case study - mt

54 Business and Society

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.52 Other investments are less tangible, such as the time, effort, trust, and commitment required to develop a relationship with customers. Southwest Airlines develops the intangible aspect of relationships through the level of customer service they provide, as well as the enjoyable experience they offer.53

Whereas tangible investments are often customized for a specific business relationship, intangible efforts have a more lucid and permeable quality. 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 dialogue and a solid rela- tionship with one stakeholder, investments and lessons learned through the process should add value to other stakeholder relationships. For example, Starbucks provides excellent benefits, including healthcare for part-time employees, and supports fair trade or a fair income for the farmers who grow the coffee they sell.

These efforts result in social capital, an asset that resides in relationships and is characterized by mutual goals and trust.54 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 intel- lectual 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 home 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 reinforcing transparency and accountability among users, as well as between users and the company.55

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

Implementing a Stakeholder Perspective in Social Responsibility

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 important concerns. Although there are many approaches, we provide some steps that have been found effective to utilize the stakeholder framework in managing responsibility and business ethics, including (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 implementa- tion.56 Table 2.6 summarizes these six steps.

Step 1: 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 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 organization. Very often, relevant organizational values and

social capital an asset that resides in relationships and is characterized by mutual goals and trust

C B P _ F errell_ C h02.indd 54 12/9/2019 8:28:39 P M03/18/2020 - tp-70a028a4-6922-11ea-a484-024 (temp temp) - Business and Society

Chapter 2 Strategic Management of Stakeholder Relationships 55

norms can be found in corporate documents such as the mission statement, annual reports, sales brochures, or websites. For example, REI crafts its corporate culture around love of the outdoors. Because of this, the company puts a heavy emphasis on protecting the environment. REI has initiatives to reduce packaging waste, to increase recycling, and to increase green building practices. The REI Foundation was created to help the environment, encourage outdoor activities, and help com- munities recover from natural disasters.57

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, and the media express an interest. When agreement, collaboration, or even confrontation exists around an issue, there is a need for a decision-making process. 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, which is an important element of stakeholder engagement.

Stakeholders have some level of power over a business because they are in the position to withhold, or at least threaten to withhold, organizational 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 inconvenience. 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 legitimacy determines the degree of urgency in addressing their needs. Step 3, then, consists of understanding the nature of the main issues of concern to these stakeholders. A stakeholder map

Table 2.6 Six Steps for Utilizing a Stakeholder Framework Steps Example

Assess the corporate culture.

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

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

Identify stakeholder issues. Chevron identifies sustainability and the increasing concern over greenhouse gas emissions as important stakeholder considerations affecting the industry.

Assess the organization’s commitment to social responsibility.

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

Identify resources and determine urgency.

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

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

C B P _ F errell_ C h02.indd 55 12/9/2019 8:28:39 P M03/18/2020 - tp-70a028a4-6922-11ea-a484-024 (temp temp) - Business and Society

56 Business and Society

may be especially useful at this stage. 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, environmental issues have become a huge issue for stake- holders. Companies now must focus on their environmental impact and how their productions affect the environment and their stakeholders. Many companies have begun to reduce their emissions and focus on using recyclable material and renewable energy as a response to environmental concerns.

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. Step 4 brings these three first stages together to arrive at an understanding of social responsibility that specifically matches the organization of interest. This general definition will then be used to evaluate current practices and to select concrete social responsibility initiatives. Firms such as Starbucks have selected activities that address stakeholder concerns. Starbucks has formalized its initiatives in official documents such as annual reports, webpages, and company brochures. They also have a website devoted to social responsibility. Starbucks is concerned with the environment and integrates policies and programs throughout all aspects of operations to minimize their environmental impact. They also have many community-building programs that help them be good neighbors and contribute positively to the communities where their partners and customers live, work, and play.58

Step 5: Identifying Resources and Determining Urgency The prioritization of stakeholders and issues, along with the assessment of past performance, provide for allocating resources. Two main criteria can be considered. First, the levels of financial and organizational investments required by various actions should be determined. A second criterion when prioritizing social respon- sibility challenges is urgency. When the challenge under consideration is viewed as significant, and when stakeholder pressures on the issue could be expected, then the challenge can be treated as urgent. For example, environmental issues have become a huge concern across groups and stakeholders. Companies now must focus on their environmental impact and how their productions affect the environment and their stakeholders. Many companies have begun to reduce their emissions and focus on using recyclable material and renewable energy as a response.59

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

S hu

tt e

rs to

ck /m

ar ia

kr ay

C B P _ F errell_ C h02.indd 56 12/9/2019 8:28:40 P M03/18/2020 - tp-70a028a4-6922-11ea-a484-024 (temp temp) - Business and Society

Chapter 2 Strategic Management of Stakeholder Relationships 57

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 of business establishments 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, the owner of a small salon expressed concern over the effect of one negative review left by a customer who never set foot in her place. 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.60

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 no “one size fits all” approach for building and sustaining trusting relationships with stakeholders. As 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, relationship intensity, and other factors, managers must understand the relative importance of transparency, competence, benevolence, integrity, values, and other factors.61

Link Between Stakeholder Relationships and Social Responsibility

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 criticism regarding the messages of their social responsibility initiatives compared with their perceived role in the obesity issue. For example, Coca-Cola partnered with the Rwandan government and other organizations to open EKOCENTER, a site that will provide internet services, the company’s products, clean water, and other basic goods for people in the local community. Despite Coca-Cola’s impact on communities, some critics accuse the firm of promoting soft drinks in low-income areas that would benefit more from nutritious items rather than sugary, unhealthy drinks.62 As discussed in Chapter 1, social responsibility is a relational approach that 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 expectations and actual results that develop between each organization and its stakeholders. Max Clarkson, an influential contributor to our understanding of stakeholders, sums up this view:

Performance is what counts. Performance can be measured and evaluated. 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 ques- tions 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 company’s performance in managing its relationships with its stakeholder groups.63

C B P _ F errell_ C h02.indd 57 12/9/2019 8:28:40 P M03/18/2020 - tp-70a028a4-6922-11ea-a484-024 (temp temp) - Business and Society