of company interests and reject German ministerial ‘interference’?
acceptability of their strategies to other stakeholders? Or are they, as many authors suggest, the real power themselves, constructing strategies to suit their own purposes and managing stakeholder expectations to ensure accept ance of these strategies?
4.4.3
Power
24In considering stakeholder expectations the previous section highlighted the importance of power and how it is shared unequally between various stakeholders. For the purposes of this discussion, power is the ability of individuals or groups to persuade, induce or coerce others into following certain courses of action . As Table 4.2 shows, there are different sources of power. It is not only derived from people’s hierarchical position within an organisation or formal corporate governance arrangements. It could be a function of the resources or know-how they control or the networks they have built up, for example.
The relative importance of these sources of power will vary over time. Indeed changes in the business environment can signifi cantly shift the power balance between organisations and their stakeholders. For example, consumers’ knowledge of different companies’ offerings through internet browsing has increased their power as they compare different offerings and reduce their traditional loyalty to a particular supplier. The distribution of power will also vary in relation to the strategy under consideration. For example, a corporate fi nance function will
Sources of power
Within organisations For external stakeholders
• Hierarchy (formal power), e.g. autocratic decision making
• Influence (informal power), e.g. charismatic leadership
• Control of strategic resources, e.g. strategic products
• Possession of knowledge and skills, e.g.
computer specialists
• Control of the human environment, e.g.
negotiating skills
• Involvement in strategy implementation, e.g.
by exercising discretion
• Control of strategic resources, e.g. materials, labour, money
• Involvement in strategy implementation, e.g.
distribution outlets, agents
• Possession of knowledge or skills, e.g.
subcontractors, partners
• Through internal links, e.g. informal influence
Indicators of power
Within organisations For external stakeholders • Status
• Claim on resources • Representation • Symbols
• Status
• Resource dependence • Negotiating arrangements • Symbols
Table 4.2 Sources and indicators of power
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be more powerful in relation to developments requiring new capital or revenue commitments than in relation to ones which are largely self-fi nancing or within the fi nancial authority of separate divisions or subsidiaries.
Since there are a variety of different sources of power, it is useful to look for indicators of power , the visible signs that stakeholders have been able to exploit sources of power. These include: the status of the individual or group (such as job grade or reputation); the claim on resources (such as budget size); representation in powerful positions; and symbols of power (such as offi ce size or use of titles and names). For external stakeholders, a key indicator is the organ-isation’s resource dependence , in other words its dependence on particularly large shareholders, lenders, customers or suppliers. One way of assessing resource dependence is to consider the ease with which a supplier, fi nancier or customer could switch or be switched at short notice.
An underlying theme in this chapter has been that strategists have to consider the overall strategic purpose of their organisations. However, a central question that arises is what stakeholder expectations they should respond to in so doing. The Key Debate at the end of this chapter provides three views on this in the context of publicly quoted large commercial organisations.
4.5 SOCIAL RESPONSIBILITY AND ETHICS
25Underlying the discussion of corporate governance is an issue highlighted in the introduction to this chapter. Is the purpose of an organisation and its strategy for the benefi t of a primary stakeholder such as the shareholders of a company, or is it there for the benefi t of a wider group of stakeholders? In turn this raises the question of societal expectations placed on organisa-tions, how these impact on an organisation’s purposes and, in turn, on its strategy. This sec-tion considers, fi rst, corporate social responsibility : the role businesses and other organisasec-tions might take in society. Second, it considers the ethics of the behaviour and actions of people in relation to the strategy of their organisations.
4.5.1
Corporate social responsibility
The sheer size and global reach of many companies means that they are bound to have sig-nifi cant infl uence on society. Further, the widely publicised corporate scandals and failures of the last two decades have fuelled a concern about the role they play. The regulatory environ-ment and the corporate governance arrangeenviron-ments for an organisation determine its minimum obligations towards its stakeholders. However, such legal and regulatory frameworks set minimum obligations and stakeholders typically expect greater responsibility on the part of organisations. Corporate social responsibility (CSR) is the commitment by organisations to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as the local community and society at large. 26 CSR is therefore concerned with the ways in which an organisation exceeds its minimum legal obligations.
Different organisations take different stances on CSR. Table 4.3 outlines four basic types to illustrate these differences. They represent a progressively more inclusive ‘list’ of stake-holder interests and a greater breadth of criteria against which strategies and performance will be judged. The discussion that follows also explains what such stances typically involve
in terms of the ways companies act. 27 Illustration 4.5 discusses how leading clothing retailer H&M pursues social responsibility in order to give it a more ethical profi le than some of its rivals and pre-empt protests against the clothing industry’s traditionally wasteful and exploit-ative practices.
