Building Stakeholder Management and Culture - Essay Example

?Building Stakeholder Management and Culture Introduction Recently, the value of building a sustainable, goal-oriented corporate culture has been identified as a path towards a thriving venture. Corporate culture talks about practical guiding principle, commonplace values, practices, interests, and beliefs integral to managers. Building a stable stakeholder culture is a key force reinforcing firm stakeholder management. One of the prevalent descriptions of stakeholder culture is that it holds the traditions, beliefs, ideals, and objectives that organisations have built for dealing with stakeholder relationships and concerns (Chinyio & Olomolaiye 2009). Successful stakeholder management involves the formation of a corporate culture that most largely envisions and considers responsibilities to stakeholders (e.g. individuals, employees, communities, etc). This essay discusses the challenge of building a stable and sustainable stakeholder culture and management practice. The discussion includes an analysis of the development of stakeholder culture in the energy industry. Corporate stakeholders nowadays are confronted with policy and public demands, corporate social responsibility (CSR), and business ethics. Many of such issues are alongside a boost in government ruling and the enlarged position of subordinate stakeholders in reaction to the economic disorders. Organisations are looking for new code of ethics that will originate from traditional norms as well as from moral codes (Lamb & Mckee 2005). Policymakers and government stakeholders have recently acted to implement more accountability and transparency from CEOs to guarantee ethical business conducts and the rights of shareholders. Organisations will discover means to financially support CSR programmes with the assistance of the government, community advocates, and humanitarians (Polonsky 2005). Ultimately, according to Lamb and Mckee (2005), for the demands of public policy, it is important for numerous stakeholders, especially employees, employers, labour unions, and the government to work in partnership to promote ethical corporate conduct and stakeholder management. Current studies have emphasised the notion of ‘stakeholder culture’ as an influential force when organisations are attempting to evaluate the value of different stakeholder demands. Although some businesses manage to survive an economic setback, they would be in a better position if they will evaluate their stakeholder culture, rooted in ethical conduct, and characterised as the “shared beliefs, values, and evolved practices regarding the solution of recurring stakeholder-related problems” (Global Economics Crisis Resource Centre 2009, 34). Recognition of an organisation’s stakeholder culture can contribute to the growth of cooperation among stakeholders. The Stakeholder Theory In the 1970s, extraordinary intensities of environmental crisis and development, such as oil crisis, occurred. Because of this predicament the ‘stakeholder theory’ emerged as an ingenious global perspective of the corporate world (Lorca & Garcia-Diez 2004). Nevertheless, the concept upon which it was grounded was an already widely known field, because the concept ‘stakeholder’ had been applied in the 1960s. However, some scholars trace back the origin of ‘stakeholder’ way earlier than the 1960s; Preston (1990 as cited in Lorca & Garcia-Diez 2004) claims that the concept surfaced when the General Electric Company classified primary stakeholders during the Great Depression, namely, the general public, customers, employees, and owners. But it was Freeman (1984) who formally established the stakeholder theory. Today, according to Carroll and Buchholtz (2011), the stakeholder theory is recognised far and wide and has gained the official approval of numerous academic disciplines, and professional groups. Nowadays, success no longer relies simply on the customer, but also on the attainment of a stable equilibrium that pleases a company’s stakeholders: employees, owners, customers, suppliers, and the community. It is a general idea of the organisation, where in it turns out to be crucial to determine the functions and needs of stakeholders (Bhattacharya, Sen, & Korschun 2011). Furthermore, the current stakeholder perspective takes into account the value of inter-stakeholder ties. As stated by the stakeholder theory, the basic task of management depends on various stakeholders, with the objective of achieving a correct profitability and a suitable growth of resources for the company (De Blois & de Coninck 2008). According to Post and colleagues (2002 as cited in Lorca & Garcia-Diez 2004, 94), the continuous success of a company is decided by its capacity to build and sustain ties within its whole system of stakeholders, thus its ties with ‘central’ stakeholders is essential. This idea assumes that the source of effective strategic management originates from the essentials or details, not from the wide-ranging and conceptual (De Blois & de Coninck 2008). According to Kuratko and colleagues (2004), it is not that crucial, for instance, that the managers know consumers’ response to a price increase, but it is important that they are aware of how their clients respond. The ultimate objective is to take full advantage of the corporate value continuously, not to maximise the present productivity. This can generate a dilemma if the company tries to meet stakeholders’ demands and interests. Thus, without one precisely identified goal, incompetence, uncertainty, and misunderstanding could be bred (Kelly, Kelly, & Gamble 1997). Likewise, Jensen and Bourgeron (2001) argues that the organisation should have an inimitable goal that enables it to discern appropriate and inappropriate actions. Hence, it is important to emphasise that there is a single goal in this model, that is, continued existence, which is realised by addressing the many objectives and priorities. Information systems within stakeholder theory have a fundamental function, namely, providing information about selecting the suitable methods that enable the organisation to realise its goals, and to what extent the satisfaction of different stakeholders is being achieved, to guarantee that their partnership is converted into profitability. With such data the organisation should specify its plans, which should address the demands of each and every stakeholder that can enhance the value of the enterprise (Polonsky 2005). Nevertheless, the dilemma is how to prioritise