Stakeholder Engagement and Sustainability

S.M.Riad Shams, Demetris Vrontis, Yaakov Weber, Evangelos Tsoukatos, Antonino Galati

• Publisher: Routledge
• Year: 2019
• Print ISBN: 9780367211233
• eBook ISBN: 9780429560521
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This cross-disciplinary business book develops insight into the management of businesses operating in various economic sectors that take a proactive approach to the triple dimension of sustainability (economic, social and environmental), positioning itself as a key reference for both academics and practitioners in the wide area of business management.

The concept of sustainability is today at the heart of international policies and debate, and plays a key role in deep changes to the organizational models of companies operating in a wide range of sectors of economic activity. In particular, this book aims to gain a deeper understanding of how stakeholder engagement can contribute to value co-creation both in the company and along the supply chain, and what distinguishes the differing involvement of stakeholders, in particular between public involvement and stakeholder participation. Each chapter of this book presents different modalities of stakeholder involvement and develops the concept of value co-creation from organizational and marketing perspectives.

This book is recommended reading for those interested in the fields of stakeholder engagement and theory, sustainability, business studies, and sustainable development.

1 Stakeholder Engagement for a Sustainable Development of Business Models

S. M. Riad Shams, Demetris Vrontis, Yaakov Weber, Evangelos Tsoukatos and Antonino Galati

Introduction

The recent global economic and financial crises and peoples’ growing concerns about the environment have raised fundamental questions about the impacts of existing business models on the sustainability of the global economy and society (Schaltegger et al., 2016). Today, companies are increasingly called upon to respond to society’s expectations that those from all industries take responsibility for their business environment and tackle social and environmental issues (Galati et al., 2019; Salehi et al., 2018; Luhmann & Theuvsen, 2016; Caulfield, 2013). This has inevitably led to a change in the business models whose cardinal principles of economic, environmental and social sustainability are becoming more important for all companies and becoming central in the definition of effective corporate strategies.

Companies’ commitment to responding to social and environmental concerns can be summarized with the concept of corporate social responsibility (CSR), which is today an important element of different forms of governance (Galati et al., 2019). Tench et al. (2014) assert that a single definition of CSR does not exist because different scholars seek to claim the concept as their own and define it in their own interests. The most used and widespread definition, proposed by the European Commission in their green paper (European Commission, 2001), states that CSR is “the companies’ voluntary integration of social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis”. Corporate sustainability can be considered as “a broad approach that includes various characteristics, in particular relating to the contextual integration of economic, environmental and social aspects” (Schaltegger & Burrit, 2005, p. 189). In this respect, the concept of CSR offers some potential contribution to sustainable development because it creates incentives for companies to act socially responsibly (Moon, 2007).

Carroll (1999) identified four dimensions of CSR, described as the organization’s economic, legal, ethical and philanthropic responsibilities in relation to the various stakeholders involved in the company activity, directly or indirectly. It is therefore clear that companies, in defining their sustainable strategies, may not avoid taking stakeholders’ expectations and needs into account. Strategic management theory suggests that a company’s ability to create value depends on its stakeholders’ needs and expectations (Berman et al., 1999; Donaldson & Preston, 1995; Freeman, 1984). Companies are paying more attention to stakeholders’ expectations because the same companies create externalities that affect a broad range of stakeholders, who continually demand that the companies are transparent about their multiple dimensions of sustainability performance (Rasche & Esser, 2006). Stakeholders make their demands to an organization through direct pressure or by conveying information (Galati et al., 2015). The pressures from stakeholders can be political, social or economic, and companies understand the importance of responding to them regarding environmental and social issues as their increased efficiency improves their competitive position and their environmental performance, which gives them external legitimacy (Wu et al., 2013; Papadopoulos et al., 2010; Sarkis et al., 2010; Hart, 2005; Hart & Milstein, 2003). This means that companies are in an implied social contract with their stakeholders, where the views and opinions of their most important and powerful stakeholders will prevail and affect behaviour (Haddock-Fraser & Tourelle, 2010). However, not all stakeholders exert influence in the same way, and which direction the company moves in depends on which group stakeholders are influencing it and the sector of economic activity in which they operate (Herremans et al., 2016; González-Benito et al., 2011; Sweeney & Coughlan, 2008; Hess, 2007). In addition, the main motivational factors for engaging and developing relationships with stakeholders include accessing conventional capital markets, being accepted in social investment markets, meeting political or social expectations and requiring organizational learning (Herremans et al., 2016; Hitt et al., 2012).

