Managing For Stakeholders: An Argument, Ten Principles, and Eight Techniques

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Managing For Stakeholders An Argument, Ten
Principles, and Eight Techniques

• R. Edward Freeman
• The Darden School
• University of Virginia
• freemane_at_darden.virginia.edu

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The Argument Part I

• It is an understatement to say that times have
  changed.
• The impact on business from 9/11 will continue to
  be enormous.
• Many of our ideas about how to be successful in a
  particular industry must be rethought from
  airlines to computers.
• But even before 9/11 there was turbulence.

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Five Fundamental Trends for Understanding
Turbulence

• The globalization of business and markets.
• The deregulation of business and markets on a
  global basis.
• The explosion of information technology
• The rise of environmentalism and other more
  social values as relevant to business.
• The destabilization of the management and
  leadership in business.

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The Destabilization of Management

• Changes in Primary Relationships with Customers,
  Suppliers, Employees, Communities, and
  Financiers.
• Changes in Secondary Relationships with
  Governments, NGOs, Critics, Media, etc.
• Managerial Capitalism with Shareholders at the
  Center has outlived its usefulness.

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The Need for a Framework

• Accommodates change as a matter of course.
• Offers a guiding philosophy about business.
• Allows a big picture view of business,
  simultaneously with a micro view.
• Guides actions at the transactional level.
• Is extremely flexible.

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The Bottom Line of Turbulent Times

• In times of great change we need time for
  reflection and we need a framework that helps us
  answer basic questions.
• The framework in which to answer these questions
  forms a stable platform on which we can lead our
  organizations in turbulent times.

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The Time is Right for Managing for Stakeholders

• In turbulent times we have to address
  stakeholders, values, and ethics.
• The most important questions that businesses can
  ask today is
• What do we stand for? What is our purpose? What
  are our key values? Who has a stake in what we
  do?

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Brief History of Stakeholder Framework

• Ansoff, Rhenman, SRI and Tavistock.
• Clinical Studies at Wharton.
• Adoption by scholars in CSR/Ethics.
• The Caux Roundtable Principles/The Clarkson
  Principles/Wheeler and Sillanpaa/Svendson/ Walker
  Associates/Etc.
• Renewed interest today as business environment
  has gotten more complicated

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The Argument, Part II Key Ideas

• Business is about creating value for
  stakeholders.
• Suppliers, customers, employees, financiers, and
  communities determine the ultimate success of a
  company.
• Other groups from media to special interest
  groups can influence these primary relationships
• Stakeholder relationships can be managed,
  influenced, and led (not manipulated).
• Great companies create win-win relationships with
  stakeholders that endure over time.

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The Managing for Stakeholders Mindset Ten
Principles

• Stakeholder interests go together over time.
• Stakeholders consist of real people with names
  and faces and children. People are complex.
• We need solutions to issues that satisfy multiple
  stakeholders simultaneously.
• We need intensive communication and dialogue with
  stakeholdersnot just those who are friendly.

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The Managing for Stakeholders Mindset Ten
Principles

• We need to have a philosophy of voluntarism, to
  manage stakeholder relationships ourselves rather
  than third parties such as governments.
• We need to generalize the marketing approach.
• Everything that we do serves stakeholders. We
  never trade off the interests of one versus the
  other continuously over time.
• We negotiate with primary and secondary
  stakeholders

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The Managing for Stakeholders Mindset Ten
Principles

• 9. We constantly monitor and redesign processes
  to make them better serve our stakeholders.
• 10. We act with purpose that fulfills our
  commitment to stakeholders. We act with
  aspiration towards fulfilling our dreams.

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Enterprise Strategy and Eight Techniques

• The goal of applying these techniques is to be
  better equipped to answer the questions of
  Enterprise Strategy What Do We Stand For?
• In addition the techniques allow executives to
  make better day to day strategic decisions and to
  more effectively manage their stakeholder
  relationships.

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Enterprise Strategy What Do We Stand For?

• The Basic Value Proposition
• Principles for Sustained Stakeholder Cooperation
• Understanding the Broader Societal
• Principles of Ethical Leadership

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The Basic Value Proposition

• How does this company make its stakeholders
  better off?
• Customers
• Employees
• Suppliers
• Communities
• Shareholders

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Principles for Sustained Stakeholder Cooperation

• Where are the major tradeoffs that we have made
  among stakeholders?
• What are we doing to improve the tradeoffs for
  each stakeholder?
• What principles or values are we committed to so
  that stakeholders will continue to support us and
  do business with us?

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An Understanding of Broader Societal Issues

• Are we going along with or against the key trends
  in society?
• Are we helping to build / restore confidence in
  business, or are we part of the problem?

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The Ethical Leader.

• Frames actions in ethical terms
• Articulates and embodies the purpose and values
  of the organization
• Connects the basic value proposition to
  stakeholder support and societal legitimacy
• Creates a conversation about ethics, values, and
  the creation of value for stakeholders that is
  alive.

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The Ethical Leader.

