Relationship Building with Stakeholders as the Most Important Part of Corporate Social Responsibility - Term Paper Example

'Stakeholders are those individuals or groups who depend on the organization to fulfill their own goals and on whom, in turn, the organization depends'. 'Stakeholders are those individuals or groups who depend on the organization to fulfil their own goals and on whom, in turn, the organization depends' Johnson & Scholes (2002, p.179). Using examples where appropriate, discuss how the strategy of an organization might be affected if/when stakeholders pursue their own objectives. Introduction: The relationship between stakeholders and business organizations is mutually beneficial as organizations have realized that stakeholder management is an important factor in improving business performance. The stakeholder model of management theory highlights the advantages of a partnership between management and stakeholders encouraging a real and dynamic process of dialogue. Goodjik (2003) point out to the fact that management needs to build relationships with different stakeholders including shareholders, employees, customers, and society at large. This is only possible with increased transparency and accountability in practices on the part of the organizations and increased involvement or participation of the stakeholders in management decisions. The need to mobilize a sense of responsibility among stakeholders could help create an organizational context for participation and involvement and stakeholder arguments and opinions could be used to shift the balance of decisions in the interest of stakeholders. Active stakeholder participation is thus useful for any management perspective as considering stakeholder opinions and arguments could help create and strengthen partnerships between stakeholders and management at the corporate level. The stakeholder model assumes constructive partnership and dialogue between the management and the stakeholders including the employees and is thus useful for promoting a beneficial relationship at the corporate level. This discussion focuses on the contributions of the stakeholders in business success and business performance of companies and emphasizes on the beneficial relationship between stakeholders and corporate management. The role of dialogue and stakeholder participation is emphasized throughout the study suggesting that the mutual relationship between stakeholder and company could suffer a setback if stakeholders follow their own objectives. The Role of Stakeholders: Stakeholders play an important role in an organization and affect corporate social performance and financial performance and Neville et al (2005) point out that a company's reputation could determine the corporate social performance and financial performance or CSP-FP relationships. Corporate social performance is related the stakeholders' resource allocation to an organization and how much stakeholders are ready to invest in or trust a company would in turn determine the performance and success of a company. In this context the stakeholder would trust or invest in a company based on the existing reputation of a company thus company reputation would determine stakeholder assessments and would also be relative to stakeholder expectations. Neville (2005) thus suggests that reputation of a company plays a key role in determining the CSP-FP relationship. Strategic management principles and competitiveness also change the CSP-FP relationship. Considering that corporate branding and reputation are important in achieving stakeholder trust, the role of marketing could be important for strategic advantages of any company as it helps build brand reputation. Maintaining stakeholder interests and stakeholder benefits is the major concern of companies and forms a major part of corporate social responsibility or CSR. Whitehouse (2006) used qualitative data from semi-structured interviews with representatives of 16 UK companies from different sectors and traced CSR policy development from identifying the meaning attributed to CSR to factors that help to implement CSR agenda. CSR objectives and policies are usually focused on addressing stakeholder concerns although Whitehouse claims that the context within which CSR is implemented as a corporate policy 'hinders its potential to offer stakeholders sufficient information by which to evaluate corporate performance in respect of CSR and the ability of CSR to operate as a meaningful and systematic constraint on corporate behaviour' (Whitehouse 2006, p.280): Yet the fact remains that CSR continues to remain as a major determinant or underlying factor that drives corporate policy towards stakeholder concerns and interests. Stakeholder power and influence within an organization could be mapped within the management system of an organization. Bourne and Walker (2005) obtained feedback from 200 active professional project managers to examine information on stakeholder power and influence that seems to have a crucial impact on a project's success or failure. They point out that companies use a stakeholder circle tool to identify and prioritize the most important stakeholders and develop an engagement strategy to build and maintain strong relationships with stakeholders. Borne and Walker point out that this stakeholder identification tool is useful for project managers to visualize and map stakeholder influence patterns having a significant impact on stakeholder outcome expectations. Any stakeholder theory and stakeholder concerns are related to corporate social responsibility and corporate governance and Jensen (2001) discusses the role of corporate objectives in corporate productivity and efficiency, social welfare and transparency of corporate functions as well as accountability of managers and directors. The study points out that social welfare functions could be maximized when each firm in an economy maximizes its total market value. Total market value is thus not just the value of equity but also include market values of debts, stocks and warrants. Stakeholder theory suggests that managers should take management decisions considering the interests of all stakeholders related to the firm including financial claimants, customers, communities, governmental officials and other members of society. The downsides of stakeholder theory are that it can leave managers unaccountable for their actions and managers may not be able to make purposeful decisions. Jensen (2001) suggests that creating value within an organization goes beyond value maximization as an organizational objective and thus changing and creating value as a long term value could be used as a measure for assessing the failure and success of a company. Thus value maximization of a company should be accompanied and complemented by corporate vision, mission and strategy to create value with participation of the stakeholders and the management in the organization. Thus value maximization can only be possible when the interests of the stakeholder are met but creating value through vision and strategy involves active stakeholder participation as well. Jensen proposes enlightened value maximization that uses the structure of stakeholder theory of enhancing stakeholder participation but also uses long term value maximization as a firm's objective. Thus value maximization or value seeking is considered as the main objective of a firm with stakeholder theory of participation and value creation as associated with company mission. The managerial equivalent of stakeholder theory has been considered as Balanced Scorecard theory which according to Jensen is flawed considering the fact that managers evaluated using the scorecard system would not be able to make purposeful decisions. Considering the organization's strategy, any management theory should be focused on