The moral vocabulary of governance described in Chapter 1 intertwines two logics of organizational control—managerial and democratic (Drori, 2006).
Organizational systems of self-governing capacities must, to a degree pre-scribed by norms and codes, be responsive to elements in organizational environments which include markets, regulators, and social interest groups.
So, in addition to the formally deWned organizational architecture of the Combined Code and its variants (Chapter 2), organizational governance discourse increasingly implies the need for management understanding of, Governing Reputation / 135
and engagement with, parties who have a ‘stake’ in control because they may exercise inXuence over organizational conduct. Such parties have come to be known broadly as ‘stakeholders’, and considerable intellectual and practical eVort has been expended on analyzing the rights of such stakeholders and the duties of organizations towards them (Clarkson, 1998). It is their de facto power which is most relevant to risk management.
The category of stakeholder has been developing over a number of years.
In 1975, a UK discussion document recommending a broader concept of corporate reporting did not use the word ‘stakeholder’ at all, referring instead to the rights to information of multiple ‘user groups’ (CCAB, 1975). Stake-holders have been deWned as groups and individuals ‘who can aVect and are aVected by the achievement of an organization’s purpose’ (Freeman, 1984: 54), a strategic deWnition which is relevant to recent risk management thinking.
However, the concept does not seem to have gained ground in managerial and political discourse until the late 1990s6 when it became a point of appeal and boundary object for both managerial and CSR agendas.7 This moral ambivalence is a signiWcant part of the appeal of the stakeholder concept.
While the language of stakeholding can have normative connotations of partnership, the mobilization of the concept also has much to do with strategic responses to the perceived rise of consumer activism and the increasingly organized character of social conscience (Larkin, 2002: chapter 4;
Friedman and Miles, 2006).
Newly active organizational actors in the governance universe have come to have rights to speak and act on behalf of society. Since Shell’s experience in 1995, these NGOs are perceived as capable of organizing direct and indirect action against companies, a perception heightened by extensive attacks on the character of business and the professions in the UK and overseas in the 1990s, and dramatized by violent anti-capitalism protests at the G8 summits in Seattle and Genoa. These events created and ampliWed a more defensive climate and context for political and corporate concerns with reputational issues. From this point of view, the rise of concerns with reputation reXects much more than internal concerns with asset recognition. It has much to do with a perceived shift in power from corporations to the representative organizations of ‘unpredictable consumers’, organizations which are increas-ingly able to reverse burdens of proof about product safety and quality.
Managerial discourses of corporate reputation are symptomatic of the power of stakeholders to escalate reputation issues very rapidly. Yet, the 136 / Organized Uncertainty
institutionalization of pressure groups like Greenpeace has also shifted their strategy from a purely antagonistic relation with corporations to one which is more dialogic and which can draw on the ethical resources of corporate governance (Friedman and Miles, 2002). Large organizations like Shell have begun to develop capabilities for stakeholder management and new blue-prints and norms for ‘engagement’ have been created (Friedman and Miles, 2006: chapter 6). The task has been formalized in principles and guidance and rationalized as the demand for organizations to know ex ante who their key stakeholders might be. This demand requires a broad view of the potential boundaries of a business or project and the metaphor of ‘radar’ is often used in prescriptive texts. The limits to manageability posed by anti-corporatism as such (Tucker and Melewar, 2005) has been no bar to the growth of a rich advisory industry in the Weld of stakeholder management.
During the 1990s corporate reporting began to include a more developed social reporting component, and the perceived erosion of the social authority of, and trust in, large corporations led to many forms of experimental engagement with stakeholder organizations (Hutter and O’Mahony, 2004).
The CSR agenda itself became structured as an engagement agenda informed by transnational norms and standards for reporting and by an increasingly rich basis in ‘soft’ law for CSR (Fombrun, 2005). For example, the Global Reporting Initiative (GRI, 2000) recommends the disclosure of the basis by which stakeholders are deWned and of the involvement of such stakeholders in the development of performance indicators relevant to them. GRI initially struggled to gain an organizational foothold, but an emerging mood of concern about reputation has created incentives for more attention to stakeholders and to their internalization in management systems. Many organizations now take seriously the need to manage an active environment of potential claimants, whose interests are Wltered by discourses of reputation management, corporate governance, and risk management (ABI, 2001).
