Tag Archive for 'Stakeholder Theory'

The Democratization of Business

Published on May 13, 2013 in Uncategorized. 0 Comments Tags: , , , , , , , , .

by Olsson Center staff

A major U.S. bank announces new fees for checking accounts and customers revolt. Many opt to close their accounts and take their business to competitors. A popular mail movie rental service changes its strategy much to its faithful customers’ chagrin. In both instances, social media and traditional media provide a forum for customers to express their discontent. Each company decides to back down, at least in part due to the protests.

As consumers are becoming more educated they are engaging more with the companies with which they do business. This is especially true with educated millennial generation who choose to support more socially conscious companies. Consumers expect products to be tailored to their tastes and expecting companies to be accountable.

There are other places where we see changing stakeholder expectations impact how business gets done. Customers were used to the same 500 products in grocery stores for decades. With the advent of mass-produced organic foods, many consumers demanded more selection from their grocery stores. We now have more choices for food than we ever had in the past. Customers have made it clear that they do not always take what is given to them, especially if someone else is willing to provide what they want.

We are also starting to see signs of a major shift in the wireless carrier market. Consumers have grown tired of the inflexible two-year contract plans, and some companies are changing their strategy to capitalize on this discontent.

Growing stakeholder demands and technology changes appear to be driving an increase in business accountability. Review websites like Angie’s List and Yelp give consumers a voice they never had before. Transparency, driven by the Internet, is changing how businesses operate. These changes add fuel to the idea that Stakeholder Theory has come into fruition, particularly for customers.

Are We Oversimplifying Value?

Published on January 31, 2013 in Uncategorized. 0 Comments Tags: , , , , , .

by Andrew Wicks and Jeffrey Harrison

The notion of value is often overly simplified and narrowed to focus on economic returns (i.e. shareholder returns). Stakeholder Theory provides an appropriate lens for considering a more complex perspective of the value that stakeholders seek as well as new ways to measure it. We have developed a four-factor perspective for defining value that includes, but extends beyond, the economic value stakeholders seek. To highlight its distinctiveness, we compare this perspective with three other popular performance perspectives. You can read more about this perspective in “Stakeholder Theory, Value, and Firm Performance” in the latest Business Ethics Quarterly.

chart with upward trendThe stakeholder perspective on value offered draws attention to those factors that are most closely associated with building more value for stakeholders, and in so doing, allows academics to better measure it and enhances managerial ability to create it.

 

 

 

 

The Future of Capitalism

Published on January 2, 2013 in Uncategorized. 0 Comments Tags: , , , , , .

Professor R. Edward Freeman was featured in a closing plenary panel at the Eighth Bentley Global Business Ethics Symposium. The panel focused on trends, challenges and possibilities with respect to the enterprise of the future. The following remarks come from the conference proceedings.

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Freeman began the conversation by examining the issues underlying responsible capitalism and ways that the current business model could be improved. Freeman emphasized four core challenges:

  1. the need to recalibrate the traditional business model,
  2. broaden the idea of purpose,
  3. focus on creating value for a broader range of stakeholders
  4. and recast the narrative about business.

Criticizing the dominant model of shareholder maximization, he argued that this model “misses the mark in terms of understanding what business really does.” As he continued, “Consider the limitations when attempting to think of a company that only cares for shareholder value… many firms, especially large corporations, engage in philanthropy and corporate social responsibility (CSR).”

In moving toward a model of responsible capitalism, Freeman emphasized the importance of entrepreneurial spirit. “Most entrepreneurs start their business precisely because they want to remake the world,” he argued. As a way of remaking that world, he suggested that the idea of shareholder value must be broadened to include philanthropy, CSR, sustainability and stakeholder value, which lie at the core of conscious capitalism.

As he continued, it is important to think about how businesses work instead of how markets work, stressing the entrepreneurial purpose of improving customers’ lives. “Businesses start with a purpose and that purpose evolves,” Freeman noted, pointing to Whole Foods’ John Mackey who started his business to provide good food to the community. Whole Foods’ purpose expanded as it evolved, but it “was never to maximize shareholder value…we can think about responsible capitalism as turning loose our entrepreneurial spirit.”

Turning to stakeholder theory, which he argued is how businesses actually work, the underlying challenge is to “find a way to simultaneously satisfy customers, suppliers, employees, community, our shareholders.” As he continued, friction in any area of business can be a source of value creation. Using green technologies as an example, Freeman underscored that these advances emerged from community concerns, the push for good working environments and the quality movement.