The laissez-faire view (literally ‘let do’ in French) represents an extreme stance. In this view, organisations should be let alone to get on with things on their own account. Proponents argue that the only responsibility of business is to make a profi t and provide for the interests of shareholders. 28 It is for government to protect society through legislation and regulation;
organisations need do no more than meet these minimum obligations. Expecting companies to exercise social duties beyond this only confuses decision making and undermines the account-ability of managers to their shareholders. In this view, society benefi ts anyway from the profi ts:
after all, these can either be used for further investment in the business or be paid out to share-holders, who may be pensioners relying on the income or similar. This laissez-faire stance may be taken by executives who are persuaded of it ideologically or by smaller businesses that do not have the resources to do other than minimally comply with regulations.
Enlightened self-interest is guided by recognition of the potential long-term fi nancial benefi t to the shareholder of well-managed relationships with other stakeholders. Here the justifi ca-tion for social responsibility is that it makes good business sense. For most organisaca-tions a good reputation in the eyes of customers and suppliers is important to long-term fi nancial success.
Working constructively with suppliers or local communities can actually increase the ‘value’
available for all stakeholders to share: for example, helping improve the quality of marginal suppliers in the developing world is likely to create a stronger over all supply chain; supporting education in the local workforce will increase the availability of skilled labour. Indeed, there is mounting evidence that responsible strategies can also reward shareholders. 29 Thus, like any
Laissez-faire
Enlightened self-interest
Forum for stakeholder
interaction Shaper of society Rationale Legal compliance:
Unilateral Interactive Partnership Multi-organisation alliances
Table 4.3 Corporate social responsibility stances
SOCIAL RESPONSIBILITY AND ETHICS 129
other form of investment or promotion expenditure, corporate philanthropy or welfare provi-sion might be regarded as sensible expenditure.
Managers with this enlightened self-interest stance take the view that organisations have not only responsibilities to society, but also relationships with other stakeholders. So communication with stakeholder groups is likely to be more interactive than for laissez-faire-type organisations. They may well also set up systems and policies to ensure compliance with best practice (e.g. ISO 14000 certifi cation, the protection of human rights in overseas operations, etc.) and begin to monitor their social responsibility performance. Top manage-ment may also play more of a part, at least insofar as they support the fi rm taking a more proactive social role.
A forum for stakeholder interaction 30 explicitly incorporates multiple stakeholder interests and expectations rather than just shareholders as infl uences on organisational purposes and strategies. Here the argument is that the performance of an organisation should be measured in a more pluralistic way than just through the fi nancial bottom line. Such organisations adopt the principle of sustainability in strategy, one that ensures a better quality of life by attending to all three dimensions of environmental protection, social responsibility and economic welfare. Social responsibility here can be measured in terms of the triple bottom line – social and environmental benefi ts as well as profi ts (see section 11.2.1). Companies in this category might retain uneconomic units to preserve jobs, avoid manufacturing or selling ‘anti-social’
products and be prepared to bear reductions in profi tability for the social good. Sustainability will typically have board-level champions in these kinds of organisations.
Shapers of society regard fi nancial considerations as of secondary importance or a constraint.
These are visionary organisations seeking to change society and social norms. Public-sector organisations and charities are typically committed to this kind of stance. There are also social entrepreneurs who found new organisations that earn revenues but pursue a specifi c social purpose (see Chapter 9 ). For example, Traidcraft UK is a public limited company with a chain of retail shops that fi ghts developing world poverty by promoting ‘fair trade’. For shapers of society, the social role is the raison d’être of the business, not profi ts. Financial viability is important only as providing the means for continuing the social mission.
Table 4.4 provides some questions against which an organisation’s actions on CSR can be assessed.
4.5.2
The ethics of individuals and managers
Ethical issues have to be faced at the individual as well as corporate level and can pose diffi cult dilemmas for individuals and managers. For example, what is the responsibility of an indi-vidual who believes that the strategy of his or her organisation is unethical (e.g. its trading practices) or is not adequately representing the legitimate interests of one or more stakeholder groups? Should that person leave the company on the grounds of a mismatch of values; or is whistle-blowing appropriate, such as divulging information to outside bodies, for example regulatory bodies or the press?
Given that strategy development can be an intensely political process with implications for the personal careers of those concerned, managers can fi nd diffi culties establishing and main-taining a position of integrity. There is also potential confl ict between what strategies are in managers’ own best interests and what strategies are in the longer-term interests of their organisation and the shareholders. Some organisations set down explicit guidelines they expect their employees to follow. Texas Instruments posed these questions: 31
Is the action legal? . . . If not, stop immediately.
Does it comply with our values? . . . If it does not, stop.
If you do it would you feel bad? . . . Ask your own conscience if you can live with it.
How would this look in the newspaper? . . . Ask if this goes public tomorrow would you do it today?
If you know it’s wrong . . . don’t do it.
If you are not sure . . . ask; and keep asking until you get an answer.
Table 4.4 Some questions of corporate social responsibility
SOCIAL RESPONSIBILITY AND ETHICS 131