A Stakeholder Approach to Issues Management

Robert Boutilier

• Publisher: Business Expert Press
• Year: 2011
• ISBN:
  9781606490983
• Topic: Business
• Subtopic: Comunicazione aziendale
• Index: Business

The book will appeal to corporate managers who must manage issues and controversies involving outside groups and organizations The book shows practitioners how to ground their strategic advice on the kind of empirical research that reveals the socio-political dynamics of the issue. It is the first book to approach issues management from a blended application of advances in institutional theory, social movement theory, stakeholder theory and social network analysis.

Chapter 1

Why a Stakeholder Approach to Managing Issues?

Wal-Mart: A Company Whose Existence Became the Controversy

A stakeholder approach to managing issues works best when organized groups are championing the issues. Before we discuss the full meaning of “stakeholders” and “issues,” let us look at a concrete example of an organization with stakeholder issues that it has to manage.

One of the most controversial organizations in the world is Wal-Mart. Wal-Mart is a private retailer based in the United States. It offers a wide range of merchandise and services, from clothing and food to pharmacy prescriptions and car tires. What makes it distinctive is the extent to which it has used the opportunities created by economic globalization to put the interest of customers and shareholders above all other interested parties (e.g., employees, unions, competitors, and suppliers). Those who benefit from Wal-Mart’s strategy are dispersed and unorganized (i.e., retail customers, individual buyers of mutual fund units, and pension plan beneficiaries). Those who suffer from it are concentrated and organized at local levels (e.g., small retailers and unions). Moreover, as their numbers and visibility increase, they are increasingly capable of assisting one another as part of a global coalition of aggrieved Wal-Mart stakeholders.

The list of issues that has been brought against Wal-Mart includes the following:

• Abusing employee rights
• Violating child labor laws
• Failing to pay for hours worked
• Paying low wages
• Not providing adequate health benefits for employees
• Hiring illegal workers
• Promoting low wages in whole regions
• Causing the export of American jobs to Asia
• Exploiting foreign workers of suppliers
• Discriminating on the basis of gender
• Causing traffic congestion
• Destroying business districts in small towns
• Pricing merchandise predatorily
• Using public subsidies
• Driving suppliers into bankruptcy (i.e., monopolistic practices)
• Selling toxic products to children
• Degrading the environment and historic sites
• Symbolizing globalization

The charge of symbolizing globalization is particularly significant because it shows how much the company’s reputation has suffered. This charge was made in a case where Wal-Mart bought a retail chain in Mexico known as Bodega Aurrera and built a store bearing that name in the low-income town of Teotihuacan, Mexico. Most of the town is visible from the nearby Pyramid of the Sun, a historic tourist attraction. However, the view of the town includes a view of the Bodega Aurrera store, and this therefore angered activists. They staged a hunger strike, claiming that the store was an offensive symbol of globalization. Meanwhile, on the opening day, hundreds of townspeople waited most of the day to shop in the store. The San Diego Union Tribune quoted one protester, Homero Aridjis, a Mexican novelist and poet, as saying, “We know that Teotihuacan isn’t the most virgin of places in terms of construction and commerce … but Wal-Mart is a symbol … It’s like nailing globalization’s stake in the heart of old Mexico.”¹ In other words, it was not the building that was the problem but rather the identity of the building’s owner. Wal-Mart was accused of being Wal-Mart.

Wal-Mart’s stunning status as a lightning rod for discontent can teach us a lesson about hidden factors that affect issues management.

The Network Asymmetry Behind the Controversy

The Wal-Mart case illustrates the benefits of a stakeholder approach to issues management. It shows how the dispersion or concentration of economic winners and losers is a significant determinant of controversy and affects strategies for managing the issues. Wal-Mart brings a global reach to the local retail environment. On the surface, it looks like a simple supplier–customer mediation strategy. Through low prices, they aggregate enough customers to replace profit from markups with profit from volume sales. But as experience shows, there are other impacted parties who join the game.