Concluding his comments, Freeman turned to his fourth challenge of remaking the narrative about business, which should be concerned with purpose and creating value for stakeholders. “The reason capitalism works,” he argued, “is because human beings are complicated – not because we are selfish. When people want to be great they want to be part of something that is bigger than they are… when we make voluntary decisions to collaborate to work together and create value, society flourishes.”  Finishing his remarks, he noted that business is an institution of hope, but he cautioned that business schools are falling short of raising an appropriate level of awareness about these critical challenges and that calls for reform.

Stakeholder Engagement and Firm Resiliency

Published on October 30, 2012 in Uncategorized. 0 Comments Tags: , , , , , , .

Resilient organizations recognize and absorb the effects of stressful situations and experience positive outcomes despite such hardships. Olsson Center Fellow Jared Harris and Darden Ph.D. candidate Megan Hess explore the phenomenon of organizational resilience and extend current theory to explain its antecedent influences. Analysis suggests that resilience results not only from beliefs, processes, and structures that enable coping, as has been suggested by current theory, but also from the organization’s stance toward its stakeholders.

The study included a qualitative analysis of 150 small and medium-sized enterprises experiencing significant hardship and an in-depth description of the beliefs, processes, and structures. It was found that firms not only survive environmental adversity but also emerge strengthened. Evidence suggests that deeper engagement with stakeholders as a response to hardship may be correlated with firm growth. These findings extend our understanding of stakeholder theory by illustrating a concrete way in which stakeholder engagement can lead to firm resilience and success.

 

 

 

 

 

 

 

 

 

 


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A Reinterpretation of Stakeholder Theory

Published on September 11, 2012 in Uncategorized. 0 Comments Tags: , , , , , , , .

There has been much discussion in the business media recently about female business school deans, MBA students and ethics coursework. However, what about a feminist perspective on Stakeholder Theory?

A few years ago, “A Feminist Reinterpretation of the Stakeholder Concept” by Andrew C. Wicks, Daniel R. Gilbert Jr. and R. Edward Freeman, examined the theory in a different way.

“The metaphors of conflict and competition run rampant in business thought. They describe a world where managers must make “tough choices,” “kill or be killed,” “outgun the opposition,” and “look out for number one.” Where the masculinist thought celebrates these competitive and violent metaphors, feminist thought strives to replace them with more cooperative alternatives. Feminists recognize that adversarial approaches are often harmful to human relationships, undermining trust and the potential for cooperation.

Encouraging participation and collective action also helps validate decision-making. By giving stakeholders a voice and a measure of control with other stakeholders, it helps participants more willing to accept a “second best” result, to acknowledge the differences which both divide and hold the company together, and to make them feel as though their concerns matter. Where adversarial approaches can make certain stakeholders feel as though they are being dumped on or excluded, and thereby harming their relationship to the company, fostering participation, collective action, and empowerment builds precisely the sort of environment firms need to be successful.”

In conclusion, the feminist perspective can offer a richer appreciation of the stakeholder idea.

“We have argued that stakeholder management, understood in feminist terms, is about creating value for an entire network of stakeholders by working to develop effective forms of cooperation, decentralizing power and authority, and building consensus among stakeholders through communication to generate strategic direction.”

Do You Leave Ethics at Home?

Published on August 1, 2012 in Uncategorized. 0 Comments Tags: , , , , , , .

First, let’s end all of this talk that the only responsibility of a business is to create shareholder value. Of course, shareholders have to win and win big. So do customers, suppliers, employees, and communities if we want to sustain value creation and trade.

Second, let’s continue to develop a deep and sophisticated understanding of human behavior in all aspects of our lives. Let’s not send business to the moral ghetto, so that in most of our lives we are complicated fathers and mothers, partners, lovers, and citizens, yet in business we are greedy little bastards trying to maximize self-interest and beat the other guy. The assumptions that we make daily about value creation and trade create a commons. We need to destroy most of the current commons and replace it with a more robust one that treats human beings with dignity as the complex creatures that we are.

Excerpted from the chapter Stakeholder Theory as a Basis for Capitalism by Ed Freeman, Andrew Wicks and Bobby Parmar. Corporate Social Responsibility and Corporate Governance. L. Saccone, M. Blair, and R. Edward Freeman (Editors). (New York, NY: IEA Palgrave MacMillan, 2011).

How Corporate Reputations Can Benefit from Stakeholder Management

Published on July 19, 2012 in Uncategorized. 0 Comments Tags: , , , , , .

What are the effects of good stakeholder management on the reputation of a business, and does a company’s reputation affect its ability to engage with its key stakeholders? It is suggested that a new narrative about business is badly needed, in light of the changes that have taken place in the last generation of business models. Momentum is building for a new interpretation that offers a more useful idea for businesses in the 21st century. This new interpretation is built on the relatively recent idea of “value-creation stakeholder management” and focuses on seeing reputation as an integral part of any viable business model.

Read more at BBVA Foundation’s OpenMind website