measuring performance for the organization and managers should use measures of performance to understand how to maximize their scores to enhance and improve their contributions to the firm. Stakeholder theory and stakeholder contributions are thus associated with value maximization as a company's mission and purpose seem to be dependent on maximizing value and creating long term value against competition for maintaining company image and purpose. The role of stakeholder involvement has been highlighted in several studies and Zutshi and Sohal (2003) explore the involvement of organizational stakeholders including the employees and the suppliers for a specific case of environmental management system (EMS) adoption process. In their study, the authors used interviews of 9 senior/middle managers from Australian manufacturing and service organizations. The interviews revealed that managers are developing a growing awareness for impact of their business products on the general social and ecological environment and implementation of EMS or waste management system WMS has been accepted by the organisation and its stakeholders. EMS systems are now taking increased importance in management systems due to social and ecological concerns and organizations have certified their existing EMS as per international standards as there are financial benefits with the certification. Highlighting the importance of 'relationships' between stakeholders and corporate management, Phillips (2006) shows how relations of companies with social groups including shareholders, customers, employees and vendors could be central to wealth generation of companies and could add to optimizing long term shareholder value. Phillips suggests that an emphasis on shareholder relationship should be at the core of evaluation, management and auditing of organizations if the company aims at profits wealth and value creation. The concept of values for organization is based on physical assets, knowledge creation, intellectual attributes, reputation and branding of the organization although stakeholder relationships also form an important part of value creation. Phillips presents a strong argument showing the importance of establishing profitable relationships with stakeholders. According to Phillips, stakeholder relationships are intangible assets and intangible assets have helped drive the global economy, corporate success and survival. Relationship management is thus considered as the pivotal management role within companies as intangible assets are recognized as increasingly important for companies in the 21st century as value creation in companies seem to depend on such assets. Knowledge, data, systems, intellectual property, brands and market relationships and most importantly stakeholder relationships are seen as the main intangible assets. Thus relationship and public relations managers have a crucial role to play in creating value in organizations by emphasizing on relationships which are seen as intangible assets along with knowledge creation and data. Creating strong relationships with stakeholders is seen as creating value for such organizations. However stakeholder relationships can have its disadvantages as there can be considerable pressures from stakeholders and Gonzales Benito (2006) study the variables of environmental pressure of the stakeholders on a firm and values and beliefs of its managers to show how management practices could be implemented by a firm. They analyzed the data obtained from 186 industrial firms and revealed two different dimensions of pressure from stakeholders that could be governmental especially when government authorities are stakeholders of a company, or pressures could be non governmental in case of stakeholders who are customers or employees. The role of values in management show that the perception of environmental pressures from stakeholders could depend largely on management ethics and practices and the emphasis on stakeholder relationships. Pressures on performance from stakeholders and the general corporate social responsibility and obligations of any company towards its stakeholders are some of the factors that may be considered as disadvantages or risks of relationships as stakeholders may emphasize exclusively on their interests without considering company interests. As Dawkins (2004) claims most companies have been recognizing the reputational risks, threats and opportunities of corporate responsibility and one of the business priorities of companies has been aligning corporate responsibility with stakeholder expectations. Keeping corporate responsibility and business approach in accordance with stakeholder interests and expectations is a main focus of companies. Dawkins claims that 'communication remains the missing link in the practice of corporate responsibility' (Dawkins 2004, p.109). Most stakeholder do not remain adequately informed on company performance and mass stakeholder audiences are not satisfied by many or most companies so even if stakeholders act responsibly they may not be getting recognition or information on time for investing in the company. However on the other hand this very lack of information and communication can trigger irresponsible stakeholder behavior and pose some of the challenges of communicating corporate responsibility. Communication of corporate social responsibility toward the general public can actually trigger wider consumer engagements and participation thus it helps to improve brand image and helps to overcome corporate challenges. Dawkins claims that effective communication of corporate responsibility depends on a clear strategy and is focused on evaluating the opportunities and risks to the brand, sending out the messages on the company to different stakeholder groups. Thus communication can be considered as mainstream aspect of corporate social responsibility. Dawkins claims that internal communication between companies and stakeholders is under-utilised although according to Dawkins, communication remains as a 'potentially powerful channel for enhancing a company's reputation for responsibility among its key stakeholders' (Dawkins 2004, p.110). Corporate value drivers are thus linked to social and environmental aspects and stakeholder interests and Zambon and Bello (2005) show that there are strong relationships between stakeholder perspectives and non-financial aspects of company behavior, such as corporate social responsibility (CSR), corporate governance and sustainability (including environmental issues). CSR, CG and sustainability that a company tends to follow are collectively referred to as "stakeholder responsible (or oriented) approaches" as their basic aim is to maintain the interests of the stakeholders. However there may be difficulties in actually implementing such company attitudes and actions and Zambon and Bello (2005) emphasize on stakeholder reporting as carrying a decisive and constitutive role in visualizing company activities making stakeholder approaches viable and reliable. Conclusion: Corporate responsibility is thus a wider challenge as it involves many players with stakeholders as the primary players. The essay analyses the importance of relationship building with stakeholders as the most important part of corporate social responsibility. The focus is on strengthening stakeholder involvement and participation in corporate decision making keeping the stakeholders informed of company performance. Yet there may be downsides to stakeholder involvement as stakeholders may focus exclusively on their personal objectives instead of company interests and can lead to threats and pressures on the company. 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(2003) Stakeholder involvement in the EMS adoption process Business Process Management Journal, Volume 9,Number 2, pp. 133-148(16) Read More