Originally, Wal-Mart’s critics were local and concentrated. They were the economic losers in the competitive marketplace at the local level. At the same time, the economic winners (i.e., suppliers and customers) were dispersed geographically and unorganized. It was only Wal-Mart as the intermediary who worked at a global level.

With the help of journalists, activists, and unions, critics eventually formed broader and broader networks among themselves. In 1999, the book Slam-Dunking Wal-Mart, by Al Norman, ignited the anti-Wal-Mart movement. In 2004, Norman followed up with The Case Against Wal-Mart, which expanded the critique from Wal-Mart’s impacts on communities to global supply chain issues and impacts.² The website WalMartSucks.org celebrated its 11th anniversary in 2011.³ It specializes in horror stories from different countries about Wal-Mart’s labor practices.

In today’s political environment, the global and the local are as interconnected as atoms of hydrogen and oxygen in water. This has two important implications for the practice of issues management. First, global issues manifest themselves in local disputes and vice versa. Even something as seemingly local as traffic congestion can become an element of an international campaign (e.g., carbon emissions). Second, the ease of forming international networks today means that the issues management tactic of dividing and conquering the stakeholders is increasingly risky and futile.

In Wal-Mart’s case, every issue has a group or groups that have an impact or want to have an impact. They are the stakeholders. Trying to manage the issues without developing relationships with the groups and the people behind them is like trying to direct a movie by going online and changing the script without ever talking to the actors or crew. Relationships with the real persons playing the roles are essential. These people are called stakeholders. The concept of a stakeholder is central to the approach described in this book. Let us look at what a stakeholder is and is not.

What Is a Stakeholder?

Social Actor: Person, Group, or Organization

A stakeholder is someone who is either affected by a company or can have an effect on the company. Note that this includes people who are at risk of being affected by the company and those who are capable of affecting the company even though they might not yet have acted.⁴

Sometimes the affected party is not a person but rather a group or organization, such as a church congregation or a fishers’ cooperative. For this reason, more formal definitions of a stakeholder often use the term “social actor.” A social actor is any person, group, or organization that can speak with one voice. This is an important extension because it allows us to include as stakeholders all sorts of social and political actors who can affect the company. Therefore, this gives us the definition of a stakeholder as a social actor who is affected by the company, at risk of being affected by the company, or who can affect the company.

The Nature of the Stake

The definition of a stakeholder implicitly equates stakes with impacts. The impacts can be either received or delivered, and they can be either positive or negative. That means that a company’s best customer is just as much a stakeholder as a criminal gang that empties the company’s warehouse overnight. Some theorists would rather think of stakeholders as only those who contribute to the company’s wealth-creating capacity and who stand to gain or lose according to how the company fares.⁵

The problem with defining stakeholders as those whose interests are aligned with the company’s interests is that it leaves social actors, such as corporate competitors and anticapitalist activists, outside the stakeholder category. Although it is a useful distinction for some purposes, for issues management we need to include those who are intent on harming the corporation. Therefore, in this book I simply mention the nature of the stakes and otherwise use the term “stakeholder” for all who are affected by or who can affect the company.

The Debate to Include Nonhumans as Stakeholders

There have been proposals to broaden the definition of a stakeholder to nonhumans that are affected by a company. Some suggest that the natural environment should be considered a stakeholder. The natural environment can be affected by a company’s activities and, through channels such as climate change, can have an effect upon the company. However, because stakeholders raise issues that always involve an ethical element (e.g., fairness and reciprocity), any entity that cannot accept a moral responsibility cannot be a true stakeholder. The natural environment cannot, for example, enter into an agreement to refrain from raining on a parade in return for a company’s promise to reduce carbon emissions. Therefore, it lacks a crucial criterion of moral agency implied in the concept of a stakeholder.⁶ Moreover, the inclusion of nonhumans as stakeholders makes the concept so broad that it no longer offers a framework for developing strategy and planning action. It becomes useless to issues managers.⁷ Therefore, although impacts on the natural environment are often of primary concern in issues management, in this book the word “stakeholder” is reserved for humans and human organizations because nonhuman entities do not participate in the debates and politics around issues.

