Unfolding Stakeholder Thinking

Theory, Responsibility and Engagement

Jörg Andriof, Sandra Waddock, Bryan Husted, Sandra Sutherland Rahman

• Publisher: Routledge
• Year: 2017
• Print ISBN: 9781874719526
• eBook ISBN: 9781351281867
• Topic: Business
• Subtopic: Business General
• Index: Business

This book – the first of a two-volume series – argues that, today, stakeholder thinking has evolved into the study of interactive, mutually engaged and responsive relationships that establish the very context of doing modern business, and create the groundwork for transparency and accountability.

This book makes it clear that in today's societies successful companies are those that recognize that they have responsibilities to a range of stakeholders that go beyond mere compliance with the law or meeting the fiduciary responsibility inherent in maximizing returns to shareholders. If in the past the focus was on enhancing shareholder value, now it is on engaging stakeholders for long-term value creation. The process of engagement creates a dynamic context of interaction, mutual respect, dialogue and change – not a one-sided "management" of stakeholders. Indeed, the authors believe the very term "stakeholder management" to be outdated and corporate-centric. Companies can manage their relationships with stakeholders, but frequently cannot actually manage the stakeholders themselves, because, as the activist and collaborative initiatives described in this volume suggest, company-stakeholder relationships are not one-way streets and different institutions bring different agendas, goals and priorities to the engagement.

There are clear implications to the way in which stakeholder thinking is unfolding today. If in the past corporate "social" responsibility was simply seen as profitability plus compliance plus philanthropy, now responsible corporate citizenship – or corporate responsibility – means companies being more aware of and understanding the societies in which they operate. Corporate responsibility means recognising that day-to-day operating practices affect stakeholders and that it is in those impacts where responsibility lies, not merely in efforts to "do good". Companies are now faced with a wide array of challenges that mean that senior executives and managers need to be able to deal with issues including greater accountability, human rights abuses, sustainability strategies, corporate governance codes, workplace ethics, stakeholder consultation and management. Stakeholder thinking needs to capture these new realities.

The global reach of multinational corporations has served to highlight the need for the (re)integration of business into society, relationships into stakeholder relations, and ethics into managerial practice. The rise in power of global activism involving NGOs, and global business involving multinational corporations, makes it even more critical today for companies to consider the power and interests of corporate stakeholders when developing strategic plans. The interactivity and mutuality of relationships described in this book make it clear that firms and stakeholders share the power and responsibility to influence both the profit potential of the firm and how the benefits of the firm's success impact on society.

This important volume brings together leading academic thought on stakeholder thinking for the first time. Unfolding Stakeholder Thinking will be indispensable to corporate managers, NGOs and academics seeking greater understanding of the dynamics of stakeholder thinking in a world of rapidly changing responsibilities.A companion volume, Unfolding Stakeholder Thinking 2, focusing on practical issues such as relationship management, communication, reporting, and performance, is also available.

Part 1
Thinking about Stakeholder Theory

1
Unfolding Stakeholder Engagement

Jörg Andriof
KPMG, Germany; Warwick Business School, UK

Sandra Waddock
Boston College, Carroll School of Management, USA

If the unity of the corporate body is real, then there is reality and not simply legal fiction in the proposition that the managers of the unit are fiduciaries for it and not merely for its individual members, that they are … trustees for an institution with multiple constituents rather than attorneys for the stockholders (E.M. Dodd, Jr, 1932).

Corporate Governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society (Sir Adrian Cadbury at the Global Corporate Governance Forum, World Bank 2001).

Stakeholder theory as it has evolved—or unfolded—in recent years has begun to focus attention on the importance of the relationships that companies have with stakeholders, relationships that go well beyond those that companies naturally have with shareholders. Generally, perspectives on stakeholder theory have moved away from an entirely corporate-centric focus in which stakeholders are viewed as subjects to be managed towards more of a network-based, relational and process-oriented view of company–stakeholder engagement, where at least there is consideration of mutuality, interdependence and power. In this chapter we will argue that unfolding stakeholder relationships, and in particular emerging processes for stakeholder engagement, can best be understood by beginning to integrate corporate social performance/responsibility, stakeholder and strategic relationship theories.

The world that companies face today appears to many observers to be considerably more complex, chaotic and dynamic than the world of previous eras. Technological shifts have created instant global communications capacities that make corporate performance and behaviours in multiple arenas considerably more visible—more transparent—than they ever have been. Boundaries between companies have diminished as long supply chains, strategic alliances, joint ventures and partnerships of various types have evolved into virtual and network organisations. Similar erosion of boundaries can be found in the numerous collaborations and partnerships that companies now have with organisations in the civil society and governmental sectors (Waddell 2000; Waddock 2002). As boundaries have eroded and connectivity increased, demands for greater corporate transparency and accountability have multiplied. Companies have found themselves increasingly on the firing line of an intense anti-globalisation movement, fuelled by activism on issues such as labour and human rights, transparency and anti-corruption initiatives, and environmental protection and sustainability.

