeholders

To discuss the global nature of stakeholder relationships

To consider the impact of reputation and crisis situations on social responsibility performance

To examine the development of stakeholder relationships

To explore how stakeholder relationships are integral to social responsibility

Chapter Outline

Stakeholders Defined

Stakeholder Identification and Importance

Performance with Stakeholders

Development of Stakeholder Relationships

Implementing a Stakeholder Perspective in Social Responsibility

Link between Stakeholder Relationships and Social Responsibility

Opening Vignette

The Fight against Childhood Obesity America’s children are growing, not in height or intel lectual capacity but in weight. Advertising of fast food and highly processed, corn syrup—laced foods is at the heart of the controversy. While TV advertising of food and restaurants has dropped 34 percent from 1977 to 2004, the use of the internet, promotions, school adver tising and vending machines, and sponsored sports sta diums is on the rise. Childhood obesity has become such a concern that First Lady Michelle Obama has created the movement Let’s Movel to encourage the develop ment of a healthier generation of children. Regulators, parents, and our society in general are concerned about the health of our children, It is estimated that medi cal costs associated with childhood obesity will total $19,000 over a person’s lifetime.

Studies conducted by the Kaiser Family Foundation have found that the average child sees around 40,000 advertisements per year on television—most of these encourage children to consume candy, cereal, fast food, and soft drinks. What seems to be particularly prob lematic is the use of popular licensed children’s cartoon characters (e.g., SpongeBob SquarePants and Scooby Doo) to advertise these unhealthy foods. Critics believe food manufacturers are not being socially responsible

by encouraging children to eat food that is detrimental to their health. Companies are choosing to do some thing about this problem.

A study over a five-year period revealed that 16 major food and beverage companies—including PepsiCo, Coca-Cola, and Bumble Bee Foods—have reduced calories in foods amounting to an average of 78 calories a day from the American diet. For instance, Nestlé used new technology to reduce fat by half and calories by one-third in their “Slow Churned” Edy’s and Dreyer’s ice cream. What is especially important is that these 16 companies account for about 36 percent of calories in packaged foods.

Changes are also being made in advertising. The Walt Disney Company mandated that the company will no longer allow sponsorships or advertisements on its networks for foods that do not meet certain nutritional criteria. It also pledged to reduce the calories in foods sold at its theme parks. Coca-Cola has pledged to elimi nate advertising targeted toward children in markets where more than 35 percent of viewers are under the age of 12. These companies’ actions demonstrate sensi tivity and concern for consumer health and stakeholder interests.1

.

Strategic Management df Stakeholder Re1ation

•

•

•

I

42 Business and Society Chapter 2 Strategic Management of Stakeholder Relationships 43

A s this example illustrates, most organizations have a number of constituents and a web of relationships that interface with society. In this case, the food industry and its member companies are facing

the complex task of balancing the concerns of government, special-interest groups, parents, children, and corporate. These stakeholders are increas ingly expressing opinions and taking actions that have an effect on the industry’s reputation, relationships, and products. Today, many organiza tions are learning to anticipate such issues and to address them in their strategies long before they become the subject of media stories of negative attention.

In this chapter, we examine the concept of stakeholders and explore why these groups are important for today’s businesses. First, we define stakeholders and examine primary, secondary, and global stakeholders. Then, we examine the concept of a stakeholder orientation to enhance social responsibility. Next, we consider the impact of corporate reputation and crisis situations on stakeholder relationships. Finally, we examine the devel opment of stakeholder relationships implementing a stakeholder perspective and the link between stakeholder relationships and social responsibility.

STAKEHOLDERS DEFINED In Chapter 1, we defined stakeholders as those people and groups to whom an organization is responsible—including customers, sharehold ers, employees, suppliers, governments, communities, and many others— because they have a “stake” or claim in some aspect of a company’s products, operations, markets, industry, or outcomes. These groups not only are influenced by businesses, but they also have the ability to affect businesses.

Responsibility issues, conflicts, and successes revolve around stake- holder relationships. Building effective relationships is considered one of the more important areas of business today. The stakeholder framework is recognized as a management theory that attempts to balance stake- holder interests. Issues related to indivisible resources and unequal levels of stakeholder influence and importance constrain managers’ efforts to balance stakeholder interests.2 A business exists because of relationships among employees, customers, shareholders or investors, suppliers, and managers that develop strategies to attain success. In addition, an organi zation usually has a governing authority, often called a board of directors, which provides oversight and direction to make sure the organization stays focused on objectives in an ethical, legal, and socially responsible man ner. Corporate governance is discussed in Chapter 3. When misconduct is discovered in organizations, it is often found that in most instances there is knowing cooperation or compliance that facilitates the acceptance and perpetuation of unethical conduct.3 Therefore, relationships are associated not only with organizational success but also with organizational failure to assume responsibility.

These perspectives take into account both market and nonmarket con stituencies that may interact with a business and have some effect on the firm’s policies and strategy.4 Market constituencies are those who are directly involved and affected by the business purpose, including investors, employ ees, customers, and other business partners. Nonmarket groups include the general community, media, government, special-interest groups, and others who are not always directly tied to issues of profitability and performance.

The historical assumption that the foremost objective of business is profit maximization led to the belief that business is accountable primarily to shareholders and others involved in the market and economic aspects of an organization. Because shareholders and other investors provide the financial foundation for business and expect something in return, managers and executives naturally strive to maintain positive relationships with them.5

In the latter half of the twentieth century, perceptions of business accountability evolved toward an expanded model of the role and respon sibilities of business in society. The expansion included questions about the normative role of business: “What is the appropriate role for business to play in society?” and “Should profit be the sole objective of business?”6 Many businesspeople and scholars have questioned the role of social responsibility in business. Legal and economic responsibilities are generally accepted as the most important determinants of performance: “If this is well done,” say classical economic theorists, “profits are maximized more or less continuously and firms carry out their major responsibilities to society.”7 Some economists believe that if companies address economic and legal issues, they are satisfying the demands of society, and trying to anticipate and meet additional needs would be almost impossible. Milton Friedman has been quoted as saying that “the basic mission of business [is] thus to produce goods and services at a profit, and in doing this, business [is] mak ing its maximum contribution to society and, in fact, being socially respon sible.”8 Even with the business ethics scandals of the twenty-first century, Friedman suggests that, although individuals guilty of wrongdoing should be held accountable, the market is a better deterrent than new laws and reg ulations that discourage firms from wrongdoing.9 Thus, Friedman would diminish the role of stakeholders such as the government and employees in requiring that businesses demonstrate responsible and ethical behavior.

This form of capitalism has unfortunately been exported to many less developed and developing countries without the appropriate concerns for ethics and social responsibility. Friedman’s capitalism is a far cry from Adam Smith’s, one of the founders of capitalism. Smith created the con cept of the invisible hand and spoke about self-interest; however, he went on to explain that this common good is associated with psychological motives and that each individual has to produce for the common good “with values such as Propriety, Prudence, Reason, Sentiment and promot ing the happiness of mankind.”10 These values could be associated with the needs and concerns of stakeholders.

In the twenty-first century, Friedman’s form of capitalism is being replaced by Smith’s original concept of capitalism (or what is now called

44 Business and Society

Chapter 2 Strategic Management of Stakeholder Relationships 45

enlightened capitalism), a notion of capitalism that reemphasizes stake-holder concerns and issues. The acceptance of enlightened capitalismmay be occurring faster in developed countries than in those still developing. Theodore Levitt, a renowned business professor, once wrote thatalthough profits are required for business just like eating is required forliving, profit is not the purpose of business any more than eating is thepurpose of life.1’ Norman Bowie, a well-known philosopher, extendedLevitt’s sentiment by noting that focusing on profit alone can create anunfavorable paradox that causes a firm to fail to achieve its objectives.Bowie contends that when a business also cares about the well-being ofstakeholders, it earns trust and cooperation that ultimately reduce costsand increases productivity.’2 This in turn results in increased profits andsuccess of the organization. Some critics of business believe there is a tradeoff between profits andsocial responsibility. They believe that to increase profits a firm must viewsocial responsibility as a cost that reduces profits. However, there is muchevidence that social responsibility is associated with increased profits. Forexample, one survey indicates that half of all consumers are willing to paymore for goods and services from socially responsible companies. Thisrate of response is up by 10 percent from a few years ago and relates to arange of demographic groups.’3 An important academic study found thatthere is a direct relationship between social responsibility and profitability.The study also found that social responsibility contributes to employeecommitment and customer loyalty—vital concerns of any firm trying toincrease profits.’4 As mentioned earlier, the Ethisphere Institute has foundthat the world’s most ethical companies outperform the companies on theStandard & Poor’s index. This clearly demonstrates that social responsibility decisions are good for business.

