Business and Global Society

HULT INTERNATIONAL BUSINESS SCHOOL

MBA Class 2: Socio- Economic Systems:
Stakeholders, Institutions and Governance
ADDENDUM: STAKEHOLDERS
Professor Joanne Lawrence

From Government to Governance;

Management Systems
What is corporate governance?

Who governs corporations?

Why would governance matter?

Corporate Governance System

Corporate governance is the system by which companies are directed
and managed.
It influences how the objectives of the company are set and achieved,
how risk is monitored and assessed, and how performance is
optimised.
They encourage companies to create value (through entrepreneurism,
innovation, development and exploration) and provide accountability
and control systems commensurate with the risks involved.
They define how the actors encompassed by it conduct themselves vis-a-vis
each other

ASX Principles of Good Corporate Governance and Best Practices Recommendations , 2003 as quoted on http://corpgov.net/library/corporate-governance-defined/

CORPORATE: THE PLAYERS

WHAT IS A STAKEHOLDER?
How would you define them?

https://www.youtube.com/watch?v=bIRUaLcvPe8 (Freeman)
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Some Definitions
Groups or individual on which an organisation is
dependent for its continued survival (Stanford Research
Institute, 1983)

Constituents who have a legitimate claim on the

firm (Hill & Jones, 1992)
Voluntary stakeholders bear some form of risk
as a result of having invested some form of
capital, human or financial, something of value,
in a firm. Involuntary stakeholders are placed at
risk as a result of a firms activities. But without
the element of risk, there is no stake. (Clarkson, 1995)
Any group or individual who can affect or is
affected by achievement of a firms objectives
(Freeman, 1984)

Working Definition
.Individuals and constituencies that
contribute either voluntarily or
involuntarily to a companys wealthcreating capacities and activities, and
who are therefore potential beneficiaries
and/or risk bearers..

Post, Preston + Sachs, Managing the Extended Enterprise, 2002

Stakeholder Perspectives
1.DESCRIPTIVE:Corporation as constellation of
cooperative, competitive interests each with intrinsic
value.
2. INSTRUMENTAL: Stakeholder management and
achievement of corporate performance goals connected.
3. NORMATIVE: Stakeholders have intrinsic value in and of
themselves, and not merely for their ability to further
interests of another group.
4. MANAGERIAL: Not simply descriptive of situations or
relationships, but recommends attitudes, structures and
practices that together constitute stakeholder
management.
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National Cultures Reflect a

Perspective: (i.e., Structure
Determines Behavior)

Economic, Business Models Reflect a Perspective

Capitalism (Free Market)

Social Capitalist
Socialism
State Owned Capitalism (SOC)
Corporations
FamilyOwned Businesses
Privately-Held Businesses
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Whats Wrong With This Picture?

Governments

Employees
Investors,
Shareholders
and Lenders

Supply Chain
Associates

Private
Organisations

THE
CORPORATIO
N

Local
Communities
and Citizens

Customers
and users

Unions
JV Partners
and Alliances

Regulatory
Authorities

Source: Managing the Extended EnterprisePost

et al 2002
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Systems View:
Interconnected,
Interdependent, Influential
Media

communities

shareholders
employees
Customers

suppliers

Managers

Local government

Partners

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The Extended Enterprise:

A System of Stakeholders
a network of interrelated stakeholders that
create, sustain, and enhance its valuecreating
capacity
(a companys) long term survival and success...
is determined by its ability to establish and
maintain relationships within its entire network
of stakeholders..
Post, et al
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Stakeholders Create a Complex Value Web

Governments

Supply Chain Associates

Local
Communitie
s
and
Citizens

JV Partners and
Employee
Local
Alliances
s
Unions

Investors
Sharehold
ers and
Lenders
CORPORATION

RESOURCE
BASE

Customer
s and
Users

Regulator Private
y
Organisations
Authoritie
s

INDUSTRY
STRUCTURE
SOCIAL POLITICAL ARENA
Source: Managing the Extended
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Enterprise...
Post et al 2002

Shareholder Value vs. Stakeholder

Value
BP and Deepwater : in the interest of shareholder value, destroyed it
Average Fortune 500 corporate lifespan is 15 years today compared to 75
years in the past. The number has declined from 8,800 in 1996 to 4,100 today.
SP 500 Equity returns have declined over past 20 years
The Tragedy of the Commons : No one wins
The corporation is a legal entity; shareholders have a contract, like employees.
Boards and management must act in the interest of the entire entity.

