Strategic Corporate Responsibility

The Social Dimension of Firms

Ulpiana Kocollari

• Publisher: Routledge
• Year: 2018
• Print ISBN: 9781138313422
• eBook ISBN: 9780429822971
• Edition: 1
• Topic: Business
• Subtopic: Accounting
• Index: Business

In her book, Dr Ulpiana Kocollari presents a unique contribution to the debate on Corporate Social Responsibility and Sustainability by clearly expressing how the configuration of a firm's social dimension can help identify inclusive corporate governance models, define innovative management processes and reshape performance measurement systems for the evaluation and assessment of sustainable economic, social and environmental results.

Moving a step further, a firm's social dimension is defined within the configuration of stakeholders – resources – rewards patterns intrinsic to their interactions with their environment and embedded in their business activities. Based on this approach, a framework is provided to guide firms in identifying management activities grounded in and suited to their prevalent patterns, in order to support current and future strategies and establish adequate measurement and communication tools for pursuing their mission.

The book contains original theoretical and empirical material and particular attention is paid to the principal social and environmental impact measurement models (i.e. Global Reporting Initiative, Social Return on Investments, Social Balanced Scorecard, etc.), analysing their main features in order to pinpoint their adequacy in assessing the social dimension and to tailor their use more closely to the specific patterns to which they refer. Finally, a detailed application of the analysis framework, which the author has identified is proposed for Innovative Start-Ups with a Social Goal and for Benefit Corporations, in order to detect the patterns embedded in their social dimension and their distinctive traits, which influence their management and measurement processes.

Chapter 1

THE SOCIAL DIMENSION OF FIRMS

SUMMARY: 1.1. The firm’s overall system. – 1.2. Grounding relationships within the firm’s overall system: Stakeholder Theory. – 1.3. Definition and coordinates of the firm’s social dimension. – 1.4. The drivers of the firm’s social dimension. – 1.4.1. Corporate governance. – 1.4.2. The role of communities, culture and values in the firm’s management. – 1.4.3. The role of market and competition in firms’ management. – 1.5. Representation of the firm’s social dimension.

1.1. The firm’s overall system

The firm, viewed as an evolving system, relates and interacts with the market system and other rules and institutions named “environmental systems”, which constitute a set of conditions and circumstances within which the firm is located and can be defined as the firm’s overall system. In traditional business studies, this system of conditions and circumstances, whatever their origin and type, in which the firm finds the conditions for its survival and development, represents the general environment in which it operates¹. Given the complexity and variety of the relationships between the firm and its environment, we can differentiate between the general and the specific environment. Within the general environment, its interconnected characteristics can be classified on the basis of their degree of interdependence. This categorization helps us identify the specific systems that make up the general environment. Consequently, the general environment can be subdivided into the following systems²:

•physical-natural environment;

•political and institutional enviroment;

•economic environment;

•social-cultural environment.

In order to define each of the four systems that build up the firm’s overall system, and thus the effects that they may have on firms’ activities and how they relate to the specific environment, the sections which follow will attempt to identify the variables that characterize each of these subgroups.

Figure 1. Firm’s overall system.

Source: Elaboration of the model proposed in Ferrero, 1987.

The physical-natural environment includes environmental constraints composed of geographic and demographic variables that characterize the context in which the company carries out its business³. This type of environment may impose constraints regarding environmental protection or the lack or scarcity of natural resources, but it can also provide opportunities through the use of accessible resources, the creation of substitutes for natural resources or their conservation and regeneration, the formation and development of markets, technologies and products capable of exploiting natural resources and limiting environmental pollution; etc.⁴.

The political and institutional environment comprises the legal framework, the political regime and the institutions of the state or states in which firms operate. The variables that characterize this type of environment interact strongly with those of the specific environment and more directly with the firm’s economic patterns.

The organization of the general economic system determines how markets function by influencing their demand structure and by establishing policies and tools for monitoring operations and operators’ behaviours. All these conditions have a massive influence on the way in which the business system operates in these markets. Nevertheless, we must not forget the ambivalence of this relationship, as, by its modus operandi, the firm also affects the structural characteristics of the various markets and their functioning. In this way, firms themselves may influence and change the patterns of the economic environment.

The social and cultural environments are made up of interrelated variables, which is why they are ordered together. The structure of society in the places where the company operates, with its stratification in classes of subjects aggregated in homogeneous groups, and their degree of mobility, is particularly important. The cultural environment is characterized by the creation and dissemination of knowledge, values and ideologies in the social context in which the firm develops.

A similar definition of the general environment is also found in North American literature with particular reference to the general context in which the firm operates. This approach subdivides the general environment where the firm operates into four main segments: social, economic, political and technological⁵. The only difference between the two conceptualizations lies in the presence of a different category – the technological segment, which includes the new products, processes, and materials deriving from technological innovation and the state of advancement of knowledge in science, in theoretical and operational terms.

Moving on to the specific environment, attention shifts to the components of the external environment with which the firm interacts most directly. Indeed, the specific environment is often taken to be synonymous with the markets in which the company is a player through its processes of exchange and supply of resources and/or to through the sale of its products or services, and can be identified as comprising the labour market, raw materials market, capital market, service market, technology market and end market. Another way of sorting the variables that compose the specific environment to allow investigation of the main issues in the relationships between the firm and the specific environment is to identify those that are part of the firm’s competitive landscape⁶. In this additional group, the competitive environment is further subdivided into the business areas within which competition between companies takes place, as described in Porter’s model of actors and competitive forces⁷.