One response to these shifts by many companies has been to engage in partnerships and collaborations not only with other companies but also, increasingly, with stake-holders who represent interests that go well beyond traditional corporate interests. If companies are to cope effectively with the stakeholder issues and relationships that now confront them, they need better understanding of the dynamics and expectations fundamental to living, acting and working in a network of collaborative relationships. Drawing on the literatures of business in society, stakeholder theory and strategic relationships, we will attempt in this chapter to provide a framework that can enhance understanding of the dynamics of and rationale for the increased levels of stakeholder engagement witnessed today.

Three underlying theoretical areas help to establish the conceptual foundations unfolding stakeholder relationships and engagement: business in society, stakeholder theory and strategic relationships. This chapter builds a conceptual framework for linking these literatures by reviewing the history and influential ideas of these conceptual foundations to better understand how and why stakeholder engagement occurs.

Business in society refers to the field that describes, analyses and evaluates firms’ complex societal and ecological links. Particularly relevant are the concepts of corporate (social) responsibility, corporate social performance and social capital. Stakeholder theory argues that managers of firms have obligations to a broader group of stakeholders than simply shareholders (or owners) and it is usually juxtaposed against stockholder theory. Strategic relationships are an integral part of most organisational activities in today’s complex, uncertain environment, particularly as boundaries between organisations become more transparent and complexity of tasks demands interactive rather than unilateral action (Waddock 1989; Waddell 1998). The emergence of new stakeholder engagement strategies, including strategic alliances and partnerships, social partnerships and multi-sector collaborations, means that collaborative strategies (as opposed to purely competitive strategies) have become a critical basis for stakeholder engagement. Thus, partnerships can be described using networking processes that are conceptualised within a relational view of the firm. Within this context, partnerships and other forms of stakeholder engagement that have unfolded in recent years can be seen as trust-based collaborations that build social capital between individual companies and other social institutions working on objectives that can only be achieved jointly and interactively.

1.1 Unfolding business in society

1.1.1 Defining corporate (social) responsibility

The business in society literature, which is deeply intertwined with the emergence of stakeholder engagement strategies, has a long and rich history with two main streams, corporate (social) responsibility and corporate social performance. In this section we will argue that corporate ‘social’ responsibility has moved from a position where the responsibilities of the firm, originally rather broadly understood to be part of business’s social contract (Derber 1998), moved to a narrow concept of maximising returns to shareholders. This narrow understanding has been re-broadened over the course of the 20th century to encompass what was called corporate ‘social’ responsibility and is currently moving to a new conception of corporate responsibility as embedded in the very practices involved in doing business (Waddock 2002).

Clark (1916) provides one of the earliest considerations of firms’ economic and social responsibility, which was further elaborated by Dodd (1932): the concept that managers needed to accept their social responsibilities. Influential references of the 1930s and 1940s include Barnard’s 1938 The Functions of the Executive and Kreps’s 1940 ‘Measurement of the Social Performance of Business’, both of which argued that managers’ responsibilities went beyond simple returns to shareholders.

Bowen’s 1953 landmark book Social Responsibilities of the Businessman is the beginning of a modern period of literature about corporate (social) responsibility (CSR). Bowen argues that ‘businessmen’ have an obligation ‘to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society’ (1953: 6). As is suggested by Bowen’s emphasis on the objectives and values of society, CSR rests on two fundamental premises. First, in a form of social contracting, business exists at the pleasure of society and, second, business acts as a moral agent within society. These two ideas (social contract and moral agency) provided the basic premises for the evolution of thinking about CSR.

Levitt, however, argues that ‘welfare and society are not the corporation’s business. Its business is making money, not sweet music. In a free enterprise system, welfare is supported to be automatic; and where it is not, it becomes government’s job’ (1958: 47). His objection centres on the fact that social responsibility would put business into fields not related to their ‘proper aim’, as Hayek (1960) stated. In perhaps the strongest, best-articulated and long-standing position against corporate responsibilities beyond maximisation of shareholder wealth, Friedman (1970) argues the social responsibility of business is to increase its profit.

Criticism of the concept of CSR has focused on its ambiguity. For example, Davis and Blomstrom’s classic definition states that ‘social responsibility is the managerial obligation to take action to protect and improve both the welfare of society as a whole and the interest of organisations’ (1975: 6). The main concepts of ‘obligation’, ‘welfare’ and ‘self-interest of obligations’ in this definition are very broad and open to a range of interpretations.

