In the previous issue of Responsible Business, we elaborated on the notion of CSR, a rapidly evolving concept among businesses helping them integrate social and environmental practices and programs into their core strategies.
We illustrated how CSR is defined and referred to academically and among businesses and discribed the four areas of CSR which any company can used to build a solid business case.
In the second part, engagement and managerial approaches will assist in providing an in-depth review of stakeholder relationships.
Fifteen years ago, social and environmental issues in business was essentially about compliance. Faced with ever-more increasing stakeholder influence and power, supported by emerging international standards and guidelines outlining acceptable norms for corporate behavior, and combined with a growing awareness among consumers and the public in general, companies had no choice but to comply with whatever kept them from scrutiny. Their approach was to focus on corporate governance, risk management, and most importantly, abide by laws and regulations.
As the new millennium unfolded, the corporate landscape changed dramatically. Companies started to realize that they could go beyond compliance when it comes to social and environmental matters to eventually reap various benefits.
“Stakeholder” is typically understood inclusively, to include everyone and everything that can affect, or be affected by, the organization. This definition is the one employed by, among others, the European Union. Other than the company employees who often constitute the primary stakeholder, other stakeholders include shareholders, customers, investors, suppliers, public and governmental officials, activists, and communities. Rising concern about sustainable development has also added non-human stakeholders such as the natural environment, the global commons, and the climate.
Today, responsible organizations acknowledge the fact that it is through open and honest relationships with other enterprises that their boundaries are reaffirmed and mutual expectations are created. Moreover, there is a strong link between firms-stakeholder relationships and sustainability performance.
“Stakeholding” has become a normative doctrine with two essential tenets: organizations should be run for the benefit of all their stakeholders, and organizations should be accountable to all their stakeholders for doing so. Therefore corporate managers interested in their company’s CSR performance will want to look at the quality of their firm-stakeholder relationships, particularly those perceived as core stakeholders for the company. However, relationships are complex as they can take staff time and other resources, and since no company can afford to carry on top-quality relationships with all its stakeholders, it is important to understand the strategic reasons for cultivating each relationship.
In their review “Corporate social responsibility communication: stakeholder information, response and involvement strategies”, Mette Morsing and Majken Schultz unfold three types of firms-stakeholder relationships resulting from different approaches taken by companies to engage in CSR with their stakeholders.
The first type is referred to as the ‘stakeholder information strategy’ aiming to simply inform the public as objectively as possible about the organization. Here, communication flow is one-way, and the company mostly acts as an ‘informer’ rather than a ‘listener’.
The second type is the ‘stakeholder response strategy’. Although this involves two-way communication between the company and the public, it assumes an imbalance from the company’s attempts to change public attitudes and behavior in its own favor rather than changing its own practices as a result of the public relations.
The third type is the ‘stakeholder involvement strategy’. This relationship assumes mutual dialogue between the company and its stakeholders, and through which the company does not seek to solely influence but also to be influenced by stakeholders.
Engaging With Profit
Successful business depends on relationships and trust and has clear goals and practical targets. Thus in the last few years, the view on successful stakeholder relationships quickly changed among companies from being a mere shield against scrutiny by NGOs and activists to an investment that not only benefit the community but renders tangible gains for any company striving towards having a competitive advantage in the market. Such relationships were found to stimulate innovation, increase flexibility, reduce costs, and allow companies to respond quickly to changing societal expectations and requirements.
There is a strong business case for stakeholder engagement that could especially result in reduced public criticism and activism. This can boost the company’s brand image and reputation among the public, and as a result improve its competitiveness in the market, open new markets, which ultimately contributes to its bottom line.
Stakeholders can also be an excellent source of information since in most cases they are aware and knowledgeable about the field in which the company operates, and can therefore bring a wider perspective on issues that the company might not have access to on its own, thus leading to innovative win-win solutions for all parties.
Does The Loudest Prevail?
