Published on December 30, 2008
Managing For Stakeholders: Survival, Reputation, and Success : Managing For Stakeholders: Survival, Reputation, and Success R. Edward Freeman The Darden School University of Virginia firstname.lastname@example.org The Problem: : The Problem: How can we understand the enormous changes in the business world of the 21st Century? How can we adapt or revise the underlying narrative or story about business to take account of those changes? Can we articulate a new story of business: Business as the way that human beings create value for stakeholders…. Business has changed along some fundamental dimensions : Business has changed along some fundamental dimensions 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. The Destabilization of Management : 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. Managerial Model: Hierarchical View : Managerial Model: Hierarchical View Managerial Model: Inward Focus : Managerial Model: Inward Focus The Need for a Framework : 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. The Bottom Line of Turbulent Times : 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. The Time is Right for “Managing for Stakeholders” : 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? A Simple Idea : A Simple Idea Business is about creating value for stakeholders. The only task of the executive is to create as much value for stakeholders as possible. Suppliers, customers, employees, financiers, and communities determine the ultimate success of a company. Great companies create win-win relationships with stakeholders that endure over time. A Simple Picture : A Simple Picture Specific Stakeholder Map : Specific Stakeholder Map Specific Stakeholders: Names and Faces : Specific Stakeholders: Names and Faces The Managing for Stakeholders Mindset: Ten Principles : The Managing for Stakeholders Mindset: Ten Principles Stakeholder interests go together over time. We need to have a philosophy of volunteerism—to engage stakeholders and manage relationships ourselves, rather than leaving it to government. We need solutions to issues that satisfy multiple stakeholders simultaneously. The Managing for Stakeholders Mindset:Ten Principles : The Managing for Stakeholders Mindset:Ten Principles Everything that we do serves stakeholders. We never trade off the interests of one versus the other continuously over time. We act with purpose that fulfills our commitment to stakeholders. We act with aspiration towards fulfilling our dreams and theirs. We need intensive communication and dialogue with stakeholders—not just those who are friendly. The Managing for Stakeholders Mindset: Ten Principles : The Managing for Stakeholders Mindset: Ten Principles Stakeholders consist of real people with names and faces and children. They are complex. We need to generalize the marketing approach. We engage with both primary and secondary stakeholders. We constantly monitor and redesign processes to make them better serve our stakeholders. : Enterprise Strategy Stakeholders and Principles Societal Context And Responsibility Purpose and Values Ethical Leadership Ethical Leadership The Basic Value Proposition Principles for Sustained Stakeholder Cooperation Understanding the Broader Societal Principles of Ethical Leadership Enterprise Strategy : Enterprise Strategy Stakeholders and Principles Societal Context And Responsibility Purpose and Values Ethical Leadership Ethical Leadership Values/Aspirations Making SH Better Off Legacy The Basic Business or Value Proposition Questions: • What do we stand for? • What are our aspirations? • For whom do we want to create value? • How do we make each stakeholder better off? • What do we want to leave behind for others? : Enterprise Strategy Stakeholders and Principles Societal Context And Responsibility Purpose and Values PVPs underlying all stakeholders PVPs for specific stakeholders Values driven Stakeholder Management • What principles, values and policies are we committed to so that stakeholders can count on our support and our actions? Are there principles, values and policies that underlie all our stakeholder relationships? Questions: What are the major tradeoffs that we make in managing our stakeholder relationships? What are we doing to improve these tradeoffs? Ethical Leadership : Enterprise Strategy Stakeholders and Principles Societal Context And Responsibility Purpose and Values Ethical Leadership Societal Trends Critics Governance Stakeholder Dialogue and Engagement Questions: • What are our most vocal critics saying about us? • Is there a way of opening a dialogue with our critics so that we can learn from them how to realize our purpose and principles in a better way? • What issues are on the horizon in society that will affect the kind of company that we want to be in the next ten years? • What obligations, principles, and governance mechanisms do we want to use to interact with stakeholders who have become our critics (or stakeholders we have not explicitly recognized earlier)? Enterprise Strategy: Three Profiles : Enterprise Strategy: Three Profiles Specific Stakeholder Promote the interests of a small group of stakeholders such as customers and employees Multi-Stakeholder Balance the interests of five major stakeholders Noble Cause A cause worth signing up for on its own merit Seven Techniques for Value Creation : Seven Techniques for Value Creation Stakeholder assessment Stakeholder behavior analysis Understanding stakeholders in more depth Assessing stakeholder strategies Developing specific strategies for stakeholders Creating new modes of interaction with stakeholders Developing integrative value creation strategies #1 Stakeholder Assessment: Three Levels : #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? #1 Stakeholder Assessment: The Data : #1 Stakeholder Assessment: The Data Employee Surveys Customer Satisfaction Results Investor Profiles Supplier/Supply Chain Assessment Community/Involvement #1 Stakeholder Assessment: : #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? #2 Stakeholder Behavior Analysis : #2 Stakeholder Behavior Analysis What is the stakeholder’s actual or current behavior that affects our company? Actual or Current Behavior How could this actual behavior change to help us achieve our company’s objectives? Cooperative Potential How could this actual behavior change to prevent us from achieving our company’s objectives? Competitive Threat #3 Understanding Stakeholders in More Depth : #3 Understanding Stakeholders in More Depth What is the stakeholder’s interests? What is it trying to accomplish in the long run? What is the stakeholder’s interest on this issue? (if appropriate) What is the linkage? Who are the stakeholder’s stakeholders? What do a subset of our key stakeholders have in common in terms of their interests or objectives? What are the stakeholder’s beliefs about us? #4 Assessing Stakeholder Strategies : #4 Assessing Stakeholder Strategies Swing “Foes” Friends Ignore Help Current Behavior Harm #4 Assessing Stakeholder Strategies : #4 Assessing Stakeholder Strategies 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 #5 Developing Specific Strategies for Stakeholders : #5 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 #5 Stakeholder Strategies: Change the Rules : #5 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. #5 Stakeholder Strategies: Offensive Strategies : #5 Stakeholder Strategies: Offensive Strategies Change the beliefs about the firm. Do something (anything) different. Try to change the stakeholder’s objectives. Adopt the stakeholder’s position. Link the strategy to others that the stakeholder views more favorably. Change the transaction process. #5 Stakeholder Strategies: Defensive Strategies : #5 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. #5 Stakeholder Strategies: Holding Strategies : #5 Stakeholder Strategies: Holding Strategies Do nothing and monitor existing strategies. Reinforce current beliefs about the firm. Guard against changes in the transaction process. #6 Integrating Strategies for Stakeholders : #6 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. #6 Integrating Strategies for Stakeholders : #6 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. #8 Creating New Modes of Interaction with Stakeholders : #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. #7 Creating New Modes of Interaction with Stakeholders : #7 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 Ethical Leadership : Ethical Leadership The Ethical Leader…. : 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”. The Ethical Leader…. : 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 Summary : 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. Sources : 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, Jeffrey Harrison, and Andrew Wicks Managing for Stakeholders, New Haven: Yale University Press, 2007.