STAKEHOLDER ISSUES AND INTERACTION Stakeholders provide resources that are more or less critical to a firm’slong-term success. These resources may be both tangible and intangible. Shareholders, for example, supply capital; suppliers offer materialresources or intangible knowledge; employees and managers grant expertise, leadership, and commitment; customers generate revenue and provideloyalty and positive or negative word-of-mouth promotion; local communities provide infrastructure; and the media transmits positive or negativecorporate images. When individual stakeholders share similar expectationsabout desirable business conduct, they may choose to establish or joinformal communities that are dedicated to better defining and advocating these values and expectations. Stakeholders’ ability to withdraw—orthreatening to withdraw—these needed resources gives them power overbusinesses.15

New reforms to improve corporate accountability and transparencyalso suggest that stakeholders such as suppliers—including banks, law

firms, and public accounting firms—can play a major role in fosteringresponsible decision making.’6 Stakeholders apply their values and standards to many diverse issues, such as working conditions, consumer rights,environmental conservation, product safety, and proper information disclosure. These are issues that may or may not directly affect an individualstakeholder’s own welfare. We can assess the level of social responsibilityan organization bears by scrutinizing its efforts and communication onthe issues of concern to its stakeholders. Table 2.1 provides examples ofcommon stakeholder issues along with indicators of businesses’ impactson these issues.17

TABLE 2.1 Examples of Stakeholder Issues and Associated Measuresof Corporate Impacts

Employees 1. Compensation and benefits 2. Training and development

Suppliers 1. Encouraging suppliers in

developing countries 2. Encouraging minority suppliers Community 1. Public health and safety 2. Conservation of energy and

materials

Stakeholder Groups Potential Indicators of Corporate Impactand Issues on These Issues

3. Employee diversity

1. Average wage paid versus industry averages 2. Changes in average traIning dollars spent per year peremployee. Resources for ethics training versus industryaverages.

3. Percentages of employees from different genders andraces, especially in leadership roles4. Occupational health and safety 4. Standard injury rates and absentee rates 5. Availability of open-door policies or ombudsmenmanagement

S. Communications with management

Customers 1. Product safety and quality 2. Management of customer

3. Services to customers with disabilities

Investors 1. Transparency of shareholder

2. Shareholder rights

1. Number of product recalls over time 2. Number of customer complaints and availability ofcomplaint procedures to answer them 3. Availability and nature of measures taken to ensureservices to customers with disabilities

1. Availability of procedures to inform shareholdersabout corporate activities 2. Frequency and type of litigation involving violations ofshareholder rights

.1 —

1. Prices offered to suppliers in developed countries anddeveloping countries in comparison to other suppliers 2. Percentage of minority suppliers

1, Availability of emergency response plan protection j 2. Data on reduction of waste produced and materialscomparison to industry

(Continued)

46 Business and Society Chapter 2 Strategic Management of Stakeholder Relationships 47

3. Annual employee time spent in community service organizations

1. Amount of electricity purchased; percentage of “green” electricity

2. Minimizing emissions and waste 2. Type, amount, and designation of waste generated

3. Minimizing adverse environmental 3. Percentage of product weight reclaimed after the effect of products product has been used

Identifying Stakeholders We can identify two different types of stakeholders, primary and second ary. Primary stakeholders are those whose continued association is abso lutely necessary for a firm’s survival; these include employees, customers, suppliers, and shareholders, as well as the governments and communities that provide necessary infrastructure. For example, many large companies decided to eliminate health care plans in light of the implementation of the Affordable Care Act, which requires all U.S. citizens to be enrolled in a healthcare plan whether or not their employer offers such benefits. This has a direct impact on a primary stakeholder—employees. However, more than half of all employees indicate that they value the fact that their employers offer healthcare plans, especially those plans that can be cus tomized to their health needs.18 These benefits can enhance the relation ship between employer and employee. Other primary stakeholders such as customers are directly impacted by the quality of products and the integrity of communication and relationships. Shareholders depend on transparency regarding financial information as well as forward-looking statements about sales and profits.

Secondary stakeholders do not typically engage in direct transactions with a company and thus are not essential for its survival; these include the media, trade associations, and special-interest groups. For example, the American Association of Retired People (AARP), a special-interest group, works to sup port the rights of retirees in areas such as healthcare benefits. Both primary and secondary stakeholders embrace specific values and standards that dic tate what constitutes acceptable or unacceptable corporate behaviors. It is important for managers to recognize that primary groups may present more day-to-day concerns, but secondary groups cannot be ignored or given less consideration. Sometimes a secondary stakeholder, such as the media, can have more of an impact than a primary stakeholder.

In 2014, Seattle passed the largest minimum wage law to date. Seattle’s city council unanimously voted to raise the minimum wage to $15 over the nect several years. This comes after a bill attempting to raise the federal minimum wage to $10.10 an hour stalled in Congress.

There are many reasons why raising the minimum wage might be a good idea. One major issue is that the minimum wage rates have not kept up with inflation over the years. A report by the Congressional Office Budget claims that a federal minimum wage increase to $10.10 per hour could raise as many as 900,000 people out of poverty. This could add $31 billion to the paychecks of American families. The biggest argument in support of a minimum wage increase is that greater purchasing power will stimulate the economy.

On the other hand, critics believe raising the mini mum wage has disadvantages. Republicans blocked the bill in Congress after the Congressional Office Budget report claimed that an increase could lead to approxi mately 500,000 lost jobs, about 0.3 percent of the U.S. workforce. Critics believe the government and busi nesses should focus more on increasing employment. Additionally, not everyone is happy about Seattle’s minimum-wage increase. One Seattle business owner responded by claiming that the new increase will force her to raise prices.

The impact on stakeholders is less clear. Although some studies have concluded that a minimum wage increase increases unemployment, others claim that it has little discernible effect. According to economists, this is because labor markets react differently to increases. As an alternative to laying off employees, economists claim that some businesses choose to cut

beyond the minimum wage, settle for less profit, or raise prices. On the contrary, some economists claim that minimum wage increases can be beneficial because it causes business owners to be more effi cient and increases positive relationships between employee and employer, reducing turnover and moti vating employees to work harder.

Because the bill stalled in Congress, supporters are encouraging states and cities to raise the minimum wage themselves. Oklahoma responded by passing a law forbidding individual towns and cities to raise the minimum wage. The governor of Oklahoma claims raising minimum wages would destroy Oklahoma jobs, cause business owners to move to other states, and raise prices for consumers. Supporters of a minimum wage increase are likely to challenge this law.

Seattle could also experience difficulties based upon how it chooses to implement the increase. The International Franchise Association has threatened to sue the city based upon what they see as unequal treat ment. For instance, Seattle is giving businesses with fewer than 500 employees more time to comply with the law. However, franchises that have more than 500 employees anywhere in the United States are currently not given this extension, even though many franchisees are independently owned.

Walmart claims that it does not oppose a minimum wage increase. Walmart claims that it pays approxi mately 5,000 employees the minimum wage, out of 1.3 million workers. How an increase affects a business will likely depend on the size, nature, and operations of the company. Not only employee stakeholders but communities as well as customers and suppliers will be affected by the decisions on minimum wages.

TABLE 2.1 (Continued)

3. Donations and support of local organizations

Stakeholder Groups Potential Indicators of Corporate Impact and Issues on These Issues

Environmental Groups

1. Minimizing the use of energy

Ethical Responsibilities in Human Resources

Should the Minimum Wage Be Increased?

primary stakeholders They are fundamental to a company’s operations and survival; these include shareholders and investors, employees, customers, sup pliers, and public stakehold ers, such as government and the community.

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

benefits, cut wages for employees who already make

Sources: Katie Lobosco, “Coping with $15 Minimum Wage in Seattle,” CNN Money, June 4, 2Q14, http:llmoney.cnn.com/2014/06/03/smallbusiness/seattle-business-minimum-wage/ (accessed June 6, 2014); Brad Plumer, “Economists Disagree on Whether the MinimumWage Kills Jobs. Why?” The Washington Post, February 14, 2013, http://www.washingtonpost.com/blogs/wonkblog/wp/2013/02/14/why-economists-are-so-puzzled-by-the-minimum-wagel (accessed June 4, 2014); Jeanne Sahadi, “Minimum Wage: Congress Stalls,States Act,” CNN Money, April 28, 2014, hftp://money.cnn.com/2014/04/28/news/economy/states-minimum-wage/ (accessed June 6,2014); Gregory Wallace, “Oklahoma Bans Minimum Wage Hikes,” CNN Money, April 15, 2Q14, http:I/money.cnn.com/2014/04/15/news/

T

Figure 2.1 offers a conceptualization of the relationship between busi nesses and stakeholders. In this stakeholder interaction model, there are two-way relationships between the firm and a host of stakeholders. In addition to the fundamental input of investors, employees, and suppliers, this approach recognizes other stakeholders and explicitly acknowledges the dialog and interaction that exists between a firm’s internal and external environments.

