Responsibilities to stakeholders

In this video, we are going to explore responsibilities to stakeholders, and we are going to find the answer to the question, how can we translate the “social” in CSR into an object of managerial attention and action? So where do stakeholders come into the picture? Well, you will remember from the video on CRS that we spoke about business and society. Society as a construct is fairly vague, so how can we make that more tangible? Also, that question again that we asked at the very outset of this video, how can we translate the social in CSR into an object of managerial attention and action?

So what is a stakeholder? Well, Freeman says a stakeholder is any group or individual who can affect or is affected by the achievement of a corporation’s purpose. So it’s important to take away from this definition that we are looking at individual people or groups of people who have the power to affect a company or are affected by what that company is doing.

Stakeholder theory has always been a core CSR theory. Because it argues that if the company affects individuals or groups to reach its goals, then these groups also have a legitimate interest in the company. Depending on how the company affects them and their relative power and influence, they have a more or less higher stake in the company. And that puts them in a position where the company should consider their interests. The central message of stakeholder theory is that companies are morally obligated to consider the interests of the individuals or groups that they affect and are affected by. And it’s arguably the most influential theory in CSR.

Because from a pragmatic point of view, this stakeholder model provides a more realistic picture of today’s business world. The main implication of stakeholder thinking is a new role for management. So rather than being agents of shareholders only, the role of management becomes that of assessing and balancing the interests of all stakeholders. And this has given rise to new approaches to corporate governance. So if the stakes of multiple stakeholders are legitimate, then it might be appropriate that they are allowed influence on how their company is run by getting representation on the company board.

The challenge facing those companies that want to be responsive to stakeholders is to reorient their thinking externally. So what we see on this slide is the stakeholder philosophy. And Freeman argues that this is a philosophy of management which is based around the idea of voluntarism. And what this means is that a company must, on its own will, undertake to satisfy its key stakeholders. So the driving force here under this voluntarism philosophy of management is to satisfy the needs of as many stakeholders as possible, and that may provide a competitive advantage. If this type of company faces a dilemma, what they need to do is to voluntarily adopt a posture of negotiation with key stakeholder groups.

So why would you want to negotiate voluntarily? Well, there is no other way forward. If you don’t negotiate, you are going to have a solution imposed upon you from the outside, and that means that you’re actually giving up your managerial role. So in terms of the characteristics of a company with high stakeholder management capability, we already know that these are companies that seek voluntary agreements, and they will explicitly negotiate with stakeholders on critical issues. In addition to that, they generalise the marketing approach to serve multiple stakeholders. So what they do is they overspend on understanding stakeholder needs, and they use marketing techniques to segment stakeholders so that they can better understand their individual needs.

These companies are proactive, so they will anticipate stakeholder concerns, and they will try to influence the stakeholder environment. And they also allocate resources in a manner which is consistent with stakeholder concerns. And very importantly, they think in stakeholder-serving terms. So the reason for being for most organisations is that they serve some need in their external environment. And the more we think in terms of how better to serve stakeholders, the more likely we will be to survive and prosper over time. And that’s summed up in what we see at the bottom of the slide, the ‘stakeholder serving’ concept.

On this slide, we see a stakeholder map. So this is the practical implementation of stakeholder thinking. When companies engage in stakeholder mapping, they should be careful to be as specific as they possibly can in terms of who the various stakeholder groups are. And they should be equally specific in terms of their stakes and their interests. So if we have a look at this map, we can see owners and customers, and those are the two groups that tend to come to mind first. But in addition to those groups, we have employees, competitors, suppliers, government, and activist groups. And we may also wish to think in terms of the environment and wildlife.

In summary, stakeholder thinking helps to make the “social” in CSR more tangible. Businesses are morally obligated to consider the interests of a range of stakeholders. Stakeholder maps help to identify the most prominent stakeholders and their stakes.

Thank you for your attention. Now, it’s time to have a go at constructing a stakeholder map.