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Metropolia Business School International Project Week (IPW) 2013

Doing Well by Doing


Good: Stakeholder Theory
Dr Denise Dollimore
University of Hertfordshire, UK

BP Oil Spill 2010

Learning Outcomes
Following this session students should be able to:

Discuss Stakeholder theory and its links to business ethics


and CSR
Identify important stakeholders for an organisation and
discuss how managers balance the interests of various
stakeholders.
Explain the paradox of profitability vs responsibility and
evaluate cases using competing theoretical perspectives

Doing Well by Doing Good


Stakeholder Theory
Edward Freeman 1984
Strategic Management: A Stakeholder Approach
Draws on business ethics, from a social justice
(deontological) viewpoint, and argues that business
actions should be fair.
Draws on notion of corporate social
responsibility, and argues stakeholder approach is
good for business
Good corporate citizenship - a way to differentiate
(Readings pp 23-28)
How can CEOs Change company values?
How can organizations become good corporate
citizens?

Corporate Social Responsibility


A perspective which stresses the
responsibilities that corporations have
towards society and other stakeholders
(King and Lawley, 2013)

CSR requires two principles*:


1.
2.

The charitable principle, where the more fortunate help


the less fortunate
The stewardship principle, where the rich hold the
wealth in trust for the rest of society

The belief that these principles, combined with the belief that
acting appropriately, result in limited government
intervention (rules & regulations) has given CSR considerable
credence in business circles (Freeman & Liedtka, 1991)
*Traced back to philanthropists of 1930s

CSR, stakeholder theory


and ethical capitalism
Now widely agreed that business have obligations
beyond their legal and economic obligations
towards society

Moving beyond compliance with laws to establish new standards

Ethical Capitalism* (AKA stakeholder approach)


A business approach which seeks to integrate CSR as central to the
purpose and activity of an organization

Business benefits include


Enhanced reputation with consumers
Improve human rights, workforce welfare and ecological
sustainability
Improved relationships with governments
positive contribution to national economic and social development
*King & Lawley (2013) in Readings

Doing Well by doing Good

Edward Freeman
1984
stakeholder
values
Milton
Friedman1970
shareholder
values

Evaluating corporate responsibility using Carrolls


(1991) pyramid [illustrates levels of CSR]

The Organization and its


Competitive Environment
Traditionally, CEOs and strategy writers see only forces of
competition in operational environment, however

Competitive / operating environment includes numerous


stakeholders (Stakeholder Theory, Freeman 1984)

Stakeholders can be become allies (affect & affected by firm)

They can provide information about changes in the broad


environment (social attitudes / trends)

They can co-operate in finding new ways forwardand


achieve competitive advantage
Challenge for firms is to define
stakeholders and decide how much to
privilege them

Balancing Stakeholder Interests:


The Mendelow Grid
LEVEL OF INTEREST
LOW

Least
influential

Keep
informed

HIGH

Keep
satisfied

Key
players

POWER

LOW

HIGH

NIKE?
BP?
Starbucks?
Primart?

Organisations and Ethical


Choice
Key question
Should a business prioritise shareholder value or
stakeholder needs?

Shareholders own the business


Primarily for financial gain

Stakeholders are affected by the decisions and operational


activities of the business
Financial, non-financial and personal benefits
n.b., the social contract between business and
society is constantly evolving (Waddock 2010)

The Paradox of Profitability and


Responsibility

Profitability
To be an attractive
investment, a firm must
earn a higher return on
the shareholders
equity than could be
realized at a bank.

Responsibili
ty
Acting in the interest of
others, even when there
is no legal imperative.

Unilever? Johnson and Johnson?


Primart? Starbucks?
BP?

Profitability versus Responsibility

The Debate & Readings


The shareholder value perspective
Milton Friedman (1970)*
The Social Responsibility of Business is to Increase
it Profits NYT

The stakeholder values perspective


Edward Freeman (1984)
Strategic Management: A Stakeholder Approach

p. 36 Readings

Stakeholder Approach

Origin
Business Ethics and corporate social responsibility

View of the Firm


A network of relationships among the firm and its
stakeholders

Approach to Strategy Formulation


Analysis of the economic power, political influence, rights
and demands of various stakeholders (Mendelow Grid)

Source of Competitive Advantage


Through superior linkages with stakeholders leading to
trust, goodwill, reduced uncertainty, improved business
dealings, and ultimately higher firm performance
(think Porters Value Network analysis)

How can CEOs Change


Company Values?
Be committed at top management level
Develop a written code of ethics to communicate
values to employees
Involve middle managers - establish ethics
committees to settle disputes
Ask line managers to train employees
Fire people who violate the code
Protect whistle-blowers
Withdraw from countries or industries where you
cannot act with integrity

Socially Contributive
Social Enterprise: now recognised as the third sector
(alongside public sector and private business sector)
Voluntary, not-for-profit, charitable organisations
Forum for the Future (UK, USA): help organisations
innovate the products, services and business models needed
for a sustainable future (philosophy of sustainability) http://
www.forumforthefuture.org/about-us
Can find common interests with responsive businesses:
those creating more sustainable business models,
e.g. M&S, Unilever
those serving customers in emerging economies

Engaged Ethics @Hotel


Chocolat

Angus describes the way he has successfully embedded


Engaged Ethics as a core value of his business and used
these ethical initiatives as a powerful differentiator to
capture the hearts and minds of all those who touch the
brand.

Exclusive branded chocolatier, having since become a


cocoa grower and built a luxury hotel in St Lucia, CEO,
Angus Thirlwell offers insight into how he has achieved
growth without compromise of the businesss core values.
A socially contributive organization

List of References
Freeman, E. 1984. Strategic Management: A Stakeholder Approach.
Boston: Pitman.
Freeman and Liedtka. 1991. Stockholders and stakeholders: A New
Perspective on Corporate Governance Reprinted from California
Management Review (1982)
King and Lawley. 2013. Organizational Behaviour. Oxford.
Waddock, S. (2010) The Social Contract of Business in Society in
Aras and Crowther eds. A Handbook of Corporate Governance and
Social Responsibility 2010 pp. 69-82