A Stakeholder Orientation The degree to which a firm understands and addresses stakeholder demands can be referred to as a stakehotder orientation. This orientation comprises three sets of activities: (1) the organizationwide generation ofdata about stakeholder groups and assessment of the firm’s effects on thesegroups, (2) the distribution of this information throughout the firm, and(3) the organization’s responsiveness as a whole to this intelligence.19

Generating data about stakeholders begins with identifying the stake- holders that are relevant to the firm. Relevant stakeholder communities should be analyzed on the basis of the power each enjoys, as well as bythe ties between them. Next, the firm should characterize the concerns about the business’s conduct that each relevant stakeholder group shares.This information can be derived from formal research, including surveys, focus groups, internet searches, or press reviews. For example, Ford Motor Company obtains input on social and environmental responsibility issuesfrom company representatives, suppliers, customers, and communityleaders. Shell has an Online discussion forum where websjte visitors areinvited to express their opinions on the company’s activities and their implications. Employees and managers can also generate this information informally as they carry out their daily activities. For example, purchasing managers know about suppliers’ demands, public relations executivesabout the media, legal counselors about the regulatory environment, financial executives about investors, sales representatives about customers, and human resources advisors about employees. Finally, the company should evaluate its impact on the issues that are important to the various stakeholders it has identified.2° To develop effective stakeholder dialogs, management needs to appreciate how others perceive the risks of a specificdecision. A multiple stakeholder perspective must take into account communication content and transparency when communicating with specificstakeholders.2’

Given the variety of the employees involved in the generation of information about stakeholders, it is essential that this intelligence be circulated throughout the firm. This requires that the firm facilitate the communication of information about the nature of relevant stakeholder communities, stakeholder issues, and the current impact of the firm on these issues toall members of the organization. The dissemination of stakeholder intelligence can be organized formally through activities such as newsletters andinternal information forums.22

A stakeholder orientation is not complete unless it includes activities that actually address stakeholder issues. For example, Cloetta, an international confectionary company, has taken stakeholder orientationseriously. A page on their website is dedicated to the topic and clearlyidentifies all of its stakeholders, the issues that are important to them, andhow the company interacts with consumers to address these issues. Cloettaengages with all stakeholders through various media: social media, face-to-face meetings, virtual meetings, surveys, and influential leaders in the

48 Business and Society

economy/oklahoma-minimum-wage-ban? (accessed June 6, 2014); Siobhan Hughes and Colleen McCain Nelson, ‘Senate Republicans

Block Bill to Raise Minimum Wage,” The Wall Street Journal, April 30, 2014, http://online.wsj.com/news/articles/SB10001424052702304

178104579533801387470492 (accessed June 6, 2014); Shelly Banjo, “Wal-Mart Says It Won’t Oppose Increase in Minimum Wage,” The

Wall Street Journal, May 15, 2014, http:/?online.wsj.com/newslarticles/SB1 000142402702304908304579S63763405679116 (accessed

June 6, 2014); MSN Money Partner, “Minimum Wage Increase Stalls in Washington,” MSN Money, June 26, 2013, http://money.msn.

com/business-news/Iatestaspx?post=e0e268c2-b93a-41f6-9B4e-d03c43db981c+ (accessed June 6, 2014); Editorial Board, “The Clear

Benefits of a Higher Wage,” The New York Times, February 19, 2014, http://www.nytimes.com/2014?02?20/opinion?the-clear-benef its-of

a-higher-wage.html (accessed June 6, 2014); Stephanie Dinan and Dave Boyer, “Minimum Wage Hike Would Kill a Half-Million Jobs,”

The Washington Times, February 18, 2014, http:llwww.washingtontimes.com/newsI2Ol4/feb/18/minimum-wage-hike-would-kiIl-half- million-jobs-cbo??page=all (accessed June 6, 2014).

stakeholder interaction model A model that conceptual izes the two-way relation ships between a firm and a host of stakeholders.

Chapter 2 Strategic Management of Stakeholder Relationships 49

FIGURE 2.1 Stakeholder Model for Implementing Social Responsibilities

stakeholder orientation The degree to which a firm understands and addresses stakeholder demands.

Organization

L Primary stakeholders Secondary stakeholders rl Society at large Source: Adapted from Isabelle Maignan, 0. C. Ferrell, and Linda Ferrell, “A Stakeholder Model for Implementing Social

Responsibility in Marketing,” European Journal of Marketing 39 (September/October 2005): 956—977.

50 Business and Society Chapter 2 Strategic Management of Stakeholder Relationships

community. This allows for a free flow of information between stakehold ers and the company.23 The responsiveness of the organization as a whole to stakeholder intelligence consists of the initiatives the firm adopts to ensure that it abides by or exceeds stakeholder expectations and has a pos itive impact on stakeholder issues. Such activities are likely to be specific to a particular stakeholder group (e.g., family-friendly work schedules) or to a particular stakeholder issue (e.g., pollution-reduction programs). These responsiveness processes typically involve the participation of the concerned stakeholder groups. Kraft, for example, includes special-interest groups and university representatives in its programs to become sensitized to present and future ethical issues.

Stakeholder orientation can be viewed as a continuum in that firms are likely to adopt the concept to varying degrees. To gauge a given firm’s stakeholder orientation, it is necessary to evaluate the extent to which the firm adopts behaviors that typify both the generation and dissemination of stakeholder intelligence and responsiveness to it. A given organization may generate and disseminate more intelligence about certain stakeholder communities than about others and, as a result, may respond to that intel ligence differently.24

Stakeholder Attributes25

Traditionally, companies have had an easier time understanding the issues stakeholders raise than their attributes and the tactics they use to affect organizational decision making. It is therefore necessary to understand both the content (specific issues) and process (actions, tactics) of each stakeholder relationship. For example, animal rights activists sometimes use an unreasonable process to communicate the content of their beliefs. Although they are controversial, animal rights issues do have solid support from a number of citizens. One mechanism for understanding stakeholders and their potential salience to a firm involves assessing three stakeholder attributes: power, legitimacy, and urgency. Table 2.2 describes these three attributes. This assessment provides one analytical tool to help managers uncover the motivations and needs of stakeholders and how they relate to the company and its interests. In addition, stakeholder actions may also sensitize the firm to issues and viewpoints not previously considered.26

TABLE 2.2 Stakeholder Attributes

Attributes Example

Power, legitimacy, and urgency are not constant, meaning stakeholder attributes can change over time and context. For example, there was a very strong “Buy American” sentiment in the United States in the l980s, a time when Japanese manufacturers were making steady market share gains. As globalization increased and overseas manufacturing became the norm, consumer activism or retailer strategy on activism toward this nationalistic buying criterion waned. In the late 1990s and the first decade of the twenty-first century, there was increased urgency concern ing Chinese manufacturers and legitimate claims concerning market share gains. However, nationalism, as it relates to retail purchasing, seems to contribute to the intensity of the power gained in the stakeholder envi ronment. This was largely due to the fact that the U.S. economy was strong, so products from other countries were not seen as threatening. The “Buy American” sentiment rose again after the advent of the Great Recession in 2008—2009, as Americans felt the sting of job loss. American manufacturing came to the forefront of consumer consciousness through organizations and movements promoting American-made products and activists pressuring companies to bring manufacturing back to the United States. More recently, although controversial, the use of hydraulic frac turing (fracking) of shale has significantly increased American gas and oil production, making the country more energy independent. The signing of the American Recovery and Investment Act also put pressure on domestic sourcing, investment, and reinvestment in the United States. Some com panies have taken this sentiment to heart and are investing in American manufacturing.27

Power 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.28 Coercive power involves the use of fear, sup pression, punishment, or some type of restraint. Utilitarian power involves financial or material control or based on a decision’s utility or usefulness. Finally, symbolic power relies on the use of symbols that connote social acceptance, prestige, or some other attribute.

Symbolism contained in letter-writing campaigns, advertising mes sages, and websites can be used to generate awareness and enthusiasm for more responsible business actions. In fact, the internet has conferred tremendous power on stakeholder groups in recent years. Disgruntled stakeholders, especially customers and former employees, may share their concerns or dissatisfaction on social media sites. Even current employ ees are increasingly expressing their job frustrations over the internet. Symbolic power is the least threatening of the three types.

Utilitarian measures, including boycotts and lawsuits, are also fairly prevalent, although they often come about after symbolic strategies fail to yield the desired response. For example, the government, an important stake- holder for most firms, banned the importation of goods made by children under the age of 15 through indentured or forced labor.29 This action came about after the media and activist groups exposed widespread abuses in the

57

Power

legitimacy

Urgency

power The extent to which a stakeholder can gain access to coercive, utilitarian, or symbolic means to impose or communicate its views to an organization.

A well-established employee in a specialized field has power it replacing the employee would require extensive training and resources.

Special-interest groups that are against genetically modified foods encourage

protests after legislation favorable to biotechnology companies is passed.

A company that has discovered a serious product defect that can cause injury must immediately implement a product recall.

52 Business and Society Chapter 2 Strategic Management of Stakeholder Relationships 53

legitimacy The perception or belief that a stakeholder’s actions are proper, desirable, or appropriate within a given context.

apparel industry. This law carries financial—utilitarian—repercussions for firms that purchase products manufactured under unacceptable labor con ditions. Utilitarian power can be exerted over the fear that profits will fall if too much is spent on managing labor or sustainability

Finalty, some stakeholders use coercive power to communicate their message, especially when the issue is emotionally charged and somewhat controversial. Many protests around the world over hydraulic fracturing or fracking, a method of extracting natural gas from the earth by means of fluid and other substances, have become violent. For example, a protest in Canada resulted in protestors setting police vehicles on fire, throw ing Molotov cocktails, and firing gunshots. At least 40 protestors were arrested. Another violent protest in the United Kingdom resulted in the assault of a manager for Dart Energy 30

Legitimacy The second stakeholder attribute is legitimacy, which is the perception or belief that a stakeholder’s actions are proper, desirable, or appropriate within a given context.31 This definition suggests that stake- holder actions are considered legitimate when claims are judged to be reasonable by other stakeholders and by society in general. Legitimacy is gained through the stakeholder’s ability and willingness to explore the issue from a variety of perspectives and then to communicate in an effec tive and respectful manner on the desire for change. Legitimacy is also linked to compliance with regulations, values, and norms that support ethical conduct.