Lynn Stout, https://www.youtube.com/watch?v=ZzztBF9nprA

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Shifting Empowerment..
Globalisation- Phase
I
Empowered
corporations
Globalisation
Phase II
Empowered
stakeholders
Empowere
d
Consumers

Empowere
d NGOs

Empowere
d Media
Source:Werther and Chandler,
15Strategic CSR , pg62

Stakeholders + Motivations

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New Competency: Stakeholder

Management
The capacity of a firm to generate sustainable wealth
over time is determined by its relationship with critical
stakeholders.
The ability to manage relationships, and to
develop and implement policies + practices that
take into account goals and concerns of all
relevant stakeholders is a core management
competence..

Post, Preston + Sachs, Managing the Extended Enterprise, 2002

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How To Manage Relationships?

How would you go about making decisions
when stakeholders with varying needs and
perhaps conflicting needs are involved?
How do you identify and prioritize these
stakeholders relative to the goal, viewing
them holistically and as a inter-connected?
How do you create a structure that provides
feedback loops, and ongoing engagement to
ensure ongoing alignment?
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Systems Thinking and Stakeholders

What is it we are trying to achieve?

Who are the primary, secondary stakeholders those who have a

vested interest in the issue, decision or objective? What is the context?

. What are their needs, issues, motivations and/or influences? What are
the risks? (e.g. PESTEL analysis )
. Is there an ethical principle at stake? Are we potentially violating a law
or a fundamental human right of this stakeholder group?
. What might be unintended consequences, externalities of our actions?
What are the tradeoffs i.e. what might we have to give up in order to
get something?
. What are the feedback loops? How can we monitor each relationship
especially the inter-relationships -- to enable us to balance
needs/benefits over time?
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Stakeholder
Management/Engagement : Process
Model
Step 1

Stakeholder
Identification

Step 2

Source: Preble, 2005

General Nature of
Stakeholder claims, motivations, and
their implications
Determine
Gaps

Step 3

Step 4
Develop
Organisational Responses

Restart
Process

Prioritise
Stakeholder Demands

Step 5

Monitoring
And Control

Step 6
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Who are the Stakeholders?:

Some Criteria
Those who can affect, or be affected by the outcome i.e., they have a vested interest in
what is done/occurs
Those who have special expertise, or knowledge that can inform
Those who might provide different views, perspectives (e.g., NGOs)
Those who bear the responsibility for overseeing or implementing the proposal, (e.g.
managers, employees)
Those who can influence, persuade others. (e.g., media, opinion leader)

Those whose approval or buy-in is needed to implement (e.g. regulators, local government))
Those whose ongoing support is needed for continued success (e.g., community, employees,
NGOs)

Identify: e.g., STEEPLE Analysis

Social
Technological
Economic
Environmental
Political
Legal & Ethical
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Stakeholder Analysis Tool

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Materiality, Relevance:
Prioritising
Stakeholders are classified by
attributes:

Power to influence: ability to

impose its will and bring about
desired outcome.

Legitimacy of relationship: within

accepted social system of norms,
values, beliefs - desirable social
good.

Urgency of claim: time-sensitive,

critical the degree to which
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delay is unacceptable and claim

Attributes: Prioritising Stakeholders

Latent: 1 attribute
Dormant
Have power, but unused
Discretionary Have legitimacy, but cannot pressure
urgency: irksome, not dangerous
Expectant: 2 attributes
Dominant
powerful and legitimate (most familiar
Dependent
legitimate and urgent
Dangerous
urgency and power

Demanding

Have

to corporations)

Definitive: Possessing all 3 attributes

-From Toward a Theory of Stakeholder Identification and Salience, Mitchell & Agle, 1997)

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Mapping Stakeholder Interests v. Influence

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Materiality Matrix: Most relevant

Importan
t to the
company
but not
to the
stakehold
ers

Importan
t to
company
and
stakehold
ers

Not
important
to the
company
or to the
stakehold
ers

Importan
t to
stakehold
ers but
not the
company
Tim Mohin, Changing the Business from the
Inside Out, p.45

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Relative Importance: Timeline

Planning

Implementing

Aftermath

_______________________________________________

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Stakeholder Engagement Process

Stakeholder engagement is the process used by an
organisation to engage stakeholders to achieve
accepted outcomes.
At this level, stakeholders drive strategic direction as
well as operational excellence..
(it) must result in outcomes valued by those involved
and must be communicated in a credible way.
AccounAbility (AA) Standard 1000

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