750 words
memo92
ORGLectureWeek3.pptxLast Week
Introduce Corporate Citizenship (CC) and
Corporate Social Responsibility (CSR)
Explore development in business ethics and the culture of sustainability
This week
Define stake and stakeholder
Identify various types of stakeholders
Explore the evolution of stakeholder thinking
Identify the essence of effective stakeholder management
Understand stakeholder management as a critical feature of the managerial role
Increasingly complex business environment - many more stakeholder groups
We have mentioned stakeholders over the past 2 weeks as representing groups with different stakes or interests in a business’ activities and outcomes of that activity.
This week we’ll consider why stakeholders are increasingly central to the business-society relationship and the changing nature of the manager’s role
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Stakeholder theory
Explains the relationship between organisations and those persons who have a stake in the operations and outcomes of business activity.
Ed Freeman’s 1984, p. 46 definition is most widely used.
A stakeholder is any group or individual that can “affect or is affected by the achievement of the organization’s objectives”.
This opposed to Milton Friedman's arguments for a “Shareholder” approach to business (See Lecture 1)
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Shareholder vs. Stakeholder Approach
Milton Friedman –
shareholder theorist
Video 2.23mins
Ed Freeman –
stakeholder theorist
Video 2.57mins
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The firm’s stakeholders?
C & B note that from a business perspective certain stakeholders are seen as more legitimate than others in regard to their stake in the firm e.g. shareholders, employees and customers
However in a highly pluralistic and increasingly global environment other groups are having very significant impact on the organisation e.g. the community, competitors, suppliers , special interest groups, the media and the public at large, some becoming very powerful e.g. through social media.
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Relevant to Individual ESsay
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A developing view of the firm: from production views to contemporary stakeholder models
Benn and Bolton (2011) show the shift from a simple production view of the firm in which there were only 2 groups of stakeholders:
suppliers and customers
To a broader recognition of employees as key stakeholders
To amore pluralistic perspective including:
governments , civil society and competitors as stakeholders
To today’s environment in which many complex and volatile stakeholder groups are seen as important to most if not all businesses:
future generations
political groups
media
local and global interest groups
professionals (e.g. accountants taking into account non-material impacts of business)
See figure on next slide
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A contemporary stakeholder model (: Benn & Bolton,2011)
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Carroll and Buccholtz emphasise the importance of this development to the manager’s responsibilities
Shifting from the production, to the managerial view, to stakeholder view of the firm requires the manager to shift the view that they determine which stakeholders have an interest in the firm to perceiving and engaging with the stakeholders who perceive they have a stake in the firm
Why is this important? Is it a new form of risk management? What has changed?
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Stakeholder theory enables managers to better identify the broad range of individuals/groups that are impacted on, and may be impacted by, the organisations business activities.
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What do managers need to know about stakeholders? Who are the organisation’s stakeholders?
Different categorisations used to identify them:
C & B suggest they can be categorised as generic e.g. owners, employees competitors, social activist groups, etc. and specific stakeholders such as People for Ethical treatment of Animals (PETA) – a specific social activist group
Getting to know them all is now seen as important
McKinsey & Co. found correlation between in-depth profiling of stakeholders and engaging them.
This is essential to understand the “stake” that stakeholders have in the business, and thus how they might behave or react when business undertakes its operations
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Do stakeholders have
A primary, direct stake
e.g. investment interests (shareholders, management, owners)
A secondary stake,
A stake that is more indirect but can still be very influential on a business’ well-being,
e.g. a stake concerning the impact of business on society’s values such as animal rights or perceived loss of community amenity
For example the fight against a McDonalds outlet at Tecoma in the Dandenong's.
A survey of every home in Tecoma in December 2012 showed 92.8 per cent of residents opposed the restaurant (Herald-Sun Feb 2014)
What do you think happened?
See Burger Off! website
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What do managers need to know about stakeholders? What is their stake in the firm?
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What do managers need to know about stakeholders? What is their stake in the firm? (cont.)
Attributes of the “stake” in the firm, for example
Nature or legitimacy of a group’s stake such as those stakes associated with being an owners, employee or customers,
e.g. large institutional owners compared to a board of directors who own shares compared to millions of small individual shareholders
Power example above of institutional shareholders who usually have most of the power, or a government regulator who has the power to change the conditions of business operations (e.g carbon emissions policy)
Urgency - does the claim require immediate attention?
PETA developed enormous power and urgency to deliver adverse publicity and in fact influenced company policy significantly
(see McCruelty – warning video may offend)
Saliency is a term often used to described how all these aspects combine to highlight the importance of a stakeholder to a business
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All important to your group assignment
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What do managers need to know about stakeholders?
Are there opportunities to build productive relationships and new and innovative business with stakeholders e.g. around healthy food options?
What are possible challenges? – can be dealt with in a manner that stakeholders perceive as adequately responsive, otherwise risk damage to finances, reputation etc….
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Rainforest Action Network (RAN) and Boise… did this partnership foster opportunities for long term innovation?
RAN’s campaigning led to Boise “no longer harvesting timber form old growth forest”.
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What opportunities and challenges do stakeholders present?
Is there another approach that embraces both of these dimensions? i.e. creating shared knowledge and understanding of each stakeholder’s “stakes” in a manner that facilitates trust, collaboration and new ways of doing business?
Example - Médicins sans Frontières (Doctors without Borders) deal with emergency health issues, and have to work with other stakeholders (governments, suppliers, other NGOs) to create new and changing organisational functions. They constantly create new understanding across stakeholders, including the level of safety in the area in which they are operating and relevant responses to crises, conflict, cultural differences, etc.