Thus, 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. For example, extreme groups have destroyed property, threatened customers, and committed other acts of violence that ultimately discredit their legitimacy.32 Opponents of frack ing are at risk of delegitimizing their efforts if the main theme of their com munication is violent. It is important to remember that this issue is highly controversial, and it is in the best interest of companies engaged in this activity to be sensitive to the requests of stakeholders. After many years of stakeholders requesting acknowledgement and measurement of the risks of fracking from various oil and energy companies, ExxonMobil has agreed to become the first to disclose such information. Their report will address fracking’s effects on air and water quality, roads, and any potential effects of the chemicals used in the process. While some stakeholders are not completely satisfied with the details of this report, as they think many more issues need to be addressed, ExxonMobil is taking a step in the right direction toward becoming more transparent in addressing stakeholder concerns. The pressure that stakeholders in this example have exerted on the industry was seen as a legitimate concern to ExxonMobil. This report may spur other energy companies to follow their lead. Although an issue may be legitimate, such as environmental sensitivity, it is difficult for the claim to be evaluated independently of the way the stakeholder group communicates on it.33

Urgency Stakeholders exercise greater pressures on managers and organi zations when they stress the urgency of their claims. Urgency is based on two characteristics: time sensitivity and the importance of the claim to the stakeholder. Time sensitivity usually heightens the stakeholder’s effort and may compress an organization’s ability to research and react to a claim. For example, hundreds of protesters in Bangladesh took to the streets after a major garment factory fire killed over 100 workers. This fire came after a string of similar incidents in the region, which caused the death of over 600 workers in a period of 6 years. The aim of the protest was to obtain justice for the death of the workers. Factory owners and managers had known the factory was deemed an unsafe workplace, but allowed work to continue despite this knowledge. The urgency of the protestors resulted in the arrest of factory managers, investigations into the safety practices for factories in the region, and a refocusing of multinational companies that used the factories in their operations.34

In another example, labor and human rights are widely recognized as critical issues because they are fundamental to the well-being of people around the world. These rights have become a focal point for college stu dent associations that criticized Nike, the world’s leading shoe company, for its failure to improve the working conditions of employees of suppliers and in not making information available to interested stakeholders. Nike experienced a public backlash from its use of offshore subcontractors to manufacture its shoes and clothing. When Nike claimed no responsibility for the subcontractors’ poor working conditions and extremely low wages, some consumers demanded greater accountability and responsibility by engaging in boycotts, letter-writing campaigns, public-service announce ments, and so forth. Nike ultimately responded to the growing negative publicity by changing its practices and becoming a model company in managing offshore manufacturing.

Overall, stakeholders are considered more important to an organiza tion when their issues are legitimate, their claims are urgent, and they can make use of their power on the organization. These attributes assist the firm and employees in determining the relative importance of specific stakeholders and making resource allocations for developing and manag ing the stakeholder relationship.

PERFORMANCE WITH STAKEHOLDERS Effectively managing stakeholder relationships requires careful attention to a firm’s reputation and the effective handling of crisis situations. Boeing’s release of the acclaimed 787 Dreamliner was grounded when the plane’s lithium ion battery began to overheat. The company had outsourced pro duction of many components of the aircraft, one of which was the battery to Japanese manufacturer GS Yuasa. Although the 787 Dreamliner had undergone many tests, the company learned that excessive outsourcing could cause coordination issues as well as some unforeseen quality issues. Boeing

urgency The time sensitivity and the importance of the claim to the stakeholder.

is a company known for its safety standards, but lack of coordination with third parties can result in the failure for safety standards to be emphasized.35 In a similar turn, De Beers, the world’s largest diamond producer, announced it would stop buying diamonds from Angola after a group of European orga nizations launched a campaign to alert the public to the fact that an Angolan rebel group, Unita, funded wars and casualties through diamond sales.36

Reputation Management

There are short- and long-term outcomes associated with positive stakeholder relationships. One of the most significant of these is a positive reputation. Because a company’s reputation has the power to attract or repel stakehold ers, it can be either an asset or a liability in developing and implementing strategic plans and social responsibility initiatives.37 Reputations take a long time to build or change, and it is far more important to monitor reputation than many companies believe. Whereas a strong reputation may take years to build, it can be destroyed seemingly overnight if a company does not handle crisis situations to the satisfaction of the various stakeholders involved.

Corporate reputation, image, and brands are more important than ever and are among the most critical aspects of sustaining relationships with constituents, including investors, customers, financial analysts, media, and government watchdogs. It takes companies decades to build a great reputation, yet just one slip can cost a company dearly. Although an organization does not control its reputation in a direct sense, its actions, choices, behaviors, and consequences do influence the reputation that exists in perceptions of stakeholders. A 2009 corporate reputation poii taken during the financial crisis showed that misconduct and the failure to manage properly lowered the overall reputation of American corporations. In a 2014 reputation poll of American companies, respondents indicated that while they are still skeptical of businesses, they are confident that their reputations are improving. Even the percentage of those who are most skeptical has decreased significantly 38

Reputation management is the process of building and sustaining a company’s good name and generating positive feedback from stake- holders. A company’s reputation is affected by every contact with a stakeholder.39 Various trends may affect how companies manage their reputations. These trends include market factors, such as increased con sumer knowledge and community access to information, and workplace factors, including technological advances, closer vendor relationships, and more inquisitive employees. These factors make companies more cautious about their actions because increased scrutiny in this area requires more attention from management. A company needs to understand these factors and how to properly address them to achieve a strong reputation. These factors have also helped companies recognize a link between reputation and competitive advantage. If these trends are dealt with wisely and if internal and external communication strategies are used effectively, a firm can position itself positively in stakeholders’ minds and thus create

a competitive advantage. Intangible factors related to reputation can account for as much as 50 percent of a firm’s market valuation.40

The importance of corporate reputation has created a need for accurate reputation measures. As indicated in Table 2.3, business publications, research firms, consultants, and public relations agencies have established a foothold

TABLE 2.3 Reputation Measures

Reputation List Conducted By Groups Surveyed Primary Purpose

100 Best Corporate Corporate Citizens Responsibility

Magazine, Corporate Responsibility Officers Association fCROA)

America’s Most Fortune magazine, Admired Companies Hay Group

Fortune 1000 companies and Fortune’s Global 500 with revenues at or over $10 billion; company executives, directors, and analysts are surveyed

Fortune 1000 companies and Fortune’s Global 500 with revenues at or over $10 billion; company executives, directors, and analysts are surveyed

Business executives responsible for pur chasing and strategic relationship decisions from the top brands with over $50 million as well as high-level customers

All of the company’s stakeholders

General public Customized for Clients

Professional money Publication managers

54 Business and Society T Chapter 2 Strategic Management of Stakeholder Relationships 55

100 Best Companies to Work for in America

Fortune magazine, Great Place to Work Institute

PublicationCompanies that are at least five years old and employ at least 1,000 employees; employees and top managers are sur veyed

Russell 1000 companies

Publication

reputation management The process of building and sustaining a company’s good name and generat ing positive feedback from stakeholders.

Publication

Best and Worst: Social Responsibility

Fortune magazine, Hay Group

Publication

Corporate Branding Index

CoreBrand, LLC Customized for clients

Global Reputation Pulse

Reputation Quotient

World’s Most Respected Companies

Reputation Institute

Reputation Institute and Harris Interactive

Barton’s

Customized for clients

Business and Society Chapter 2 Strategic Management of Stakeholder Relationships 56

model called the 1-1-1 model that contributes 1 percent of the company’s time, 1 percent of equity, and 1 percent of company products to worthy causes, such as significantly discounting its products for nonprofit orga nizations.

Thus, all these elements must be continually implemented to ensure that the company’s reputation is maximized through community rela tions. However, most firms will, at one time or another, experience crisis situations that threaten or harm this reputation. How a company reacts, responds, and learns from the situation is indicative of its commitment and implementation of social responsibility.

Reputation management is becoming a key consideration for corpora tions around the world. Several years ago German firms invested resources into building, maintaining, and strengthening their reputations. A survey showed that roughly two-thirds of company executives felt that reputa tion management was of “very high” or “high” importance to their com panies. This focus has paid off: An Edelman poli measuring trust among foreign firms ranked Germany at the top of the list. In addition, when the American Chamber of Commerce asked American business executives which foreign business environment they preferred to conduct business in, 73 percent marked Germany as their first choice. Many other surveys measuring various aspects of reputation have placed Germany at or near the top of the list. Furthermore, the emphasis on building a good reputa tion is extending beyond corporations to business schools. For example, the European University in Munich offers students an MBA in Reputation Management.45

in the new field of reputation management through research and lists of “the most reputabLe” firms. However, some questions have arisen as to who can best determine corporate reputation. For example, some measures survey only chief executives, whereas others also elicit perceptions from the general public. Although executives may be biased toward a firm’s financial performance, the general public may lack experience or data on which to evaluate a company’s reputation. Regardless of how it is measured, reputation is the result of a pro cess involving an organization and various constituents.41

The process of reputation management involves four components that work together: organizational identity, image, performance, and ultimately, reputation •42 Organizational performance involves the actual interaction between the company and its stakeholders.

To build and manage a good reputation, these four areas must be aligned. Companies must manage identity and culture by pinpointing those standards and responsibilities that will allow them to achieve their objectives, work with stakeholders effectively, and continuously monitor and change for effective ness.43 The Corporate Citizens list provides recognition and publicity for out standing performance using corporate responsibility criteria. AT&T ranked number 33 in 2012 and number one in 2013. The company has implemented a widespread and comprehensive approach to sustainability and social responsibility, and the results are significant. One of the company’s points of pride is in their “It Can Wait” program, which encourages its customers to make a pledge on their website not to text while driving. So far there have been over 1.3 million pledges. AT&T also entered into a partnership with the Environmental Defense Fund (EDf), and together they have found ways of conserving millions of gallons of water each year. Another partnership in which AT&T contributed $5 million to Communities in Schools (CIS), the leading dropout prevention organization in the United States, was noted as a reason for recognition. In California, the company initiated a program called “Skip the Bag” to encourage consumers to use reusable bags. This effort gen erated donations for the Nature Conservancy.