It is not necessary to classify nonhumans as stakeholders in order to take account of impacts on them. Consider the following anecdote from a stakeholder relations project that I once worked on in a developing country: Subsistence villagers claimed that the spirit of a sacred rock was disturbed when a Western company built a road on the right-of-way it had leased from them. The villagers treated the rock as a stakeholder. They saw it as an animate being and therefore as a social actor. If the rock was indeed a social actor, it seemed to only speak through the villagers—specifically, through the village council. The council mediated between the rock and the company and apparently had the ability to know how much money in compensation payments would calm the rock down. The company was able to deal with the situation by treating the village council as the stakeholder—and by treating the rock as a rock.

If the company had treated the rock as a stakeholder, it would have been compelled to attempt direct negotiations with the rock. This is an example of how stakeholder theory could become useless to managers and to anyone else with a genuine interest in resolving disputes. Therefore, although it is important to take account of impacts on nonhuman entities, the word “stakeholder” is used here to refer to people, groups of people, or organizations formed by people.

The Focal Organization in Which the Stake Is Held

A related question is, “Stake in what?” What is the focal entity that stakeholders have stakes in? If we allow that the focal organization affected or being affected can be any kind of organization, then the definition of a stakeholder can be broadened. Rather than restricting the focal organization to private-sector companies, we can allow that the focal organization might be an nongovernmental organization (NGO), a branch of government, or a quasi-independent institution such as a university, a regional economic development council, an airport authority, a central bank, or a United Nations agency.

We may also broaden the definition by making the focal organization something more specific or more general. On the more specific side, it might be a specific project or operation of the focal organization, such as a single well of an international petroleum company, a single detachment of a city police force, a single project of an infrastructure company, or a single research center of a university.

On the more general side, we can distinguish between focal organizations that have been intentionally constituted and those that emerged spontaneously out of the patterned interactions of social actors. The former might be an NGO or a government department. The latter might be an organization, such as a neighborhood, a market and its supply chain, or a resource-harvesting industry such as a fishery or a grazing commons. These are organizations in the same sense that an ecosystem is an organization. It is a set of interdependencies that produce predictable patterns of behavior among the social actors involved. They quite often involve some role specialization as well, analogous to niches in ecosystems. For example, a geographical community could be considered this kind of emergent organization.⁸

If the focal organization is an emergent organization, then the social actors participating in it can be considered its stakeholders. Therefore, villagers would be stakeholders in their village. All the shepherds sharing a grazing commons would be stakeholders in the network of commons users. All the residents drawing from a river, and dumping into it, would be stakeholders in the network of users of the river’s watershed (i.e., drainage region).

This use of the term “stakeholder” is new, but it does have precedent in the organizational science literature. The term “problem domain” has been used for nearly 30 years to describe such emergent systems that contain issues of concern to their stakeholder members.⁹ Organizational and management scholars have tended to portray these types of organizations as networks and emphasize their ability to come into existence and evolve spontaneously, without having been planned.¹⁰

Elements of this thinking have emerged in the stakeholder theory literature. The view of the focal organization as possibly an emergent, self-sustaining network contrasts with the corporate-centric view of the focal organization. In an emergent network–type of focal organization, stakeholders can be viewed as making multiple microcontracts with one another.¹¹ This perspective highlights how business is only one of many stakeholders in a shared-problem domain.¹² If we put the focus on the shared problem, then the corporation is not the center of all its stakeholders but rather one of many social actors who all have a stake in finding a solution to the problems.¹³

In these types of emergent problem domain networks, the stakes are real, but none of the social actors is focal in the sense of having the power to change the impact through its own actions alone. All the stakeholders collect...