• Create mechanisms of dissent
• Finds the best people and develops them
• Makes tough calls while being imaginative
• Raises the bar for everyone to pursue their hopes
  and dreams through the value creation process

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1 Stakeholder Assessment Three Levels

• The Company as a Whole Who are our primary and
  secondary stakeholders?
• Stakeholder Segmentation Models What are the
  specific groups and individuals that make up this
  stakeholder group?
• Personal Who has a stake in my job?

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Primary and Secondary Stakeholders
Environmentalists
NGOS
Governments
Financiers
Suppliers
Customers
Firm
Communities
Employees
Media
Critics
Others
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Stakeholders in your Job
Peers
Family
Friends
You
Others
Boss
Subs
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1 Stakeholder Assessment The Data

• Employee Surveys
• Customer Satisfaction Results
• Investor Profiles
• Supplier/Supply Chain Assessment
• Community/Involvement

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1 Stakeholder Assessment

• Do we know how our basic value proposition makes
  each stakeholder better off?
• Do we know what we are trying to accomplish with
  each key stakeholders?
• What does the data tell us about our
  effectiveness with each stakeholder?

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2 Stakeholder Behavior Analysis

• What is the stakeholders actual or current
  behavior that affects our company? Actual or
  Current Behavior
• How could this actual behavior change to help us
  achieve our companys objectives? Cooperative
  Potential
• How could this actual behavior change to prevent
  us from achieving our companys objectives?
  Competitive Threat

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3 Building a Model of Stakeholders

• What is the stakeholders objectives? What is it
  trying to accomplish in the long run?
• What is the stakeholders objectives on this
  issue? (if appropriate)
• What is the linkage?
• Who are the stakeholders stakeholders?
• What is the stakeholders beliefs about us?

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4 Coalition Analysis

• What do a subset of our key stakeholders have in
  common, in terms of behavior?
• What do a subset of our key stakeholders have in
  common in terms of their interests or objectives?

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5 Assessing Strategic Postures

• We can assess the strategic posture of each
  stakeholder based on behavior, objectives, and
  our assessment.
• Counterintuitive

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5 Assessing Strategic Postures
Swing
Foes
Friends
Ignore
Help
Current Behavior
Harm
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5 Assessing Strategic Postures

• Relative to where you are now
• Greatest risk may well be with friends
• Least risk may well be with foes
• Important to monitor all stakeholder relationships

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6 Developing Specific Strategies for Stakeholders

• Four kinds of strategies depending on the
  strategic posture of stakeholders
• Change the Rules
• Offensive Strategies
• Defensive Strategies
• Holding Strategies

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6 Stakeholder Strategies Change the Rules

• Formal rule changes through government.
• Change the decision forum.
• Change the kinds of decisions that are made.
• Change the transaction process.

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6 Stakeholder Strategies Offensive Strategies

• Change the beliefs about the firm.
• Do something (anything) different.
• Try to change the stakeholders objectives.
• Adopt the stakeholders position.
• Link the strategy to others that the stakeholder
  views more favorably.
• Change the transaction process.

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6 Stakeholder Strategies Defensive Strategies

• Reinforce current beliefs about the firm.
• Maintain existing strategies.
• Link issues to others that the stakeholder sees
  more favorably.
• Let the stakeholder drive the transaction process.

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6 Stakeholder Strategies Holding Strategies

• Do nothing and monitor existing strategies.
• Reinforce current beliefs about the firm.
• Guard against changes in the transaction process.

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7 Integrating Strategies for Stakeholders

• Addresses the concerns of multiple stakeholders
  simultaneously.
• Often products and services are integrated
  strategies without meaning to be.
• Key products and services affect multiple
  stakeholders, and cause them to behave in
  particular ways.

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7 Integrating Strategies for Stakeholders

• We can find points of integration by finding
  commonalities in
• stakeholder behavior and objectives.
• specific strategies for stakeholders.
• stakeholders beliefs about us.
• dialogue process.

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8 Creating New Modes of Interaction with
Stakeholders

• Ignore the Stakeholder
• Do nothing
• Allocate no resources
• The Public Relations Approach
• Tell the company story
• Opinion leader communication
• Image building
• Implicit negotiations
• Act based on your best estimate of the
  stakeholders positions.
• Understand the effects of strategy on each
  stakeholder.
• Unilateral action.

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8 Creating New Modes of Interaction with
Stakeholders

• Stakeholder Dialogue
• Two way communications
• Formal and informal negotiations
• Pay attention to setting and turf
• Proposal-response-compromise cycle
• Win-win solutions
• Keep the conversation alive

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Summary

• Managing for Stakeholders is an approach that can
  help executives better understand and lead their
  organizations in the turbulent 21st Century
  global business environment.
• The last 25 years of experience has yielded a
  number of important principles that can be
  applied throughout the organization.
• There are concrete techniques that can be used to
  make stakeholder management more enlightening and
  effective.
• Nothing is more important that educating managers
  to create a conversation with and about
  stakeholders, values, ethics, and what the
  organization stands for.

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Sources

• The ideas in this presentation originate in the
  following works
• R. Edward Freeman, Strategic Management A
  Stakeholder Approach, Pitman Publishing, 1984.
• R. Edward Freeman, Robert Phillips, and Jeffrey
  Harrison, Managing for Stakeholders, forthcoming
  in 2005.