A stakeholder view on secession movements

One of the key assumptions of a stakeholder approach to the world – be it individual, social, economic or political – is that power should be both decentralized and inclusive. Implicit in this is that all stakeholders have a right to – also unilaterally - withdraw from participation in such a common enterprise. Often, such a withdrawal is however difficult, be it divorce from a marriage or a firm laying people off. At times, as for example with a small mom-and-pop store being subject to its country’s taxation policies, it is virtually impossible.

Sustainability Reporting Today

Sustainability Reporting Today:

 With the advent of sustainability reporting, various indicators and standards have been developed to measure and evaluate sustainability and to anchor it in corporate reporting on value creation. A sustainable commitment to stakeholder relations on an economic, social and ecological level has a proven positive impact on value creation and ultimately also on the strategic success of a company. To make this transparent, the following principles for an integrated sustainability reporting - which are to a certain degree also part of standards such as the Global Reporting Initiative, Integrated Reporting and the European Foundation for Quality Management (EFQM) - can lead the way:

 

-         Strategic Focus: Sustainability should be embedded in a company’s purpose, in its derived vision and in its strategic objectives. This forms an essential basis for a periodic corporate sustainability reporting at a strategic level.

-         Embeddedness: Not only singular projects, but the entire strategy development and revision should be communicated comprehensively to make the company’s attractiveness visible for current and future partners. It is deliberately not about retaining information to calm down stakeholders and to secure competitive advantages over competitors, but about gaining strategic stakeholders for a mutual corporate value creation process.

-         Inclusion: When different stakeholders contribute to value creation, it is crucial to also recognize these stakeholders as owners of their contributed values. This is based on an extended understanding of ownership. Here, the concept of ownership refers not only to material goods or financial resources, but also to intangible issues such as knowledge and experience. With their knowledge and experience, stakeholders provide property for a company in a broader sense. Like the financial owners, they have therefore the right to be adequately involved in processes regarding their property and to be informed accordingly.

-         Commitment: In a purely economic view, profit distribution (residual profit) primarily targets shareholders. This is also predominantly reported on. Especially because the management has to make discretionary decisions about the shareholders’ compensations, e.g. how much of the profit is being distributed and how much is being retained (pay-out-ratio). When other stakeholders, in the sense of a broader concept of ownership, contribute significantly to the corporate value creation process, these stakeholders should also be a compulsory part of the distribution of tangible and intangible values as well as receive information accordingly.

 A sustainability reporting based on these principles suggests that companies can create more values with and for stakeholders.

 Sybille Sachs

 

Caring about the customer

 

 

In stakeholder management customers are regarded as primary stakeholders of the firm but also many a firm not pursuing general stakeholder management, does think it should be customer oriented. “Usability”, “ergonomics” and “human centred design” are no longer exceptions in strategic considerations. The customers are moving toward the core focus of business, which I think is a good development, because traditional customer orientation is not enough. A deeper and more honest relationship to the people who are buying your goods is necessary. As I see it, the primary focus should not be on how to sell more of a company’s products, but on what the person buying the product really wants (also resulting in selling more products).

I would like to illustrate this think shift: Many people like to eat healthy food. A snack company spots this customer need, puts some milk into the product and praises it as being a healthy snack, even though most nutritionists would assess the product to be of the contrary (heavily sugared and fatty). So just by recognizing and addressing the consumer need doesn’t make a customer centred firm. Another example: Consumers like the look of dark red meat (not grayish meat) because they have built the mental shortcut (heuristic) that intense color in food is a sign of freshness. This is why market research study participants would prefer the dark red meat to a grayish meat product. A company that follows what the consumer actually wants, will not sell the consumer a meat that was treated with a gas that keeps it red (but doesn’t keep it fresh), it will sell the consumer fresh meat. This is not only a shift in strategy, this will have wide implications for a company’s daily business in distribution, packaging, communication and so on.

 

We use these mental shortcuts (here: intense color equals fresh food) because they mostly lead us to making good decisions (read publications by Gerd Gigerenzer for more on this topic). Shortcuts make life easier; especially in this fast paced, information-overloaded environment. These heuristics are good because they are often based on experience and implicit knowledge. But the shortcut only works if it is not tampered with by others. Robert Cialdini, a social psychologist, wrote several books on persuasion, summarizing his findings based on many experiments he had made in his research on e.g. selling tactics. But he states “Just because a given [powerful psychological] principle is successful does not mean we are ethically entitled to commission its persuasive power to create change.” I think this misusing psychological mechanisms such as heuristics is not only unethical it is also a strategy that won’t lead to sustainable business success. A company that shares its purpose (the “why” of a company) with its customers and therefore wants the same thing, will be able to engage the people they call their customers and conquer the challenges (such as resource scarcity) together in an innovative way, and of course sell their products.

 

Vanessa McSorley

Switching perspectives

If we talk about stakeholder relationships, the most common reaction of people is to think about a firm and the different groups which are affected by the corresponding business activities. These stakeholders are usually named as financiers, customers, suppliers, employees, the communities and so on. By this means we talk about stakeholders defined by their functional relationships with a firm, which is situated in the center of its stakeholder relationships. Further, the usual way of thinking about stakeholder management is on how to elaborate positive relationships with stakeholders to create as much economic value as possible.

In this blog post I would like to address two rather unusual ways of thinking about stakeholder management by making use of the example of employees’ work-life balance as an independent issue. In the context of this issue, the traditional defined stakeholder categories of a firm are no longer of much use to capture the essential features of the employees’ work-life balance. To assess what is of real importance for people, a firm’s decision makers have to switch perspectives to find out which groups have a real stake in the issue of the work-life balance. The traditional stakeholder category of employees then becomes more fine-grained, for example as mothers, fathers, daughters, sons, part-time workers and so on. By switching the perspective from a functional firm-centered to an issue-based view, decision makers are able to identify a much broader, and arguably more useful, set of stakeholders related to the firms’ activities.

But how are those newly recognized stakeholders related to a firm’s value creation? I think part of the answer arises from a too narrow understanding of value in an economic sense. It is easy for decision makers to conceptualize economic value creation in traditional firm-stakeholder relationships, as those ties are, as described above, functionally defined. But from a stakeholder’s perspective, there are other ways of understanding what “value” actually consists of. Indeed, regarding the issue of the work-life balance, stakeholder groups like mothers or fathers acknowledge the results related to their relationship with a firm, for example the accessibility to corporate childcare services, but also the possibility to work part-time in a managerial function. However, besides those extrinsic values related to economic or non-economic goods or services in a stakeholder relationship, employees are also seeking for more intrinsically motivated results. For example, employees also appreciate the psychological result of job satisfaction, as they are recognized and esteemed by the firm’s decision makers regarding their stake in the issue of work-life balance, thus for example as mothers and fathers.

In my opinion, managerial decision-makers can realize a much broader potential for value creation if they not only rely on a firm-centered approach to create economic value together with their functional stakeholders. Switching perspectives to identify the stake different groups have in a focal issue and recognizing both the corresponding extrinsic and intrinsic results of stakeholder relationships will then lead to an enhanced mutual value creation of a firm with its stakeholders.

Thomas Schneider