Stakeholders include groups with quite different expectations. One common distinction made is between those who are influenced by the company’s actions and those who have an interest in what the company does. Managers are often advised to make judgments about what has significant or insignificant degrees of interest and about those with whom the company has high or low degrees of influence. This type of approach does little to help managers make decisions concerning a stakeholder’s moral claim and has led to situations in which companies are accused of responding to stakeholders with the loudest voices or most power, rather than to those with the greatest need or strongest entitlement (please refer to graph on page 26).
This is certainly evident in much of what is called “stakeholder engagement” today, whereby consultation and dialogue is carried out with the aim of gathering important input and ideas, anticipating and managing conflicts, improving decision making, building consensus among diverse views, and strengthening the company’s relationships and reputation.
Properly understood, “social responsibility” does not refer to any organizational responsibility towards stakeholders. Rather, it designates a responsibility by stakeholders, to act in such a way that their values, including their attitudes to society, are reflected in their actions. What they choose has important consequences for business conduct because the definitive business end makes it essential for businesses to heed stakeholder preferences.
Stakeholders raising attention to a certain social or environmental issue can also serve as an early warning to the company of emerging public concerns and changing expectations. Such signs, provided they are well communicated, ultimately helps management predict future trends by clarifying potential risk and highlighting new opportunities.
“Ethical” investing, the “green” consumer movement and the growth of “vigilante consumerism” are examples of how such “conscientious stakeholding” can influence the way business operates. “Conscientious stakeholding” can affect the products that businesses produce. It can affect the conduct of business in producing them. Furthermore, it can affect the strategic direction and structure of businesses, influencing what sorts of activities they pursue and what sorts of powers and protection corporate businesses can afford to their shareholders.
Corporate responsibility theory offers a great deal of advice on how to conduct a consistent, robust, and credible discourse with stakeholders. The AA1000 Series, for example, is an attempt to spell out the universal rules for reaching an ethical consensus through stakeholder participation, comprising four main elements that are underpinned by the principle of stakeholder engagement: (a) company commitment to social and ethical accounting, auditing, and reporting, with stakeholders playing a key role; (b) defining and accounting for the company’s actions through stakeholder consultation that identifies issues relating to social and ethical performance, the scope of the social audit, relevant indicators, and the collection and analyses of information; (c) preparation of a corporate responsibility report to be audited by an external group, and subjected to external feedback; and (d) embedding social accountability systems into mainstream management practice.
In some instances, stakeholder engagement is addressed in individual company standards which fall short of what might be considered a stakeholder partnership. However, they can also form part of comprehensive industry-specific or general business standards, such as the Forest Stewardship Council’s Principles of Sustainable Forest Management, the Equator Principles for the financial industry, and the ISO 26000, which is the largest ever global standard that has taken into account a large multitude of stakeholders (90 countries and 40 international or broadly-based regional organizations, represented by 6 stakeholder groups).
Particular attention has been paid to the way in which standards are developed, as a determinant of their robustness, effectiveness, and credibility. Ranganathan (1998) says that a standard should meet the “3 Cs” used in financial auditing; that is, they must be:
1. Comprehensive, or complete enough to cover the issues that are most pertinent or material to be the company;
2. Comparable, to allow inter-company assessment of performance;
3. Credible enough to allow business and other stakeholders to trust their integrity and to use them in making informed judgments.
Today, the competitive macro-economic regulatory and political environments are quite dynamic. This necessitates not only establishing solid relationships with stakeholders, but constantly reviewing and evaluating existing stakeholder arrangements and undergoing appropriate adjustments as necessary to cope with rapid changes.
Managers must therefore be keen to have a deep understanding of how these trade-offs affect different stakeholders, the amount of sacrifice a given stakeholder will accept, and how these current sacrifices can be compensated. This issue often requires management to refer back to their very core principles or values on which they base their everyday engagement with stakeholders.
Source: Responsible Business Magazine