Moving away from economic theory, McGuire (1963) and other authors such as Kohlberg (1969), Davis (1973), Stone (1975) and Frederick (1987) include not only economic and legal obligations but also certain responsibilities to society which extend beyond these obligations. Davis’s definition of CSR demonstrates these concerns: ‘The firm’s consideration of and response to, issues beyond the narrow economic, technical and legal requirements of the firm … to accomplish social benefits along with the traditional economic gains which the firm seeks’ (1973: 313).

Manne and Wallich (1972) take this definition further, by suggesting that the behaviour of the firm must be voluntary. Jones (1980) argues that corporations have an obligation to constituent groups in society other than shareholders and beyond that, as prescribed by law or union contract. Two facets of this definition are critical. First, the obligation must be voluntarily adopted and, second, the obligation is a broad one, extending beyond the traditional duty to shareholders and to other societal groups: that is, to groups we now call stakeholders (Freeman 1984).

Following this, Preston and Post (1975) and Buchholz (1977) introduced the notion of ‘public responsibility of managers’, proposing that the social impact of the firm should be guided and appraised within the context of external public policy. The public responsibilities of managers in corporations, in this view (Preston and Post 1975), extend to the ripple effects of business activities in society and on relevant stakeholders through what Preston and Post called interpenetrating systems. The advocates of public responsibility focus more on the social contract side of business and less on the question of morality.

Steiner (1975) conceptualised CSR as a continuum of responsibilities, ranging from ‘traditional economic production’, to ‘government dictated’, to a ‘voluntary area’ and incorporating ‘expectations beyond reality’. Similarly, Carroll (1979) argued that companies have multiple responsibilities starting with economic and moving to legal, ethical and discretionary (which would generically be ‘social’) responsibilities.

In other conceptual developments during this era, Ackerman and Bauer (1976) and Sethi (1979) further extend the concept of CSR. Rather than providing a focus on ‘social’ responsibility, which assumes an obligation and emphasis on motivation rather than performance, their concept integrates the notion of ‘social responsiveness’. Frederick (1987, 1998a) later termed this perspective CSR2, corporate social responsiveness, as opposed to the earlier CSR1, corporate social responsibility. The idea of corporate social responsiveness meant that companies were responsive to social pressures. Frequently, companies operationalised this responsiveness by establishing boundary-spanning functions, such as public affairs (Post et al. 1982), issues management (Wartick 1988) and community relations (Waddock and Boyle 1995; Burke 1999) functions, in the recognition that they play a long-term role in the social system. The responsiveness framework moved companies from a reactive to a more proactive posture with respect to their external (stakeholder) relationships (Preston and Post 1975). Notably, as the field of business in society developed it was and still is most of the time, called ‘business and society’, as if business were somehow separate and distinct from other elements of society.

Other writers such as Hay et al. (1976) and Zenisek (1979) place greater emphasis on the ethical perspective in modelling social responsibility, viewing it as the degree of ‘fit’ between society’s expectations of the business community and the ethics of business. In 1987, Epstein (1987) provided a definition of CSR in his quest to equate social responsibility, responsiveness and business ethics. Epstein’s article is one of the first attempts to integrate ethical responsibility into corporate behaviours, avoiding what Freeman (1999) has called the separation thesis and arguing, in effect, that ethics is integral to action.

Thompson et al. (1991), Warhurst (1998a) and Schwartz and Gibb (1999) have taken the standpoint that CSR should go beyond mere legal obligations. By the late 1980s, the concept of corporate (social) responsibility had evolved towards a more integrated perspective (see Carroll 1979; Epstein 1987; Frederick 1987) that encompassed all of the economic, legal and ethical obligations of business and even some of what Carroll (1979) had termed discretionary responsibilities.

Although CSR is a concept that was developed primarily in North America, it has been applied in Europe and in developing countries, albeit tentatively (Lash 1998).

During the 1990s, the concepts of corporate responsibility and citizenship began to take the place of corporate ‘social’ responsibility in both business and academic circles, in recognition of the reality that responsibilities are integral to corporate practices, behaviours and impacts, not separate from them (Waddock 2002). Corporate responsibility (CR) or corporate citizenship (CC) has emerged from the legalistic and reactive definitions of the early years through a time in which companies were thought to be obliged or, minimally, requested to ‘do social good’. Corporate citizenship, particularly the stakeholder engagement process, is significantly more interactive, moving it beyond even proactive behaviour (see Preston and Post 1975; Waddock 2002). Early efforts to integrate ethics into the understanding of CSR have now evolved into integrated perspectives on CR and CC, such as those offered by Marsden and Andriof (1998):

As Peter Drucker (1993: 155) says, however, citizenship is more than just a legal term, it is a political term. ‘As a political term citizenship means active commitment. It means res...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• CONTENTS
• Foreword
• Introduction
• Part 1: Thinking about stakeholder theory
• Part 2: Stakeholder responsibility and engagement
• Bibliography
• List of abbreviations
• Author biographies
• Index