Additionally, the Guinness Book of World Records entered the com pany into their records for the highest number of cell phones recycled each week. The company received other recognitions in 2013, including placement on the Dow Jones Sustainability Index for the fourth consecu tive year, Vigeo’s U.S. 50 (the 50 most advanced companies) for its con tributions to environmental, social, and governance performance, as well as the FTSE4Good Index for four years in a row. These are only a few of

the accomplishments the company has achieved over the last few years. AT&T’s vice-president of Sustainability and Philanthropy credits the success of the company’s social responsibility endeavors to the commitment of the leadership, strength of the collaboration among the various partnerships the company holds, as well as to the

______

dedication of the company’s employees.44 Table 2.4 lists ten socially responsible companies known for their CSR initiatives. Salesforce.com, for instance, has developed a

TABLE 2.4 Ten Socially Responsible Companies

AT&T

Bueno Foods

Fatagonia

Cummins

Eaton

Salesforce.com

SC Johnson

Marriott

Starbucks

Whole Foods

Crisis Management46 Organizational crises are far-reaching events that can have dramatic effects on both the organization and its stakeholders. Along with the industrial ization of society, companies and their products have become ever more complex and therefore more susceptible to crisis. As a result, disasters and crisis situations are increasingly common events from which few organiza tions are exempt. General Motors CEO Mary Barra’s response to the scru tiny associated with the 2014 recall of certain GM automobiles with faulty ignition switches is an example of effective crisis management. At the time of the disaster, she had only been CEO for several weeks. Barra addressed the problem quickly and straightforwardly. She took responsibility for the incidents and issued a recall of millions of vehicles. Barra also directly addressed victims injured or affected by death due to the faulty switches by meeting with them personally at their request. Finally, she addressed the state of the corporate culture that allowed the ignition switch problem to go unaddressed for such a long period of time. She also announced that she intended to change that culture under her leadership.47

An ethical misconduct disaster (EMD) can be an unexpected organiza tional crisis that results from employee misconduct, illegal activities such

58 Business and Society I Chapter 2 Strategic Management of Stakeholder Relationships Company Disaster

_____________

Manipulated earnings by pushing payments to walnut growers into the next year to make company earnings look better, The CEO and CEO both resigned when the accounting fraud was exposed.

Pleaded guilty to helping Americans evade taxes and agreed to pay $2.5 billion in penalties.

Appeared to ignore warnings of potential hacking activity, resulting in the theft of millions of customers personal informatnn.

Discovered a massive cheating scandal at its Air Force base in Montana among officers involved in the launching of intercontinental ballistic missiles.

Paid $3 billion to settle allegations that it had marketed different medica tions for uses that were unapproved by the Food and Drug Administration. Engaged in widespread bribery to foreign officials in Mexico, allegedly with knowledge of top executives.

Rigged the Libor rate—used as the benchmark for trillions of loans—to benefit the company.

as fraud, or unethical decisions that significantly disrupts operations and threatens or is perceived to threaten the firm’s continuity of operations. An EMD can even be more devastating than natural disasters such as a hur ricane or technology disruptions.48 Table 2.5 discusses some recent ethical misconduct disasters that happened due to lapses in leadership and the failure to manage risks properly.

As organizations plan for natural disasters and insure against tradi tional risks, so too should they prepare for ethical crises. An EMD can be managed by organizational initiatives to recognize, avoid, discover, answer, and recover from the misconduct. The potential damage of an ethical disaster can affect both business and society. The costs of an EMD from both a financial and reputation perspective can be assessed, as well as the need for planning to avoid an EMD. The role of leadership in pre venting a crisis relates to a contingency plan to develop effective crisis management programs.

The risks facing organizations today are significant, and the reputa tional damage caused can be far greater for companies that find themselves unprepared. The key is to recognize that the risks associated with miscon duct are real and that, if insufficient controls are in place, the company can suddenly find itself the subject of an EMD. Although it is hard to predict an ethical disaster, companies can and must prepare for one.

The Deepwater Horizon oil spill of 2010, involving oil company BP, is a prominent example of an EMD. The disaster occurred due to “negli gent misinterpretation” of pressure readings on the oil rig. Although the company was aware of the potential issues, they did not fully disclose the issue or make efforts to ensure its function. As a result, an explosion occurred, the rig sank, and an oil leak lasting over three months spewed

over 206 million gallons of oil into the Gulf of Mexico. Among many injuries, 11 deaths are attributed to the disaster as well as severe destructionto the environment and economy. The company pleaded guilty to variouscharges, including manslaughter, negligence, and obstruction of Congress.Four years later, BP continues to deal with the ramifications of this disaster. They have paid nearly $40 billion in fines, penalties, and recompense,and the amount is expected to increase. Additionally, the company has tocontend with continual governmental and civil litigations. This incidentwas not the first the company faced as a result of ethical lapses, but itwas, and continues to be, one of the most egregious in its history. Manyregulations have been instituted or changed in order to prevent such anoccurrence, and BP is having difficulty reestablishing a good reputation.49Of course, not every unethical decision relates to negligence. Manyoften begin as a marketing effort, and only in retrospect is it revealed tobe unethical. And clearly not every decision becomes a crisis. An advertisement for Olay’s Definity Eye Cream was ordered removed after it wasdetermined that the model featured was digitally altered. It is importantthat companies be sensitive to how they communicate the effects of theirproducts as well as messages they send about body image.5° It is critical for companies to manage crises effectively because researchsuggests that these events are a leading cause of organizational mortality. What follows are some key issues to consider in crisis management,the process of handling a high-impact event characterized by ambiguityand the need for swift action. In most cases, the crisis situation will notbe handled in a completely effective or ineffective manner. Thus, a crisisusually leads to both success and failure outcomes for a business and itsstakeholders and provides information for making improvements to futurecrisis management and social responsibility efforts.5’ Organizational crises are characterized by a threat to a company’shigh-priority goals, surprise to its membership, and stakeholder demandsfor a short response time. The nature of crises requires a firm’s leadershipto communicate in an often stressful, emotional, uncertain, and demanding context. Crises are very difficult on a company’s stakeholders as well.For this reason, the firm’s stakeholders, especially its employees, shareholders, customers, government regulators, competitors, creditors, and themedia, will closely scrutinize communication after a crisis. Hence, criseshave widespread implications not only for the organization but also foreach group affected by the crisis. To better understand how crises developand move toward resolution, some researchers use a medical analogy.Using the analogy, the organization proceeds through chronological stagessimilar to a person with an illness. The prodromal stage is a pre-crisisperiod during which warning signs may exist. Next is the acute stage, inwhich the actual crisis occurs. During the third (or chronic) stage, the business is required to sufficiently explain its actions to move to the final stage,crisis resolution. Figure 2.2 illustrates these stages. Although the stages areconceptually distinct, some crises happen so quickly and without warningthat the organization may move from the prodromal to acute stage within

TABLE 2.5 EthicaL Misconduct Disasters

Diamond Foods

Credit Suisse

Target

Air Force

GlaxoSmithKline

Walmart

59

Barclay’s Bank

crisis management The process of handling a high-impact event charac terized by ambiguity and the need for swift action.

60 Business and Society

Ongoing

________

—*crisis requires I expIanation an decision makin

minutes. Many organizations faced this situation after Hurricane Katrina crashed into New Orleans and the Mississippi Gulf Coast, disrupting all business and social activity for years.

One of the fundamental difficulties that a company faces is how to communicate effectively to stakeholders during and after a disaster. Once a crisis strikes, the firm’s stakeholders need a quick response in the midst of the duress and confusion. They need information about how the company plans to resolve the crisis as well as what each constituent can do to mitigate its own negative effects. If a company is slow to respond, stakeholders may feel that the company does not care about their needs or is not concerned or remorseful, lithe company is at fault, about the crisis. Furthermore, a delayed response may in fact increase the suffering of particular stakeholder groups. For instance, some stakeholders may take on considerable debt due to medical expenses as a result of the crisis. Therefore, a rapid response to stakeholders is central to any crisis resolu tion strategy so that these groups can plan their recovery.

Ironically, crisis events are often so chaotic that a company’s leader ship may not be certain of the cause of the situation before the media and other relevant groups demand a statement. Thus, it is not surprising for organizations to begin their crisis response with some degree of ambiguity in their statements. In fact, some crisis theorists advise companies to avoid too much detail in their initial response due to the embarrassment that results from changing positions later in the crisis when more information is available. Still, stakeholder groups want and, as a matter of safety in some cases, need access to whatever information the firm can share. Although tensions between the public’s needs and the organization’s fear of litigation can hamper an organization’s willingness to communicate, the demand for information in such situations is unyielding.

Not only should the firm’s leadership make a public statement quickly, but it is also necessary for the organization to communicate about specific issues to stakeholder groups. First, leadership should express concern and! or remorse for the event. Second, the organization should delineate guide lines regarding how it intends to address the crisis so that stakeholders can be confident that the situation will not escalate or reoccur. Finally, the company should provide explicit criteria to stakeholders regarding how each group will be compensated for any negative effects it experiences

as a result of the crisis. Many companies, however, overlook these three essential conditions of crisis management. More often, they focus on minimizing harm to the organization’s image, denying responsibility for the crisis, and shifting blame away from the organization and toward other stakeholder groups. Although this may be an appropriate strategy when the firm is not actually responsible, too often companies choose this course of action under the stress of the crisis when they are responsible or partially responsible for the crisis without expressing sufficient remorse for their involvement or concern for their stakeholders.