Beneath democratic conceptions of stakeholder engagement, and beneath the creation of sub-units with this explicit purpose and mission, organiza-tional discourses also address how public risk perceptions could be a destruc-tive force and an unmanageable source of instability, as the Brent Spar episode seemed to show. From this point of view, and in stark contrast to normative theories, stakeholders are a managerial ‘dread factor’ and an explicitly recog-nized source of risk to the enterprise and its reputation. Initiatives to codify and develop generic risk management guidance discussed in Chapter 3 put Governing Reputation / 137
‘stakeholder analysis’ at their centre (e.g. CSA, 1997: AS/NZS, 2000; BSI, 1999), thereby standardizing, at least at the level of policy discourse, the need for such analysis as a crucial part of risk identiWcation. Echoing Freeman’s earlier strategic deWnition, a stakeholder for this purpose is any ‘individual, group or organization having a vested interest in or inXuence on the business or its projects’. Stakeholder analysis in this sense recognizes that ‘whatever the nature of their interest, the existence of that interest means that they are a potential source of risk to the project and perhaps to the business’ and can be
‘diYcult to understand, control or inXuence’.
In contrast to a conception of stakeholder engagement informed by social democracy, the category enters formal risk management standards as short-hand for unruly risk perceptions. In risk management, the representation of stakeholders is emptied of moral content, and of any content in terms of the rights of individuals and groups external to an organization. Rather, the stakeholder becomes deWned, represented, and instrumentalized as part of the expanded risk management mandate to process threats to the business (or project). In risk management thinking about stakeholders, the question is: ‘who might blame and thereby damage the organization?’ Stakeholder perceptions, as proxies for society’s expectations, must be taken seriously even if they are not accepted as true; false beliefs about the environmental and social impacts of corporate activity must be managed.
This risk-based construction of the stakeholder reXects a ‘thin theory of stakeholding’ and contrasts with the surface normativity of CSR discourse discussed above. One problem with this ‘thinness’ is a tendency to articulate stakeholders statically with well-deWned and stable interests. For ERM pro-cesses, the identiWcation of relevant stakeholders is conceptualized as a one-oV transaction. Yet, it may be a more eVective reputation management strategy for organizations to ‘optimize dynamically’, that is, to play oV stakeholders against each other by constantly re-designing their relationships with them.8 The stakeholder management model of uncertain and developing relation-ships is consistent with models of risk management which work with the grain of organizational politics rather than prescribe a hyper-rational design (March and Simon, 1958; Hood, 1996a; 1996b).
Stakeholder organizations are themselves constituted as actors via engage-ments which require increasing rational management and for which stra-tegic recommendations have been developed (e.g. Friedman and Miles, 2006:
138 / Organized Uncertainty
chapter 6). In a world of organizing, stakeholder organizations must also constitute themselves as legitimate representatives of society and as credible dialogue partners, (Larkin, 2002: 136–7). Managing the risks posed by stake-holders is a dynamic in which they in turn must become more formally organized as legitimate representatives of society and as entities to do ‘business with’. NGOs may adopt the formal attributes of organizational actorhood of those they seek to inXuence. Indeed, as many critics of CSR note, NGOs have incentives to make themselves less risky as partners to corporate organiza-tions. Many adopt the very risk management standards which conceptualize them as a threat. Such is the isomorphic and normalizing power of risk management blueprints.
Questions of knowledge of, and responsiveness to, stakeholders and questions of reputational management have become intertwined. Organiza-tions have become conscious of reputation as an asset which can be enhanced or harmed by organized elements called stakeholders. Managerial discourses suggest that stakeholders are ‘here to stay’ (Browne, 2000a; 2000b), a symp-tom of declining public trust in experts and science, and of the erosion of traditional authority (Larkin, 2002: chapter 1). Via the corporate recognition of stakeholders and their role in creating or damaging reputation, a distinct-ive form of risk management has become prominent, and a re-reading of CSR through the lens of risk has become possible (e.g., ABI, 2001). For all its operational ambiguity, reputation forces organizations to develop windows on society which bring the ‘outside in’. Yet equally, the relational nature of reputational ‘assets’ places them beyond managerial control. Indeed, where the power to deWne reputation is wholly in the hands of stakeholders the necessary inputs from management are unclear. This diYculty is especially evident in external calculations of reputation.