diverse interests, conflicting in numerous instances. Consumers insist premium and inclusive service, and affordable prices; employees insist reasonable working conditions and better compensations; owners demand greater wealth and slight risk; suppliers demand favourable payment conditions and good prices; the community demands environmental-friendly practices, steady employment, local ventures, and social values (Huang & Gardner 2007). In view of this, strategies are important, recognising all the understood and open agreements that the organisation settles with its stakeholders. More often than not such agreements are understood, for there are ideals and standards which oblige satisfaction which cannot be forced; for instance, an organisation cannot oblige anyone to avail its services or purchase its products (Huang & Gardner 2007). Obviously, if the gains of such understood contracts enable the growth of corporate value, they will be endorsed. The assessment of the various alternative choices on the bonds of collaboration of the organisation with its stakeholders should result in the decision by managers of the strategies to implement. This will require a sufficient satisfaction for all stakeholders, and result in the equivalent creation of business value. Stakeholders’ satisfaction embodies the integral component in the intangible resources of the organisation and it is important to ensure its stable operation. To effectively put the stakeholder theory into practice, it is important to evaluate organisational performance (Andriof 2002). Thus several scholars propose a focal point to evaluate how strongly the firm is assimilating and addressing the demands of its stakeholders. The stakeholder-based view (SHV) is a quite new concept in strategic management theory. The SHV identifies the vital position occupied by social and political fields influencing managerial activities and outcome (Chinyio & Olomolaiye 2009). Post and colleagues (2002 as cited in Huang & Gardner 2007) work up this general argument, claiming that organisations, and especially leading global companies, have to dynamically build, sustain and manage affiliations with their major stakeholders (e.g. communities, the general public, governments, etc). As argued by Post and colleagues (2002 as cited in Huang & Gardner 2007), SHV claims that “the capability of a business enterprise to generate sustainable wealth, and hence long-term value, is determined by its relationships with critical stakeholders” (p. 1). There are two major, but inherent, premises on which stakeholder view is grounded. First, the stable and sustainable value of an organisation is largely influenced by three general kinds of variables: (1) political and social context, (2) resource base, and (3) industry structure (Huang & Gardner 2007, 1). It merges the organisation’s internal and external environments, and stakeholder ties within its direct domain of activities and wider network as focal point for research. Second, inside such wide network there are major stakeholders whose affiliations with the particular organisation affect its outcomes either favourably or unfavourably (Lamb & Mckee 2005). Hence, Post and colleagues (2002 as cited in Huang & Gardner 2007, 2) claim that the SHV incorporates the Resource-Based View (RBV) and Industry-Structure View (ISV) into a wider conceptual paradigm for identifying strategic measures and activities, and matches them through a wider knowledge of how the organisation’s resources, status, and outcomes are influenced by political and social forces. The conceptual basis of the stakeholder view can be attributed to the stakeholder theory. From then on, the concept of ‘stakeholder’ as an important component in the theory and practice of strategic management has been extensively applied in diverse contexts, as well as the nongovernmental groups and public domain in different European and American settings (Boesso & Michelon 2010). Building on Freeman’s assumption of stakeholder management’s objective and ethical concerns, Donaldson (1995) suggested three forms of stakeholder theory, namely, (1) normative, (2) instrumental, and (3) descriptive. Normative stakeholder theory puts emphasis on the understanding of organisational performance, as well as philosophical and ethical guiding principles for management and activities, instrumental theory is employed to understand the relationships between organisational performance and stakeholder management usually where profit interest or lead over competitors are primary concerns, whilst descriptive theory tries to illustrate and explain features and activities of commercial organisations (Donaldson 1995). According to Polonsky (2005), derived from this classification of stakeholder theory, the pursuit of competitive leverage and instrumental interests through stakeholder management seem to have prevailed in the current literature. Nevertheless, as stated by De Blois and de Coninck (2008), this has been compensated to a degree recently by an improved emphasis in the literature on the function of stakeholder management and stakeholders in the actualisation and implementation of CSR by European and American multinational corporations (MNCs). Post and colleagues (2002 as cited in Lorca and Garcia-Diez 2004, 95), along with other leading stakeholder scholars, extensively publicised concept of the SHV which has been conceptualised mainly from examinations of the traditional management practices within a few European and American MNCs, which they call ‘large, complex enterprises’ (Huang & Gardner 2007, 3), using cases like Shell, Motorola, etc. According to Lorca and Garcia-Diez (2004), the rationale for conducting such case studies is that it needs a thorough and broad knowledge of organisations, and that the formation of the affiliations with its major stakeholders is frequently developmental and goal-oriented. Building Stakeholder Culture in the Energy Industry Building stakeholder culture in major, multi-part organisations is a huge task for business shareholders. When an organisation is located in a socially, politically, and environmentally vulnerable area, such management tasks are intensified. To illustrate these dilemmas, it is useful to take into account energy companies trying to build stakeholder culture. For example, to underline the vulnerabilities related to such an organisation, suppose that an energy company is to be built in the forested areas of the UK. The following issues that the energy company should take into consideration are the