The varying communication needs and levels of concern of stakehold ers during and after a crisis often hamper effective communication. The firm’s leadership should try to communicate as much accurate informa tion to these groups as possible to minimize their uncertainty. When a firm fails to do so, its credibility, legitimacy, and reputation in the eyes of stakeholders often suffer. Adding to the complexity of communication challenges, the needs of various stakeholder groups may conflict. For instance, the needs of customers who become ill as a result of a contami nated product and their desire to have medical bills paid may be at odds with the company’s ability to bolster its stock price to satisfy sharehold ers. Some stakeholders will obviously have more opportunities than oth ers to voice their concerns after a crisis. Victims and the general public rarely have an opportunity to meet with the organization’s leadership after a crisis. Conversely, the organization’s stockholders and employees will likely have a greater opportunity to express their views about the crisis and therefore may have their ideas accepted by management. Some researchers suggest that, due to this ability to communicate directly with leadership, internal stakeholder needs often take precedence over those of external stakeholders. Organizations have a responsibility to manage the competing interests of stakeholders to ensure that all stakehotder groups are treated fairly in the aftermath of a crisis. Responsible companies try to balance the needs of their stakeholders rather than favoring some groups over others. The Walt Disney Corporation experienced a potential crisis of public concern after an elderly woman died riding the Magic Kingdom’s Pirates of the Caribbean and a four-year-old died after riding the EPCOT Resort’s Mission: Space, as well as a series of other incidents.52 Since Disney is not directly regulated by the state of Florida, it released a writ ten statement to the press and various stakeholders stating that its own engineers deemed the rides safe. At a very small cost, Disney’s invitation to state inspectors to inspect its rides sent a message that the company was going beyond the minimum (legal) requirement in its response to recover ground in the perception crisis over ride safety.53 Organizations that fail to accomplish this communication function risk alienating stakeholder groups and intensifying the negative media attention toward the company. For many reasons, including effective crisis management, organizations need to understand and pursue solid and mutually beneficial relationships with stakeholders

FIGURE 2.2 Crisis Management Process

Chapter 2 Strategic Management of Stakeholder Relationships 61

62 Business and Society I Chapter 2 Strategic Management of Stakeholder Relationships

Relationships of any type, whether they involve family, friends, coworkers, or companies, are founded on principles of trust, commitment, and transparent communication. They also are associated with a certain degree of time, inter action, and shared expectations. For instance, we do not normally speak of “having a relationship” with someone we have just met. We even differentiate between casual acquaintances, work colleagues, and close friends.

In business, the concept of relationships has gained much acceptance. Instead of just pursuing one-time transactions, companies are now search ing for ways to develop long-term and collaborative relationships with their customers and business partners.54 Many companies focus on rela tionships with suppliers, buyers, employees, and others directly involved in economic exchange. These relationships involve investments of several types. Some investments are tangible, such as buildings, equipment, new toots, and other elements dedicated to a particutar relationship. Apple made an unprecedented move in this regard when it launched an iPhone trade-in day in select retail locations. Some owners of older iPhones were sent an email invitation to upgrade to a new device.55 Other investments are less tangible, such as the time, effort, trust, and commitment required to develop a relationship. Southwest Airlines develops the intangible aspect of relationships through the level of customer service they provide as well as the enjoyable experience they give to their customers.6

Whereas tangible investments are often customized for a specific busi ness relationship, intangible efforts have a more lucid and permeable qual ity. Although social responsibility involves tangible activities and other communication signals, the key to good stakeholder relationships resides in trust, communication quality, and mutual respect. As a company strives to develop a dialog and a solid relationship with one stakeholder, invest ments and lessons learned through the process should add value to other stakeholder relationships. For example, Starbucks provides excellent ben efits, including healthcare for part-time employees, and supports fair trade or a fair income for farmers growing its coffee.

These efforts result in social capital, an asset that resides in relation ships and is characterized by mutual goals and trust.57 Social capital include the social connections that can provide economic benefits that are mutually advantageous. Social capital provides social networks that have value. Like financial and intellectual capital, social capital facilitates internal and external transactions and processes. This is especially true as more businesses become part of the sharing economy. Companies such as Airbnb, a rental sharing company, and Uber, a car reservation company, are prime examples of businesses whose level of social capital is necessary for their success. These business models depend upon building and rein forcing transparency and accountability among users as well as between users and the company 58

Unlike financial and intellectual capital, however, social capital is not tangible or the obvious property of one organization. In this same regard, social responsibility is not compartmentalized or reserved for a few issues or stakeholders but should have the company-wide strategic focus dis cussed in Chapter 1.

IMPLEMENTING A STAKEHOLDER PERSPECTIVE IN SOCIAL RESPONSIBILITy59 An organization that develops effective corporate governance and under stands the importance of business ethics and social responsibility in achiev ing success should develop some processes for managing these important concerns. Although there are many different approaches, we provide some steps that have been found effective to utilize the stakeholder framework in managing responsibility and business ethics. The steps include: (1) assessing the corporate culture, (2) identifying stakeholder groups, (3) identifying stakeholder issues, (4) assessing the organization’s commitment to social responsibility, (5) identifying resources and determining urgency, and (6) gaining stakeholder feedback. The importance of these steps is to include feedback from relevant stakeholders in formulating organizational strategy and implementation. Table 2.6 summarizes these six steps.

Step 7: Assessing the Corporate Culture To enhance organizational fit, a social responsibility program must align with the corporate culture of the organization. The purpose of this first

TABLE 2.6 Six Steps for Utilizing a Stakeholder Framework

Steps Example

DEVELOPMENT OF STAKEHOLDER RELATIONSHIPS

63

social capital An asset that resides in relationships and is char acterized by mutual goals and trust.

Assess the corporate culture

Identify stakeholder groups

Identify stakeholder issues

Assess the organization’s Commitment to social responsibility

Identify resources and determine urgency

Gain stakeholder feedback

New Belgium Brewing decides to invest in wind power because it aligns with its mission of environmental responsibility.

Whole Foods recognizes the importance of working with animal activist organizations to ensure the animals supplying its meat products are treated humanely

Chevron identifies sustainability and the increasing concern over greenhouse gas emissions as important stakeholder considerations impacting the industry

CVS determines that eliminating cigarette sales will reinforce its commitment toward becoming a health services company.

Home Depot provides emergency supplies in areas that are struck by natural disasters.

Best Buy asked consumers for feedback and realized that the recycling of electronic waste was a major concern.

64 Business and Society Chapter 2 Strategic Management of Stakeholder Relationships 65

step is to identify the organizational mission, values, and norms that are likely to have implications for social responsibility. In particular, relevant existing values and norms are those that specify the stakeholder groups and stakeholder issues that are deemed most important by the organiza tion. Very often, relevant organizational values and norms can be found in corporate documents such as the mission statement, annual reports, sales brochures, or websites. For example, Keurig Green Mountain (for merly known as Green Mountain Coffee) is a pioneer in helping strug gling coffee growers by paying them fair trade prices. The company also offers microloans to coffee-growing families to underwrite business ven tures that diversify agricultural economies. It has been on the Corporate Responsibility Magazine’s 100 Best Corporate Citizens for 14 years, and has climbed to the number one position twice.60

Step 2: Identifying Stakeholder Groups In managing this stage, it is important to recognize stakeholder needs, wants, and desires. There are many important issues that gain visibility because key constituencies such as consumer groups, regulators, or the media express an interest. When agreement, collaboration, or even con frontations exist on an issue, there is a need for a decision-making pro cess. A model of collaboration to overcome the adversarial approaches to problem solving has been suggested. Managers can identify relevant stakeholders that may be affected by or may influence the development of organizational policy.

Stakeholders have some level of power over a business because they are in the position to withhold, or at least threaten to withhold, organiza tional resources. Stakeholders have most power when their own survival is not really affected by the success of the organization and when they have access to vital organizational resources. For example, most consumers of shoes do not have a specific need to buy Nike shoes. Therefore, if they decide to boycott Nike, they have to endure only minor inconveniences. Nevertheless, their loyalty to Nike is vital to the continued success of the sport apparel giant. The proper assessment of the power held by a given stakeholder community also requires an evaluation of the extent to which that community can collaborate with others to pressure the firm.