This brief analysis suggests that stakeholders play a relevant role in sustainable business models’ definitions, but their influence on a company’s strategic choices varies according to different factors. The heterogeneity of business models and the different approaches used to achieve the goal of sustainability, in which social or environmental purposes can prevail, require more in-depth research to identify new solutions that can help to develop business models able to create positive external effects for the environment and society.

The remainder of this chapter defines stakeholders and their contribution to value co-creation and extends the discussion to the relevant areas of business management. It also focusses on how stakeholder relationship management guarantees the design of sustainable strategies and, finally, presents a general conclusion of the discussions. In particular, this chapter provides an overview of the contexts which are considered in the rest of this book’s chapters and which offer insight into the management of businesses operating in various sectors of economic activity that take or wish to adopt a proactive approach to the triple dimensions of sustainability.

Stakeholder Engagement and Value Co-creation

The term “stakeholder”, first defined by Freeman as “any group or individual who can affect or is affected by the achievement of the organization’s objectives” (Freeman, 1984, p. 46), has become central in the scientific debate on strategic management and accounting as stakeholders play a key role in shaping firms’ strategies. Stakeholders’ level of importance depends on their power or legitimacy in a specific political or economic context, and how an organization’s operations impact them, which gives them the moral right to be informed and to demand certain standards of performance (Garvare & Johansson, 2010; Mitchell et al., 1997; Freeman, 1984). Nevertheless, the strategy should not be overlooked as it tends to underline the benefits to the organization in terms of its ability to fulfil its objectives (Freeman, 1984).

The difficulty of establishing what constitutes a legitimate interest of stakeholders has resulted in several classifications (Reed et al., 2009). Freeman (1984) first identified the most common distinctions, which are primary and secondary stakeholder groups. Primary stakeholders engage in transactions with the organization and then have direct control of its essential means of support (top management, co-workers, employees, customers, suppliers, shareholders and government) (Wheeler & Sillanpaa, 1997; Freeman, 1984). Secondary stakeholders are actors that, despite not having direct control of the firm’s resources, still have enough influence to merit being considered more than just interested parties (non-government organizations, media, environmental pressure groups and fair trade bodies) (Galati et al., 2018). In response to the pressure from primary or secondary stakeholders, companies address environmental and social issues, and often opt to modify their business models to meet stakeholder expectations. Rogers and Wright (1998) identified four stakeholder groups based on the types of pressure they exert on companies and the distinct information markets. Those four groups are financial stakeholders, product market or consumer stakeholders, labour stakeholders and political and social stakeholders. The same authors suggest that information should be made available to stakeholders, so they can make decisions regarding how the organization’s performance satisfies their interests. More recently, Ferrón Vilchez and colleagues (2017) distinguished between ‘internal stakeholders’, which have a direct economic stake in the organization and operate inside the firms’ physical boundaries, and ‘external stakeholders’, which can be further classified as societal (public interest groups), regulatory (government agents who are tasked to legislate on environmental issues) and value-chain (suppliers, shareholders and household consumers) stakeholders.

Companies’ attention to stakeholders’ expectations has undergone a profound change over the years, which has led parties to be involved differently in the companies’ activities, with the aim of improving sustainable performance. Manetti (2011) identified three phases in the gradual growth of stakeholder involvement. In the first stage, companies identify their primary and secondary stakeholders; in the second phase, they try to respond to stakeholder expectations by balancing positions with respect to social, environmental and economic issues. Finally, companies involve stakeholders in their decision-making processes by sharing ideas and information, through a mutual commitment, with a view to share responsibility for the actions taken. The latter phase, named stakeholder engagement (SE), is a decisive component of a company’s sustainable management, representing the way to involve most parties in a positive and strategic manner, determining the creation of worth in the medium to long term and the organization’s strategic orientation (Greenwood, 2007; Jonker & Foster, 2002). Therefore, as asserted by Andriof et al. (2002, p. 9), SE is a process that “creates a dynamic context of interaction, mutual respect, dialogue and change, not unilateral management of stakeholder”. According to this, stakeholders’ relationship with the company goes beyond the aim to merely satisfy their ambitions and expectations (Manetti, 2011). Taking into consideration the various organizational stakeholders, engagement practices may exist in many areas, including public relations, customer service, supplier relations, management accounting and human resource management (Greenwood, 2007).

