Stakeholder Analysis: British Airways - Case Study Example

Introduction This paper focuses on the stakeholders of the British Airline giant, British Airways. The aim of the paper is to describe the network of stakeholders that are connected to British Airways. This will be followed by an analysis of two different stakeholder groups and a critique of their ethical concerns and connections to British Airways. The paper will provide an assessment of how British Airways has successfully dealt with these stakeholders. Stakeholders & Business Entities Directors and managers of entities have the fiduciary duty of dealing in good faith with the owners of the business who appoint them and give them the legal power to use the resources of the entity (Carroll and Burkholtz, 2009). This is because the directors and managers are charged with corporate governance by the owners of the entity and hence, one would expect them to be focused on meeting the best needs of the owners of the entity in question. The fundamental question is how do the people charged with corporate governance meet the best needs and expectations of the owners of an entity? There are two approaches to answering this question (Fernando, 2009). The first is the shareholder approach. Under the shareholder approach, a business has two fundamental objectives: to obey the law and to maximise shareholders wealth (Fernando, 2009). This approach suggests that managers need to put everything aside and only focus on profit maximisation. The second approach, which is known as the stakeholder approach states that the people charged with governance have a fundamental duty of maximising profits under the constraits of respecting the obligations owed to external stakeholders (Fernando, 2009). Freeman et al (2010) define stakeholders as “any group or individual that can affect or is affected by the achievement of a corporation's purpose” (p86). This means that any entity that is within or outside an entity that is influenced or influences the activities of a company in its bid to meet its objectives is known as a stakeholder. In analysing the fundamentals of the key debates in this area, Mullerat identifies that the shareholder perspective is based on the short term vision of maximising returns on investment (2009). On the other hand, the stakeholder perspective supports a longer term theme of promoting sustainability in profit making and this is the best way to ensure that a business thrives into the future. Britsh Airways' Stakeholders. British Airways is fundamentally operated as a company and thus, it has a profit motive which requires the management and those charged with governance to make optimum profits for shareholders. However, there are some important stakeholders who have different needs and expectations that the company ought to provide and ensure that they are met. For the purposes of classification, Woodside defines three tiers of stakeholders: internal, intermediate and external (2010). This classification is appropriate in grouping the various stakeholders of British Airways. Internal Stakeholders Shareholders: Those who have invested their funds in the British Airways company by buying shares. They expect high returns on investment and the increase of their capital stock. Directors and Management: These are strategic leaders of British Airways who are appointed directly [as in the case of directors] or indirectly [as in the case of managers] to run the airline for the best interest of the shareholders. The directors and management are paid as agents of the shareholders. They have to ensure that all the units of the company work well and they need to put in place systems and structures to ensure that things work to the best end of British Airways. Employees: This include those who are hired and paid by British Airways. They have the obligation to work with due care and put in optimum effort. They expect remuneration for their labour. British Airways Trade Union Council: This is the representation of the company's employees. They provide a collective bargaining and representation for all the employees of BA who are members. Intermediate Stakeholders These are stakeholders who are neither inside nor outside British Airways. By virtue of their interaction with British Airways, they have some degree of access to the company but they are not insiders. This include: Suppliers: This are the people who provide various products and goods to British Airways. British Airways will expect them to deliver within the terms of their contract and they will expect to be paid for their services to the Airline. Airport Authorities: This include the British Aviation Authorities and the management of the major airports in the UK like Gatwick and Heathrow. They have rules and taxes that they levy on British Airways and regulate their conduct in running their terminal. These authorities have rules relating to security and other things that they provide which British Airways must comply with. Outsourcing Partners: These are the parties that take up external jobs and obligations that are specialized in nature. This include Pricewaterhouse which does the auditing and taxation for British Airways as well as other specialised entities that provide specialised functions for the airline. Trade Partners: This include entities like travel agents who sell tickets of British Airways and tour entities that sell packages like tours and accommodation linked to British Airways tickets. Airline manufacturers: British Airways buys most of its fleet from Airbus. And they have long term contracts with them for the production and maintenance of their airlines. Long term customers: This include important customers that have developed a long-term relationship with British Airways. Examples include the British government which travels via British airways and other corporate entities with long-term contracts with British Airways. External Stakeholders These are stakeholders who are outside the airline who connect with the airline from time to time. They include: Potential customers: these are people who fly with the airline from time to time and those who can choose to fly with BA. The media: These are entities who broadcast adverts and provide information that might be relevant to British Airways. Wider Environment: This include the natural environment like the air and other things which need to be preserved by the actions of British Airways. This group of stakeholders are represented by pressure groups and environmentalists. The Community at large: This include the British society and other people who could be affected indirectly and those who benefit from BA's corporate social responsibility drives. Government and its agencies: This include the tax authorities and all the relevant groups of people who regulate BA on behalf of the state. Stakeholder Analysis There are various models for the classification and analysis of stakeholders to a given entity. Various scholars have different approaches that they use to do this. This enables an entity to analyse, rank and provide the needs of stakeholders at a level that is appropriate to their connection to the entity. Power-Influence-Legitimacy-Urgency Mitchell et al (1997) identified that the definitive factor in dealing with stakeholders is the concept of salience. They defined salience as “the degree to which