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What do managers need to know about stakeholders? What responsibilities does a firm have to stakeholders?
How does an organisation assess its responsibilities to stakeholders? Is this framework useful for managers to reflect on their responsibilities? (Figure 3.7, C & B)
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| Types of responsibilities | ||||
| Stakeholder | Economic | Legal | Ethical | Philanthropic |
| Owners | Profit | |||
| Customers | Safety compliance | |||
| Employees | Non-discriminatory workplace | |||
| Community | Educational programs | |||
| Public at large Social Activist groups | ||||
| Others |
What do managers need to know about stakeholders? What actions should management take?
C&B ask what strategies or actions should be taken to best manage stakeholder challenges and opportunities?
Should we deal directly or indirectly with stakeholders?
Should we take the offense or the defense in dealing with stakeholders?
Should we accommodate, negotiate, manipulate or resist stakeholder overtures?
Should we employ a combination of the above strategies or pursue a singular course of action?
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4 types of stakeholders:
C&B argue that managers need to prioritise stakeholder expectations and demands before deciding appropriate action. They suggest that understanding stakeholders potential for cooperation and threat might help develop strategic approaches to stakeholder management
They identify:
The supportive (ideal) stakeholder, e.g. loyal customers
The marginal stakeholder - low potential as a threat (cooperative)
needs monitoring
The non-supportive stakeholder - high potential for threat
e.g. competitors, unions, media – May require defensive strategies
The mixed blessing stakeholder – high potential for threat and cooperation
best to maximise collaboration
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Key Questions In Stakeholder Management
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Stakeholder Type 4 Mixed Blessing
Strategy: Collaborate
Stakeholder Type 3 Nonsupportive
Strategy: Defend
Stakeholder Type 1 Supportive
Strategy: Involve
Stakeholder Type 2 Marginal
Strategy: Monitor
High
Low
Stakeholder’s Potential for Cooperation With Organization
High
Low
Stakeholder’s Potential for Threat to Organization
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Types of Stakeholders
Leveraging from the expertise of stakeholders
Significant shift towards leveraging expertise and insights of stakeholders, for example
Collaboration between the public and the private sector to develop global solutions for major challenges in society
Non-profit special interest groups can also be sources of information and insight (rather than ‘pests’), e.g. health food advocacy developed new and regionally focused health food lines for Pepsi
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Effective stakeholder management
“Effective stakeholder management is at the top of the list in terms of executive priorities today. This process requires a strong commitment on the part of management” (C & B p. 82)
It requires significant skill sets on the part of managers to manage threats and capitalise on opportunities
Criticisms of business and calls for better corporate citizenship are increasingly global and add to the complexity
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Different levels of stakeholder engagement
Lower levels occur around informing and explaining issues to stakeholders
Middle levels concern more participative and interactive approaches, such as placating, consulting, and negotiating with stakeholders
At the highest level, involvement, collaboration and partnership occur which require transparency and trust
Engagement on sustainability issues is an increasingly important forum for all these forms of stakeholder engagement. They are challenging because of the need to bring together different ethical and national perspectives on appropriate action
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Developing a stakeholder culture (Jones, Felps & Bigley, 2007)
The ladder of increasing concern for stakeholders
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Stakeholder management capability
C&B suggest organisations need to develop the capability of employees to deal with stakeholders
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Clarkson Principles describe higher levels of Stakeholder Management (Clarkson Centre for Business Ethics & Board Effectiveness, 1998)
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Global stakeholder management
C&B argue that global competition necessitates stakeholder approaches as an element of competitive advantage requiring three strategic steps. Stakeholder management needs to be embedded in:
The governing philosophy of the organisation (embraced by Boards and executive groups)
A stakeholder inclusive value statement
A stakeholder performance measurement system (e.g Wal-Mart's worldwide Sustainability index)
Therefore, stakeholder management and engagement are critical skills for today’s managers!
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Summary
An understanding of the importance of stakeholders to the sustainability and competitiveness of the firm has emerged over the last half century
Understanding stakeholders is a critical feature of the managerial role
There are useful frameworks to help the manager identify stakeholders, their interest and influence, and the opportunities and challenges they represent, as well as managerial responsibilities
The culture of the organisation has significant influence on the manager’s capacity to engage stakeholders
In a global environment, stakeholder management is seen increasingly as a key form of competitive advantage and as such needs embedding at all levels of organisational culture
Watch VIDEO 7.44mins
Social Responsibility Perspectives: The Shareholder and Stakeholder Approach
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Tutorial activities
Discuss a contemporary view of stakeholders
Watch the Prince Charles video on IIRC
Revisit Human-Ecological Sustainability Index?
Which sector, organisation set of stakeholder management issues interests you most as a group?
Review Assignment #2 Instructions and Rubric
Complete Group Charter
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Agency Culture
Not concerned with
others
Corporate Egoist
Focused on firm
shareholders
Instrumentalist
Focused on firm
shareholders
Moralist
Moral concern for
others
Altruist
Broadest concern for
others
1. Rational level
Identifying stakeholders
and becoming familiar
with the nature of
stakeholder mpower
2. Process Level
Developing and
implementing processes
for pertinent information
about stakeholders used
for decision-making
purposes (environmental
scanning)
3. Transactional Level
Engaging and trsnacting
with stakeholders –
communicating, creating
trust and adapting
resources to meet the
goals of stakeholder
engagement
Developing stakeholder management capability