Extant research on stakeholder theory and SE clearly illustrates the significant importance of engaging with various stakeholders and crafting strong relationships with them for entrepreneurial development (Leonidou et al., 2018). Academics often considered SE and stakeholder co-creation together (Shams & Kaufmann, 2016), and this link has been addressed in several studies, covering a broad range of areas. As Reypens et al. (2016) found, stakeholders’ participation in value-creating and decision-making activities can be crucial for a firm’s performance and long-term survival. The meaning of co-creation basically entails interactions and relationships between firms and external stakeholders in a dynamic and social process to create, exchange and transfer internal ideas and knowledge assets (Ind et al., 2017; Natalicchio et al., 2017; Adderley & Mellor, 2014). Kurucz et al. (2008) identified four types of business case for CSR, which include how value is created (and for whom) as well as the role of business (economic, political or social). It is evident that the creation of value is linked to the company, both acquiring specific knowledge from stakeholders and sharing internal knowledge with stakeholders, thus responding smoothly to company objectives and partners’ expectations. By operating in this way, companies can minimize production costs and, above all, transaction costs related to knowledge management, reducing the overall level of uncertainty (Galati et al., 2015; Dyer, 1997).

The exchange of knowledge is the basis of stakeholder interaction and often underpins the open innovation process, defined by Chesbrough (2006, p. 1) as “the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively”. Recently, Leonidou et al. (2018), in a systematic review which synthesizes the current knowledge on how SE affects innovation management, confirmed that SE can enhance innovation process output, improving subsequent entrepreneurship development. Wiesmeth stresses that the careful integration of stakeholders generates additional knowledge for all kinds of innovation activities, providing guidelines for further developing areas, such as CSR and health care management; it is necessary for designing incentive-compatible environmental policies (2018, p. 9). It is therefore clear that knowledge management, and especially the capacity of companies to benefit from the knowledge bases and technologies of external parties, has a positive effect on businesses’ strategies for open innovation (Martinez-Conesa et al., 2017), improving their overall innovative performance (Ferraris et al., 2017). According to the open-innovation paradigm, the use of external knowledge makes innovation easier and faster for firms (Triguero et al., 2018), and, at the same time, calls companies to transform themselves to exploit the outcomes of a successful knowledge management system that they employ (Santoro et al., 2017). A transformation entails the arrangement of well-structured internal practices and a more corporate focus, which also foresee changes and actively involve both tangible and intangible resources (Giacomarra et al., 2019). There is also a need for small- and medium-sized enterprises (SMEs) to acknowledge that internal determinants are important dynamics that are able to act as facilitators of these changes (Santoro et al., 2019). Indeed, as suggested by Ayuso and colleagues (2011), a firm needs to manage external kno...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Table of Contents
• List of Figures
• List of Tables
• List of Contributors
• Acknowledgement
• Editorial Note
• 1 Stakeholder Engagement for a Sustainable Development of Business Models
• 2 The Contribution of Corporate Social Responsibility to Sustainability of Contemporary Businesses
• 3 Customer Engagement: A Critical Review of the Literature
• 4 Stakeholder Engagement for Sustainable Entrepreneurial Marketing: Theoretical Synchronization and Empirical Insights
• 5 The Role of Collectivism on Positive Word-of-Mouth Persuasion in Cause-Related Marketing
• 6 Stakeholders in the Implementation of a Sustainable Marketing Strategy: A Comparative Analysis of Polish and Sri Lankan Markets
• 7 Corporate Financial Statement Fraud in Greece and Management Engagement to Promote Sustainable Development
• 8 The Role of Trust among Stakeholders in Mergers and Acquisition
• 9 Stakeholder Effects on the Creation and Development of Alternative Food Networks: A Review of the Literature
• 10 Supply Chain Connectedness and Components of Environmental, Social and Economic Sustainability
• 11 Farmers’ Proactive Behaviour: An Overview about Theoretical Bases and Factors Affecting Sustainability
• 12 Innovative Partnering: The Key for a Healthy Society
• 13 How Does Stakeholder Engagement Affect Business Model Sustainability?
• Index