expectations of stakeholders of the corporate shareholders and the process by which the company would recognise and interpret these expectations of stakeholders (Boesso & Michelon 2010). Moreover, it is of primary importance to understand how the managers will resolve such diverse expectations. Basically, it is a question of how energy companies can take action in response to conflicting claims within local populations and how managers will reconcile demands of global and local stakeholders. The energy industry, as media coverage shows, trying to carry out energy development programmes in sensitive regions have faced opposition for years from numerous stakeholders, like environmental advocates and indigenous people. Non-local service providers hired by corporate shareholders find themselves confronting furious local populations affected by development projects (Global Economics Crisis Resource Centre (2009). There exists an innate conflict between non-local and local resources and contractors. In addition, there is a possibility of conflict between local populations that may acquire economic gain from foreign and development support organisation (e.g. environmental groups) that could discern unfavourable outcomes of enterprise. This understanding of the array of stakeholder interests in an energy development project does not consider the other demands of internal stakeholders (e.g. employees, owners, etc) (Andriof 2002). As expected, recognising stakeholder demands and reconciling conflicting interests is often contentious. It is difficult to discern who is ‘correct’ and who is ‘incorrect’ (p. 262). Corporate heads taking part in business programmes confront difficulties in deciding how to advance. In order to understand the process of building stakeholder culture in the energy industry, it will be useful to discuss the stakeholder management practice of Royal Dutch/Shell Group case. The company’s status or reputation in 1995 was seriously tarnished by the terrible media hype originating from its high-profile confrontations with Greenpeace over the suggested disposal of the Brent Spar oil project and with environmental and human right advocates over the death penalty imposed by the Nigerian government on the prominent environmental advocate and scholar Ken Saro-Wiwa (Andriof 2002, 263). These controversies were key catalysts for Shell to adopt a comprehensive plan for transforming the manner it carries out its operations. The firm formed a working committee of CEOs and managers to generate a more accurate knowledge of the society’s evolving demands to multinationals and global and local images of Shell. The company’s CEOs began to understand that the firm was excessively concentrated on their internal operations and thoughtless of its effect on communities and the environment. They declared a new doctrine of corporate values, encourage dedication to stable and sustainable growth and to better accountability and transparency (Lamb & Mckee (2005). Shell began publicising their environmental and social yearly reports in 1998. The firm invites suggestions and comments from the citizens as well as advocates via an online forum (Andriof 2002). In addition, according to Andriof (2002, 263), Shell has produced and circulated online copies of Business and Child Labour: A Management Primer. Integral to the new policy of Shell is a dedication to take part in a regular basis in continuous discussion with a broad array of external stakeholders, like human rights and environmental activists who had been very suspicious of the firm. CEOs of the company are realising that they can find solutions to what seem to be stubborn issues through involved and dynamic discussion with stakeholders (Andriof 2002). To solve the outdated Brent Spar oil project, Shell instigated a worldwide contest; with support from the Environmental Council it initiated conventions in four countries in Europe to talk about potential resolutions (Andriof 2002). According to Lamb and Mckee (2005), as an outcome of the competitions and discussions, Shell discovered an ingenious answer that reuses the controversial Brent Spar oil project as a harbour in Norway. Royal Dutch/Shell Group has went through an intense and drastic change entailing the re-assessment of its business principles, objectives, and practices and is dynamically involved with a broad array of stakeholder groups. Nonetheless, no large-scale multinational enterprise will ever please all of its stakeholders. Shell, as the biggest energy provider in the world, still confronts criticism from activists like Corporate Watch, which holds the firm responsible for greenwashing (Andriof 2002). Still, it can be safely concluded that Shell has been a watershed to the growth of stakeholder culture as a vital component of strategic management theory and practice. Conclusions The importance of building stakeholder culture becomes apparent due to the rise of corporate scandals. Stakeholders are turning out to be more and more suspicious of multinationals and accusing them of unethical conducts, pushing them to conduct their business decently and ethically and to prioritise environmental and social objectives. This demand is most pressing for major transnational corporations like the energy industry, which can be connected in the general public’s thoughts to environmental problems like exhaustion of natural resources, deforestation, and pollution, as well as social problems like violation of human rights and ethical misconduct. In conclusion, the view of stakeholders of an organisation’s social responsibility is an accurate indication of the absolute market attitude toward that organisation. Aside from the ethical duty of organisations to deal with their social and corporate obligations there are many advantages of a stable and sustainable stakeholder culture to a company, that correspond to the advantages of a strong and spotless reputation. References Andriof, J. (2002) Unfolding stakeholder thinking: theory, responsibility and engagement. New York: Greenleaf Publishing. Bhattacharya, C., Sen, S. & Korschun, D. (2011) Leveraging Corporate Responsibility: The Stakeholder Route to Maximising Business and Social Value. London: Cambridge University Press. Boesso, G. & Michelon, G. (2010) “The Effects of Stakeholder Prioritisation on Corporate Financial Performance” International Journal of Management, 27(3), 470+ Carroll, A. & Buchholtz, A. (2011) Business and Society: Ethics and Stakeholder Management. 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