managers give priority to competing stakeholder demands”. Obviously, since the resources of an entity is limited and demands are unlimited, there is the need to draw the balance. Hence, the principle of salience is important in defining how to deliver to various stakeholder when they come up with demands. Mitchell used three criterion: power, influence and legitimacy. Power refers to the ability of the stakeholders to cause change in the entity. This involves direct actions that could adversely affect the course of the attainment of the entity's needs. Influence is about how they can use indirect methods to influence the activities of the business whilst legitimacy refers to the relative position of a given category of stakeholders based on the legal relationship that exists between them. Urgency dictates how fast the entity needs to act to satisfy a given group of stakeholders. It might be necessary to delay at certain points or move at a much more faster pace. Cameron et al on the other hand argued for the need to assess the relative importance of each group based on their connection to the key performance indicators of the entity at any given point in time (2010). Through this, the entity will have to rank the stakeholders based on their importance and then come up with policies and actions relating to their demands. A famous method model for balancing stakeholder needs is the Mendelow matrix. This matrix involves the identification of the interest level and the power level, wielded by each group of stakeholders. With this, there are some prescribed approaches to dealing with stakeholder needs. It is presented below: Mendelow's Matrix Low Interest High Interest Low Power Minimal Effort Keep Informed (Shareholders) High Power Keep Stakeholders Satisfied Key Players Assessment of the Case of Shareholders and The Wider Environment in British Airways Using the model above, shareholders and the wider environment are important stakeholder units of British Airways' operations. Shareholders are the ones who provide money for the acquisition of a capital base for the company. Without them, British Airways would have no assets and no capital. Technically, everything British Airways have belongs to the shareholders. Due to this, they have a high interest because they expect their investments to grow and any reduction in assets affects them directly. However, shareholders have little power in a normal operation year. This is because once they appoint directors for BA, it is very difficult for them to regulate them or dismiss them. So they have limited power, although this power can be re-activated from time to time. British Airways is therefore a High Interest and Low Power stakeholder. They will need to be kept informed. The natural environment has needs to be protected and most people in society accept that. However, the environment is represented by small pockets of pressure groups that continue to lobby for laws on environmental matters, particularly emission cuts. These affect British Airways indirectly. Thus, the proponents of the environment can be classified as Low Interest and Low power stakeholders. As such, British Airways must make minimal efforts to satisfy them. However, in terms of government regulation relating to emissions, the government has high power and hence, environmental legal matters must be held in high esteem and the government authorities must be kept satisfied. In 2011, the board recommended not to pay any dividends to the board (BA Annual Reports, 2012). The board had to pay all liabilities and refused to pay dividends mainly because the shareholders are a group that would understand the situation which was blamed on the recession and other factors. This was given in the backdrop of the promise to improve in the coming year. Due to this, BA paid all major stakeholders and just allowed their shareholders to wait. After all, the idea is to promote sustainable business and enhance growth on the basis of continuous growth rather than short term growth. Also, the decision not to pay dividends in 2011 can be attributed to the fact that their claim is not as urgent as other stakeholders. Also, the decision is influenced by the legal position of shareholders, who unlike other entities who have a contract to be paid could be sidelined for this period. According to the annual report, BA has decided to reduce carbon emissions by 50% by the year 2050. This is to be done through the acquisition of clean fuel burning technology and better systems. Due to the obvious lack of power and influence by environmentalists, BA has given itself a much longer framework to attain this end. This shows that they are not treating it as an urgent situation and with this approach, they can balance the need to remain profitable and satisfy customers. Conclusion The traditional model of profit maximisation in business is being forfeited for a model steeped in stakeholder satisfaction. This is because profitability can only be assured if there is a balance between the short term shareholder needs and long term stakeholder expectations. People charged with corporate governance must assure this. British Airways has various stakeholders which include internal stakeholders like shareholders, management and workers, external stakeholders like the public and government agencies as well as intermediate stakeholders like suppliers and business partners. In 2011, British Airways balanced the need to keep other stakeholders satisfied and this resulted in the non-declaration of dividends. This is for the longer term growth of the company. Also, BA is moving to meet environmental requirements at a very slow pace due to the fact that environmentalists lack power and interest in the company. References BA Annual Reports (2012) British Airways PLC Annual Reports and Accounts Year Ended December 31st 2011 Available online at: http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CDAQFjAA&url=http%3A%2F%2Fphx.corporate-ir.net%2FExternal.File%3Fitem%3DUGFyZW50SUQ9MTM1MjM0fENoaWxkSUQ9LTF8VHlwZT0z%26t%3D1&ei=guy0UILROZCEhQef74GYBg&usg=AFQjCNGCEqAOEMmyb2hwMcYkmJprqVVZ3w British Airways Reporting (2012) Corporate Responsibility [Online] Available at: http://www.britishairways.com/travel/crsereport/public/en_gb?cookiesAccepted=newvispop Accessed: November 27th, 2012. Cameron, B. G., Seher, T. and Crawley, E. F. (2010) “Goals for Space Exploration Based on Stakeholder Value Network Consideration” Acta Astronautica Carroll, A. B. and Burkholtz, A. K. (2009) Business and Society: Ethics & Stakeholder Management Mason: OH Cengage Fernando, A. C. (2009) Corporate Governance: Principles, Policies & Practices London: Pearson Education. Freeman, R. E., Harrison, J. E., Wicks, A. C., Harmar, B. L. and Delolle, S. (2010) Stakeholder Theory: The State of the Art Cambridge: Cambridge University Press. Mendelow, A. L. (1991) “Stakeholder Mapping” Cambridge, MA: International Conference of Information Systems. Mitchell, R. K., Agryle, B. R. and Wood, D. J. (1997) “Toward a Theory of Stakeholder Identification and Salience: Defining Principles of Who and What Really Counts” Academy of Management Review Vol 12 (4) pp853 – 886 Mullerat, R. (2009) International Corporate Social Responsibility Amsterdam: Kluwer Law International. Woodside, A. G. (2010) Case Study: Theory, Methods, Practice London: Emerald Group. Read More