PowerPoint Presentation

Doing Well by Doing Good: Stakeholder Theory

Metropolia Business School International Project Week (IPW) 2013Dr Denise DollimoreUniversity of Hertfordshire, UK1BP Oil Spill 2010

2Following this session students should be able to:

Discuss Stakeholder theory and its links to business ethics and CSR

Identify important stakeholders for an organisation and discuss how managers balance the interests of various stakeholders.

Explain the paradox of profitability vs responsibility and evaluate cases using competing theoretical perspectives

Learning Outcomes3Stakeholder Theory Edward Freeman 1984 Strategic Management: A Stakeholder ApproachDraws on business ethics, from a social justice (deontological) viewpoint, and argues that business actions should be fair. Draws on notion of corporate social responsibility, and argues stakeholder approach is good for businessGood corporate citizenship - a way to differentiate(Readings pp 23-28) Doing Well by Doing GoodHow can CEOs Change company values?How can organizations become good corporate citizens?4Corporate Social Responsibility A perspective which stresses the responsibilities that corporations have towards society and other stakeholders(King and Lawley, 2013)

CSR requires two principles*:

The charitable principle, where the more fortunate help the less fortunateThe stewardship principle, where the rich hold the wealth in trust for the rest of society

The belief that these principles, combined with the belief that acting appropriately, result in limited government intervention (rules & regulations) has given CSR considerable credence in business circles (Freeman & Liedtka, 1991)*Traced back to philanthropists of 1930s 5Now widely agreed that business have obligations beyond their legal and economic obligations towards societyMoving beyond compliance with laws to establish new standards

Ethical Capitalism* (AKA stakeholder approach)A business approach which seeks to integrate CSR as central to the purpose and activity of an organization Business benefits includeEnhanced reputation with consumers Improve human rights, workforce welfare and ecological sustainabilityImproved relationships with governments positive contribution to national economic and social development

CSR, stakeholder theory and ethical capitalism*King & Lawley (2013) in Readings6Doing Well by doing GoodEvaluating corporate responsibility using Carrolls (1991) pyramid [illustrates levels of CSR]

0Milton Friedman1970 shareholder valuesEdward Freeman 1984 stakeholder values7The Organization and its Competitive EnvironmentTraditionally, CEOs and strategy writers see only forces of competition in operational environment, however

Competitive / operating environment includes numerous stakeholders (Stakeholder Theory, Freeman 1984)

Stakeholders can be become allies (affect & affected by firm)

They can provide information about changes in the broad environment (social attitudes / trends)

They can co-operate in finding new ways forwardand achieve competitive advantageChallenge for firms is to define stakeholders and decide how much to privilege them Balancing Stakeholder Interests: The Mendelow GridLEVEL OF INTERESTPOWERLOWHIGHLOWHIGHLeast influentialKeep informedKeep satisfiedKey playersNIKE?BP?Starbucks?Primart?9Key question Should a business prioritise shareholder value or stakeholder needs?

Shareholders own the businessPrimarily for financial gain

Stakeholders are affected by the decisions and operational activities of the business Financial, non-financial and personal benefitsOrganisations and Ethical Choicen.b., the social contract between business and society is constantly evolving (Waddock 2010)10The Paradox of Profitability and ResponsibilityResponsibilityActing in the interest of others, even when there is no legal imperative.ProfitabilityTo be an attractive investment, a firm must earn a higher return on the shareholders equity than could be realized at a bank.Unilever? Johnson and Johnson?Primart? Starbucks?BP?

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Profitability versus Responsibility12The Debate & ReadingsThe shareholder value perspectiveMilton Friedman (1970)*The Social Responsibility of Business is to Increase it Profits NYT

The stakeholder values perspectiveEdward Freeman (1984)Strategic Management: A Stakeholder Approach

p. 36 Readings13Stakeholder Approach

Origin Business Ethics and corporate social responsibility

View of the FirmA network of relationships among the firm and its stakeholders

Approach to Strategy FormulationAnalysis of the economic power, political influence, rights and demands of various stakeholders (Mendelow Grid)

Source of Competitive AdvantageThrough superior linkages with stakeholders leading to trust, goodwill, reduced uncertainty, improved business dealings, and ultimately higher firm performance (think Porters Value Network analysis)

How can CEOs Change Company Values?Be committed at top management levelDevelop a written code of ethics to communicate values to employeesInvolve middle managers - establish ethics committees to settle disputesAsk line managers to train employeesFire people who violate the codeProtect whistle-blowersWithdraw from countries or industries where you cannot act with integrity15Socially ContributiveSocial Enterprise: now recognised as the third sector (alongside public sector and private business sector)Voluntary, not-for-profit, charitable organisations

Forum for the Future (UK, USA): help organisations innovate the products, services and business models needed for a sustainable future (philosophy of sustainability) http://www.forumforthefuture.org/about-us

Can find common interests with responsive businesses:those creating more sustainable business models, e.g. M&S, Unilever those serving customers in emerging economies16Engaged Ethics @Hotel Chocolat Angus describes the way he has successfully embedded Engaged Ethics as a core value of his business and used these ethical initiatives as a powerful differentiator to capture the hearts and minds of all those who touch the brand.

Exclusive branded chocolatier, having since become a cocoa grower and built a luxury hotel in St Lucia, CEO, Angus Thirlwell offers insight into how he has achieved growth without compromise of the businesss core values.

A socially contributive organization17Freeman, E. 1984. Strategic Management: A Stakeholder Approach. Boston: Pitman. Freeman and Liedtka. 1991. Stockholders and stakeholders: A New Perspective on Corporate Governance Reprinted from California Management Review (1982) King and Lawley. 2013. Organizational Behaviour. Oxford.Waddock, S. (2010) The Social Contract of Business in Society in Aras and Crowther eds. A Handbook of Corporate Governance and Social Responsibility 2010 pp. 69-82

List of References