Step 3: Identifying Stakeholder Issues Together, Steps 1 and 2 lead to the identification of the stakeholders who are both the most powerful and legitimate. The level of power and legiti macy determines the degree of urgency in addressing their needs. Step 3 consists then in understanding the nature of the main issues of concern to these stakeholders. Conditions for collaboration exist when problems are so complex that multiple stakeholders are required to resolve the issue and the weaknesses of adversarial approaches are understood.

for example, obesity in children continues to be a concern acrossgroups and stakeholders. In recent years special interest groups and government programs have been directed toward alleviating this issue; however, recent reports have shown that more progress has yet to be made.The rate of childhood obesity is still up from 14 years ago, and statisticscomparing more recent years show little change. The rate of obesity inchildren ages 2—5 years has decreased, but overall the rate is stagnating.This is important for businesses to remember when designing and marketing new products for children’s use.61

Step 4: Assessing the Organization’s Commitment to Social Responsibility Steps 1 through 3 consist of generating information about social responsibility among a variety of influencers in and around the organization. Step4 brings these three first stages together to arrive at an understanding ofsocial responsibility that specifically matches the organization of interest.This general definition will then be used to evaluate current practices and toselect concrete social responsibility initiatives, firms such as Starbucks haveselected activities that address stakeholder concerns. Starbucks has formalized its initiatives in official documents such as annual reports, webpages,and company brochures. They have a website devoted to social responsibility. Starbucks is concerned with the environment and integrates policies andprograms throughout all aspects of operations to minimize their environmental impact. They also have many community building programs thathelp them be good neighbors and contribute positively to the communitieswhere their partners and customers live, work, and play.62

Step 5: Identifying Resources and Determining Urgency The prioritization of stakeholders and issues along with the assessment ofpast performance provides for allocating resources. Two main criteria canbe considered. First, the levels of financial and organizational investmentsrequired by different actions should be determined. A second criterionwhen prioritizing social responsibility challenges is urgency. When thechallenge under consideration is viewed as significant and when stake-holder pressures on the issue could be expected, then the challenge can betreated as urgent. For example, the White House and the Department ofAgriculture are considering banning advertising for junk food in schools.This would have a major impact on food and beverage companies, as theyspend approximately $149 million to market in schools.63

Step 6: Gaining Stakeholder Feedback Stakeholder feedback can be generated through a variety of means. First,stakeholders’ general assessment of the firm and its practices can be obtained

66 Business and Society Chapter 2 Strategic Management of Stakeholder Relationships 67

through satisfaction or reputation surveys. Second, to gauge stakeholders’ perceptions of the firm’s contributions to specific issues, stakeholder generated media such as blogs, websites, podcasts, and newsletters can be assessed. Third, more formal research may be conducted using focus groups, observation, and surveys. Websites can be both positive and negative; for example, user review sites such as Yelp have both generated and decreased sales based on reviews left on the site. Because so many consumers refer to these websites before visiting a business, many companies are focusing on good customer service to ensure good reviews. However, these reviews can be misleading and do harm to a business. For example, a small salon owner expressed concern over the effect of one negative review left by a customer who never set foot in her location. The customer perceived the salon owner as rude and rushed in a telephone call and wrote about it. The owner has seen a decrease in business that she attributes to the review.64

In the process of developing stakeholder relationships, most strategies are focused on increasing the trust that a stakeholder has in a particular company. Of course, there is not a “one size fits all” approach for build ing and sustaining trusting relationships with stakeholders. As we discussed earlier in the chapter, not all stakeholders engage with a company with the same level of intensity or locus of control, whether internal or external. For example, employees are highly engaged internal stakeholders while suppliers may be considered low intensity external stakeholders. Depending on the specific issues at hand, historical interactions, relationships intensity, and other factors, managers must understand the relative importance of trans parency, competence, benevolence, integrity, values, and other factors.65

You may be wondering what motivations companies have for pursuing stakeholder relationships. As the previous section indicates, a great deal of time, effort, and commitment goes into the process of developing and implementing a stakeholder perspective. Sometimes, however, these efforts do not have the desired effect. Coca-Cola and PepsiCo have received criti cism regarding the messages of their social responsibility initiatives when compared with their perceived role in the obesity issue. For example, Coca- Cola’s social responsibility campaign called “Live Positively” encourages involvement with charities and healthy living. In conjunction with this campaign, the company released a smaller can of soda, the sales of which the company aimed to double. Certain stakeholders saw this as inconsis tent. It appeared that the company was not taking responsibility for con tributions to obesity and was placing that burden on the consumer.66 As was discussed in Chapter 1, social responsibility is a relational approach and involves the views and stakes of a number of groups. Stakeholders are engaged in the relationships that both challenge and support a company’s efforts. Thus, 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.

Rather than holding all companies to one standard, our approach to evaluating performance and effectiveness resides in the specific expecta tions and actual results that develop between each organization and its stakeholders. Max Clarkson, an influential contributor to our understand ing of stakeholders, sums up this view:

Performance is what counts. Performance can be measured and evalu ated. Whether a corporation and its management are motivated by enlightened self-interest, common sense or high standards of ethical behavior cannot be determined by empirical methodologies available today. These are not questions that can be answered by economists, sociologists, psychologists, or any other kind of social scientist. They are interesting questions, but they are not relevant when it comes to evaluating a companys performance in managing its relationships with its stakeholder groups.67

Although critics and some researchers may seek answers and evi dence as to the motivations of business for social responsibility, we are interested in what companies are actually doing that is positive, negative, or neutral for their stakeholders and their stakeholders’ interests. The Reactive—Defensive—Accommodative—Proactive Scale (see Table 2.7) Pr 0- vides a method for assessing a company’s strategy and performance with each stakeholder. This scale is based on a continuum of strategy options

TABLE 2.7 The Reactive—Defensive—Accommodative—proactive Scale

Rating Strategy Performance Example Deny responsibity Doing less than

required

LINK BETWEEN STAKEHOLDER RELATIONSHIPS AND SOCIAL RESPONSIBILITY

_______

Reactive

Defensive Admit responsibility, but fight it

Doing the least that is required

Accommodative Accept responsibility

Proactive

Exxon’s refusal to continue oil spill cleanup after a certain date

Valero Energy claims it meets federal regulation; therefore community complaints are not legitimate

General Motors promised job security if productivity gains were realized

Xerox shares product blueprints with suppliers and takes suggestions before production

Source: Adapted from Max B. E. Clarkson, “A Stakeholder Framework for Analyzing and Evaluating Corporate Social Performance,” Academy of Management Review 20 (January 1995): 92—117; I. M. Jawahar and Gary McLaughlin, “Toward a Descriptive Stakeholder Theory: An Organizational Life cycle Approach,” Academy of Management Review 26 (July 2001): 397—414; lan Wilson, “What one company is doing about today’s demands on business,” in G. A. Steiner (Ed.), Changing business society interrelations, Los Angeles, CA: Graduate School of Management, UCLA, 1975.

Anticipate responsibility

Doing all that is required

Doing more than is required

68 Business and Society Chapter 2 Strategic Management of Stakeholder Relationships

social audit The process of assess ing 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.

and performance outcomes with respect to stakeholders.68 This evaluation can take place as stakeholder issues arise or are identified. Therefore, it is possible for one company to be rated at several different levels because of varying performance and transitions over time. For example, a poorly han dled crisis situation may provide feedback for continuous improvement that creates more satisfactory performance in the future. Or a company may demonstrate a proactive stance toward employees yet be defensive with consumer activists.

The reactive approach involves denying responsibility and doing less than is required. This approach can be characterized as “fighting it all the way.”69 A firm that fails to invest in safety and health measures for employees is denying its responsibilities. An organization with a defen sive strategy acknowledges reluctantly and partially the responsibility issues that may be raised by its stakeholders. A firm in this category fulfills basic legal obligations and demonstrates the minimal responsibil ity discussed in Chapter 1. With an accommodative strategy, a company attempts to satisfy stakeholder demands by doing all that is required and may be seen as progressive because it is obviously open to this expanded model of business relationships.7° Today, many organizations are giv ing money and other resources to community organizations as a way of demonstrating social responsibility. Finally, the proactive approach not only accepts but also anticipates stakeholder interests. In this case, a company sincerely aligns legitimate stakeholder views with its respon sibilities and will do more than is required to meet them.71 Hoechst, a German life sciences company now part of Aventis, gradually assumed the proactive orientation with communities in which it operates. The initiation of a community discussion group ted to information sharing and trust building and helped transform Hoechst into a society-driven company.72

The Reactive—Defensive—Accommodative—Proactive Scale is use ful because it evaluates real practice and allows an organization to see its strengths and weaknesses within each stakeholder relationship. SABMiller, the second largest brewer in the world, uses a risk assess ment program to understand the stakeholders and issues that may pose a potential risk to its reputation. These risks are prioritized, planned for, monitored, and if necessary, responded to if SABMiller cannot predict, preempt, or avoid the concern.73 Results from a stakeholder assessment like the one at SABM11Ier should be included in the 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. Because stake- holders are so important to the concept of social responsibility, as well as to business success, Chapters 3—12 are devoted to exploring significant stakeholder relationships and issues.

SUMMARY Stakeholders refer to those people and groups who have a “stake”

- in some aspect of a company’s products, operations, markets, industry, or outcomes. The relationship between organizations and their stakeholders is a two-way Street.

The historical assumption that the key objective of business is profit maximization led to the belief that business is accountable primarily to investors and others involved fl the market and economic aspects of the organization. In the latter half of the twentieth century, perceptions of business accountability evolved to include both market constituencies that are directly involved and affected by the business purpose (e.g., inves tors, employees, customers, and other business partners) and nonmarket constituencies that are not always directly tied to issues of profitability and performance (e.g., the general community, media, government, and special-interest groups).

In the stakeholder model, relationships, investors, employees, and Sup pliers provide inputs for a company to benefit stakeholders. This approach assumes a relatively mechanistic, simplistic, and non-stakeholder view of business. The stakeholder model assumes a two-way relationship between the firm and a host of stakeholders. This approach recognizes additional stakeholders and acknowledges the two-way dialog and effects that exist with a firm’s internal and external environment.

Primary stakeholders are fundamental to a company’s operations and survival and include shareholders and investors, employees, customers, suppliers, and public stakeholders, such as government and the commu nity. Secondary stakeholders influence and/or are affected by the company but are neither engaged in transactions with the firm nor essential for its survival.

As more firms conduct htisiness overseas, they encounter the complex ity of stakeholder issues and relationships in tandem with other business operations and decisions. Although general awareness of the concept of stakeholders is relatively high around the world, the importance of stake- holders varies from country to country.