The firm’s development is therefore dependent on its ability to align itself with the dynamics of the overall system to which it belongs and to the demands and changes of which it must pay constant attention⁸. In the light of these considerations, the firm could be seen as an organism composed of a multiplicity of relationships that reach across its different dimensions: spatial, temporal, social, economic, institutional, etc. It can be defined as a “complex machine” in which all its dimensions, in turn, are complex drivers that interact with each other in multiple combinations. This purely conceptual “machine” is also an unpredictable model, since a given input will not necessarily always provide the same output⁹. The variety of the final state, and therefore of the outputs, is due to the multiplicity of the internal and external factors. Its complexity is also linked to the uniqueness of the individuals who established and are part of the firm. Each of them acts differently in response to their own individual evaluation systems, increasing the degree of complexity of the entire system, which therefore does not have a definite limit on its number of patterns, since it does not have a pre-established number of behaviours.

1.2. Grounding relationships within the firm’s overall system: Stakeholder Theory

The firm’s relationship with its environments takes the form of interactions with its different interest groups, which are more or less formally defined. Some of these groupings consist of categories of individuals, while others may be organizations and various institutions. Each of these groups, organizations, and institutions is a body of people linked together by a common cause or a shared view on a specific issue related to the firm’s activities¹⁰. Thus, a firm’s relational activities, within its overall system, are defined as its cooperation with the various actors, the level of communication among the various parties and the ways in which the company itself comes into contact with its surrounding environments. The nodes in these relational networks are the different individuals or groups that, depending on their different expectations, think, communicate and use multiple perspectives for the exchange of information and therefore introduce a certain amount of “noise” and complexity into the overall system. This may take the form of criticism of the firm, but even this can be transformed into a resource, offering multiple opportunities, if it is used as input for identifying alternative solutions to problems in the overall system that can then be converted into benefits for the business.

The groups of people who may influence or who in turn are influenced by the firm’s business are known as “stakeholders” in the management literature. Stakeholder theory, which is based on this concept, offers an alternative way of looking at the company, no longer restricted only to employees, suppliers, and consumers, organized for the pursuit of the interest of a single group of stakeholders: equity investors (shareholders). Scholars focusing on stakeholder theory criticize the traditional model of the company and its excessive emphasis on shareholders, because it fails to take into account other stakeholders, who may be equally important for the pursuance of the company’s mission. According to these studies, other stakeholder groups may have just as much influence on the business as shareholders, and therefore firms’ objectives must go beyond the satisfaction of shareholders’ interests by also including the needs and demands of the other stakeholders in their management processes.

Freeman is generally considered to have originated stakeholder theory in his “Strategic Management: a stakeholder approach” (1984), but in reality, the concept that this term expresses and its relationship to the corporate system can be found in many previous studies. In the international literature, the origins of the general idea expressed by stakeholder theory can be traced to notions developed with reference to corporate social responsibility, and other issues related to business management, system theory, and organizational theory. The roots of the social dimension of the firm can be clearly identified in early studies of management.

Corporate responsibility studies acknowledge the company’s obligations, and view the company as a set of groups of stakeholders, of whom shareholders are only one. These studies clearly state the concept which is also the basis of stakeholder theory, without however coining the term stakeholder. Berle and Means (1932) in one of their last studies of the separation of ownership and control, invoke the concept represented by the term stakeholder in stating that: “… the control groups have, rather, cleared the way for the claims of a group far wider than either the owner or the control. They have placed the community in a position to demand that modern corporations serve not just their owners or the controllers but all society …”¹¹.

Another early perspective, which considers the role of stakeholders as fundamental through another approach, is set out in management planning and control studies. As Freeman (1984) himself observes, the term stakeholder was used for the first time in the Standards Research Institute in 1963 to define those groups without the support of which the firm would cease to exist. In this vision, the planning process could not be implemented without understanding the interests of different stakeholder groups. The fundamental difference represented by this vision compared to that proposed by the stakeholder theory is that the former limits the concept of stakeholders only to those central to the very survival of the firm.

Other important pre-stakeholder concepts are proposed in organizational studies¹², where the most significant in terms of equivalence with the current stakeholder theory is the work of Pfeffer and Salancik (1978). In their conceptualization, the importance of the resources needed to conduct the business is accentuated by the firm’s dependence on providers of resources and support. Although these studies describe mutual interdependence in the relations between the company and its stakeholders, they do not recognize their mutual value, generated by the company’s role as a reward provider for its stakeholders.

Other initial notions and initial developments of some of the concepts of stakeholder theory can be found in the theory of complex systems. According to this view, many social phenomena cannot be analysed individually but should be considered as part of a larger system, where they interact with other elements. Under this principle, the role assigned to stakeholders in the overall system is a more active one, since the optimization of the system’s individual objectives is only pursued if compatible with the pursuit of its global objectives¹³.

Given the multiplicity of the studies and concepts related to the term stakeholder, in order to contextualize Stakeholder Theory in the management literature, we...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of figures and tables
• Acknowledgments
• Introduction
• 1. The social dimension of firms
• 2. The social dimension in the firm’s management
• 3. Measuring Firm’s Social Dimension drivers and performance
• 4. Innovative Startups with a Social Goal (ISSG)
• 5. Benefit Corporations
• 6. Final Considerations
• References