This thesis uses the broader perspective of stakeholder theory, as socially-responsible companies’ interactions are not limited to shareholders, customers and employees. Participation of all types of stakeholder has been perceived as key in achieving sustainable development by organisations (Gidson, 2012; Holden, Linnerud, & Banister, 2017).
Many companies have embraced stakeholder management to address their externalities and it has been claimed that stakeholders’ pressure has steered a widespread adoption of sustainable development practices (Castka & Prajogo, 2012; Sarkis, Gonzalez-Torre & Adenso-Diaz, 2010). Stakeholder participation has been regarded as a means of addressing both the primary dimensions of sustainable development by enabling companies to identify, understand and respond to the sustainability issues and concerns and to report, explain and be answerable to stakeholders for decisions, actions and performance (AccountAbility, 2015; Gualandris et al., 2015; Kaur & Lodhia, 2018; Rinaldi et al., 2014) by promoting public participation (Bäckstrand, 2006). Thus, according to Campbell (2007), the fundamental purpose of stakeholder theory is to identify “whether and why companies attend to the interests of stakeholders along with their own immediate corporate interests” (p. 949). Therefore, stakeholder engagement has been identified as a crucial success factor in sustainable
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development attempts made by organisations (Kaur & Lodhia, 2018). AccountAbility (2015) argues that:
Stakeholder engagement is the process used by an organisation to engage relevant stakeholders for a clear purpose to achieve accepted outcomes. It is now also recognised as a fundamental accountability mechanism, since it obliges an organisation to involve stakeholders in identifying, understanding and responding to sustainability issues and concerns, and to report, explain and be answerable to stakeholders for decisions, actions and performance (p. 5).
However, extant studies (e.g., Frost et al., 2012; Lingenfelder & Thomas, 2011; Kaur & Lodhia, 2018; Momin & Shaoul, 2004) have reported that the role of stakeholder engagement has been questionable in various aspects of sustainable development practices and sustainability reporting.
Stakeholder proximity, that is, the spatial nearness of stakeholders to the firm (Driscoll & Starik, 2004), implies a high level of involvement in a firm’s processes, allowing for better insights into them and in turn may lead to stakeholder satisfaction. It is also claimed that conflicts of interest in a firm might be framed as tensions between insiders and outsiders (Bøhren, Josefsen & Steen, 2012). Thus, the firm’s resources are controlled and managed by the internal stakeholders, who might lack the will to abstain from making self-serving decisions at the external stakeholders’ expense (Jensen and Meckling, 1976; La Porta et al., 1997). Also each stakeholder category perceives sustainable development practices and performance according to the stakeholder’s own demands and interests (Fiedler & Kirchgeorg, 2007; Hillenbrand & Money, 2007).
In the case of multinational companies, management is exposed to stakeholder pressures in each country where they operate (Kostova, 1999; Meyer, Ding, Li, & Zhang, 2018; Xu &
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Shenkar, 2002). Thus while making efforts in aligning with the parent’s global values, institutional pressures from host countries have to be accommodated (Kostova & Roth, 2002; Kostova, Roth & Dacin, 2008; Meyer et al., 2018; Westney, 1993). Such legitimacy can be enhanced by foreign stakeholders, particularly investors, aligning their organisational practices to local stakeholder expectations and regulations (Kostova & Roth, 2002; Meyer & Thein, 2014).
Starik and Kanashiro (2013) demonstrate that conflicting demands arise from diverse stakeholders with paradoxical demands. For instance, in the mining sector, whilst regulators endeavour to curb unsustainable corporate operations, communities close the mine may focus more on community development which in turn puts pressure on companies’ profitability, as, whilst striving to maintain good economic performance, companies endeavour to show how responsible their operations are. Hörisch, Freeman and Schaltegger (2014) claim that “The necessity to overcome trade-offs and conflicts is exactly what stakeholder theory is about in the social context of a business” (p. 334). This could be attained by addressing potential conflicts of money making and ethical responsibilities by creating mutual interests among the expectations of all relevant stakeholders (Freeman et al., 2010).
Nevertheless, Rowley and Moldoveanu (2003) observed that stakeholders can work in partnership to form powerful groups such as environmental activist groups, employee unions, community development committees, etc. These groups are formed because of a common interest and identity (Barnieh, 2015), and they may influence a company’s operations if they are dissatisfied. Collaboration between stakeholders may support measures towards more responsible and sustainable development practices (Murray, Haynes & Hudson, 2010).