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 the Orga nization. Such power may he coercive, utilitarian, or symbolic. Legitimacy is the perception or belief that a stakeholder’s actions are proper, desirable, or appropriate within a given context. Stakeholders exercise greater pressures on managers and organizations when they stress the urgency of their claims. These attributes can change over time and context.

The degree to which a firm understands and addresses stakeholder demands can he referred to as a stakeholder orientation. This orientation comprises three sets of activities: (1) the organization-wide generation of data about stakeholder groups and assessment of the firm’s effects on these groups, (2) the distribution of this information throughout the firm, and (3) the organization’s responsiveness as a whole to tills intelligence.

69

70 Business and Society Chapter 2 Strategic Management of Stakeholder Relationships

Reputation management is the process of building and sustaining a company’s good name and generating positive feedback from stakehold cr5. The process of reputation management involves the interaction of organizational identity (how the firm wants to he viewed), orga;uzational image (how stakeholders initially perceive the firm), organizational per formance (actual interaction between the company and stakehotders), and organizational reputation (the collective view of stakeholders after inter actions with the company). Stakeholders will reassess their views of the company on the basis of how the company has actually performed.

Crisis management is the process of handling a high-impact event characterized by ambiguity and the need for swift action. Some research ers describe an organization’s progress through a prodromal, or pre crisis, stage to the acute stage, chronic stage, and finally, crisis resolution. Stakeholders need a quick response with information about how the com pany plans to resolve the crisis, as well as what they can do to mitigate negative effects to themselves. It is also necessary to) communicate specific issues to stakeholder groups, including remorse for the event, guidelines as to how the organization is going to address the crisis, and criteria regard ing how stakeholder groups will he compensated for negative effects.

Companies are searching for ways to develop long-term, collaborative relationships with their stakeholders. These relationships involve both tan gible and intangible investments. Investments and Lessons learned through the process of developing a dialog and relationship with one stakeholder should add value to other stakeholder relationships. These efforts result in social capital, an asset that resides in relationships and is characterized by mutual goals and trust.

The first step in developing stakeholder relationships is to acknowl edge and actively monitor the concerns of all legitimate stakeholders. A firm should adopt processes and modes of behavior that are sensitive to the concerns and capabilities of each stakeholder. Information should he communicated consistently across all stakeholders. A firm should he will ing to acknowledge and openly address potential conflicts. Investments in education, training, and information will improve employees’ understand ing of and relationships with stakeholders. Relationships with stakehold ers need to he periodically assessed through both formal and informal means. Sharing feedback with stakeholders helps establish the two-way dialog that characterizes the stakeholder model.

An organization that develops effective corporate governance and understands the importance of business ethics and social responsibility in achieving success should develop some processes for managing these impor tant concerns. Although there are many different approaches, we provide some steps that have been found effective to utilize the stakeholder frame work in managing responsibility and business ethics. The steps include (1) assessing the corporate culture, (2) identifying stakeholder groups, (3) identifying stakeholder issues, (4) assessing the organization’s com mitment to) social responsibility, (5) identifying resources and determining urgency, and (6) gaining stakeholder feedback. The importance of these

steps is to include feedback from relevant stakeholders in formulating orga nizational strategy aiid implementation.

The Reactive_Defensive_Accommodative_proactive Scale provides a method for assessing a company’s strategy and performance with one stakeholder. The reactive approach involves denying responsibility and doing less than is required. The defensive approach acknowledges only reluctantly and partially the responsibility issues that may he raised by the firm’s stakeholders. The accommodative strategy attempts to satisfy stakeholder demands. The proactive approach accepts and anticipates stakeholder interests. Results from this stakehc)lder assessment should he included in the social audit, which assesses and reports a firm’s perfor mance in fulfilling the economic, legal, ethical, and philanthropic social responsibilities expected of it by its stakeholders.

Responsible Business Debate

________

Prioritizing Stakeholder Concerns Issue: A stakeho/der or shareholder orientation—whose company is it?

For decades, the question of “Whose company is it?” has permeated discussions of the role of business in society. Famously, some economists have long argued for the primacy of profit, noting that without eco nomic stability and prospects for growth, a firm cannot continue to pay employees, buy from suppliers, pay taxes, and meet other economic and legal expectations. Adam Smith made this point succinctly, “it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” In the United States and United Kingdom, the belief is that shareholders are the owners of firms and managers have a fiduciary responsibility to act in the interests of shareholders. The shareholder orientation is dominant in most business and invest ment communities, although this mind-set is shifting.

In other countries, a stakeholder, not shareholder, orientation is the norm. Several European countries oper ate under a system of “co-determination,” where both employees and shareholders in large companies hold seats on the oversight board and are required to con sider multiple interests in decision making. In Denmark,

77

employees in firms with more than 35 workers elect one- third of the firm’s board members, with a minimum of two. In Sweden, companies with more than 25 employees have two labor representatives appointed to the board. In large German corporations, employees and sharehold ers hold an equal number of seats. Finally, in Japan, exec utives can be liable for managerial negligence, but do not have fiduciary duties to shareholders and are expected to meet an array of stakeholder expectations.

There Are Two Sides to Every Issue 1. Defend the belief that companies exist first and fore

most for the benefit of shareholders and investors. For what reasons should the maximization of share holder value be the accepted corporate paradigm?

2. Defend the belief that companies, in addition to shareholders and investors, have equally important stakeholders, such as employees, customers and suppliers. What about responsibilities to the com munity, society, and the natural environment?

Sources: “Whose Company Is It?: New Insights into the Debate over Shareholders vs. Stakeholders,” http://knowledge.whar ton.upenn.edu/aricIecfm?aicIeid826 (accessed May 17, 2009). Tibor R. Machan, “Stakeholder vs. Shareholder Theory of the Ethics of Corporate Management,” International Journal of Economics and Business Research 1 (2009): 12—20.

72 Business and Society C hapter 2 Strategic Management of Stakeholder Relationships 73

KEY TERMS

Define stakeholder in your own terms. Compare your definition with the definition used in this chapter. What is the difference between primary and

secondary stakeholders? Why is it important for

companies to make this distinction? How do legitimacy, urgency, and power attributes positively and negatively affect a stakeholder’s ability to develop relationships with orgamza

tioflS? What is reputation management? Explain why

companies are concerned about their reputation

and its effects on stakeholders. What are the four

reputation management (p. 54) crisis management (p. 59) social capital (p. 62) social atidit (p. 68)

elements of reputation management? Why is it

important to manage these elements? Define crisis management. What should a com

pany facing a crisis do to satisfy its stakeholders

and protect its reputation? Describe the process of developing stakeholder

relationships. What parts of the process seem

most important? What parts seem most difficult? How can a stakeholder orientation he imple

mented to improve social responsibility? What are the differences between the reac

tive, defensive, accommodative, and proactive

approaches to stakeholder relationships?

Global Amusements had been in business for nearly 20 years and currently used a joint venture apprcach in establishing new properties. Suvar was its Thai partner, and the two firms had been successful two years ago in developing a water amusement park outside Bangkok. Phuket could hold much promise, htit there were likely to he questions about the poten tial destruction of its beauty and the exploitation of this well-preserved island and cultural reserve. These concerns had been heightened as the island slowly recovered from the 2004 tsunami and set a course for managing future development.

following a day to adjust to the time zone and refine the strategy for the visit, the next three days would he spent in Bangkok, meeting with various

company and governmental officials who had a stake in the proposed amusement facility. After a short flight to Phuket, the group would he the guest of the Southern Office of the Tourism Authority of Thailand for nearly a week. This part of the trip would involve visits tO) pos sible sites as well as meetings with island government officials and local interest groups.

After arriving at the hotel, the four employees of Global Amusement agreed to meet later that evening to discuss their strategy for the visit. One of their main con cerns was the deveh)pment of an effective stakeholder analysis. Each member of the group was asked to bring a list of primary and secondary stakeholders and indicate the various concerns or “stakes” that each might have with the proposed project. What would you do?

EXPERIENTIAL EXERCISE

Choose two compames in different industries and visit their respective websites. Peruse these sites for informa

tion that is directed at three company stakeholders: employees, customers, and the media. for example, a

company that places its annual reports online may he

appealing primarily to the interests of investors. Make

a list of the types of information that are on the site and indicate how the information might he used and perceived

by these three stakeholder groups. What differences and

similarities did you find between the two companies?

WHAT WOULD YOU DO?

Literally huiidreds of buildings dotted the ground

below and the thousands of cars on highways looked

like ants on a mission. The jet airliner made its way to)

the Bangkok International Airport and eased into the

humid afterm)on. The group of four passed through customs control and looked for the limousine provided by Suvar Corporation, their Thai liaison in this new business venture. Representing Global Amusements

were the vice-president of corporate development, director of Asian operations, vice-president of global

relations, and director of governmental relations for

Southeast Asia.

Global Amusements, headquartered in London, Was considering the development of a Thai cultural

amusement center on the island of Phuket. Phttket is

a tourist destination known for its stunning beaches, fine resorts, and famous Thai hospitality. Both Global Amusements and Suvar Corporation believed Phuket was a great candidate for a new project. The amuse ment center would focus on the history of Thailand and include a variety of live performances, rides,

exhibits, and restaurants. Domestic and international

tourists who visited Phuket would he the primary target market.

primary stakeholders (p. 46) secondary stakeholders (p. 46) stakeholder interaction model

(p. 48)

stakeholder orientation (p. 49) power (p. 51) legitimacy

(p.

52) urgency (p. 53)

1.

DISCUSSION QUESTIONS

2.

3.

5.

4.

6.

7.

8.