Based on the perceptions of stakeholders on how sustainably a multinational company is operating, stakeholders can heavily penalise or highly elevate companies (Sen & Bhattacharya,
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2004). Wood and Jones (1995) point out the various roles stakeholders play. Firstly, stakeholders are the source of expectations for a company’s performance. Secondly, they experience the effects of companies’ activities and, thirdly, they evaluate companies’ outcomes in terms of stakeholder expectations and the effects on them.
Several studies focus on how stakeholders impact firms’ sustainability performance (e.g., Barnett & Salomon, 2012; Hörisch et al., 2014; Kassinis & Vafeas, 2006; Neubaum & Zahra, 2006). Kassinis and Vafeas (2006) found a positive relationship between community stakeholder pressures and environmental performance at the plant level. Neubaum and Zahra (2006) examined how some characteristics of institutional investors (key stakeholders) affect the relationship between institutional ownership and corporate social performance. Neubaum and Zahra established that long-term institutional ownership relates positively with corporate governance and corporate social performance. Other studies have investigated how companies are actually managed, specifically to identify key stakeholders and their expectations on sustainability (such as Agle, Mitchell, & Sonnenfeld, 1999; Jawahar & McLaughlin, 2001; Sangle & Ram Babu, 2007). These studies show that at any given time in the life of an organisation, certain stakeholders, because of their potential to satisfy critical organisational needs, will be more important than others and the level of stakeholder importance to an organisation evolves from one stage to the next. Other studies (such as Berman, Wicks, Kotha & Jones, 1999; Mathur, Price, & Austin, 2008) have established that stakeholder management has a linear relationship with the achievement of primary corporate objectives (e.g., revenue increases) or related aims such as social capital, and capturing knowledge.
Other studies have found that environmental issues are often perceived to be technical and that many people who should participate in these endeavours tend to be unwilling, unable or entirely excluded from the negotiation process (Appiah-Opoku, 2001; Bawole, 2013). In this regard,
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Park (2016) recommends, “MNCs [multinational corporations] should attempt to meet social, environmental, and economic demands from local stakeholders in the globalisation era” (p. 8).
Companies in the extractive industries, particularly those involved in mining, are under intense pressure and scrutiny from a number of societal forces (Kapelus, 2002; Warhurst & Mitchell, 2000). At the same time, sustainable development in the mining sector has also undergone notable shifts, largely aimed at improving the environmental and social performance of the sector (Pro & Slocombe, 2012). These shifts have broadened the range of stakeholders, with civil society and market actors now regularly sharing sustainable development duties with the state (Ballard & Banks, 2003; Fonseca et al., 2014; Lemos & Agrawal, 2006). In resolving such tensions, the mining industry requires not only a company perspective but also stakeholder perspectives (Mzembe & Meaton, 2014) on the scope and meaning of sustainability. The mining sector has been actively innovating in addressing the various challenges of their operations more proactively, such as in developing sustainability reporting and promoting community development projects (Jenkins & Yakovleva, 2006).
Calvano (2008) claims that the expectation gap in stakeholder perceptions is one of the elements that leads to conflicts between companies and stakeholders. Nevertheless, Viveros (2016) points out that “to date, an understanding of CSR [corporate social responsibility] through stakeholder perceptions of it remains fertile terrain” (p. 51). Similarly, Momin (2013) argues:
Many prior studies have looked at CSD [Corporate Social Disclosure] practice from the managerial perspective, while providing less of an insight into non-managerial stakeholder perspectives. Several researchers have argued that the social and environmental accounting literature needs to incorporate the voice of non-managerial stakeholders in CSD development (p. 150)
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Thus, despite the crucial role of stakeholders in sustainability assessment, sustainability literature has not much explored stakeholder perceptions on the sustainability performance of multinational companies’ subsidiaries, with particular reference to emerging economies (Lodhia & Hess, 2014; Momin, 2013; Momin & Hossain, 2011). Hence, more research into how stakeholders perceive sustainable development practices is required is in order to address their necessities and claims in a tailored way (Jenkins, 2004; Kemp, 2010).