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

Market-advocates demand state interventions: An ideological absurdity that is reality

End of July Mario Draghi, President of the European Central Bank (ECB) indicated quite vaguely the intervention that ECB will buy state bonds from crisis countries of the Eurozone. The stock market reacted promptly by increasing quotations. This is interesting because interventions from institutions close to the state normally are not what market-advocates (to which stock exchanges overall can be counted) put into a good mood.

But, since the sub-prime crises from 2008/09 and the following bail-out of many financial institutes by states all over the world, things have fundamentally have changed, one could mean. The state since was not only decent again, it was indispensable. The neo-liberal ideology of a pure self-regulating market solving (nearly) all economic problems and beyond as well as the ideology’s inherent state-critic was out of fashion suddenly. Draghi’s indication of a possible intervention by ECB shows that state related interventions today not only are accepted but even are demanded by market participants. If this is right or wrong or just a logical mechanism, is irrelevant. It is reality and that’s what’s relevant.

But how this new reality gets along with an ideology that sees things quite different? Already after the first shock of the sub-prime crisis the old apologists of the market ideology came back on stage. In their contributions in diverse newspapers, magazines and journals it was to read again what blessings a pure market-driven system would be able to perform, as long as there is no distortion through state interventions. In many contributions the new facts haven’t found any access to the thoughts of the authors. It seems that many want to preserve their ideology and its theoretical backgrounds as it is and defend it against the new realities. One of the latest of such market-purists seems to be the US presidential candidate of the Republicans Mitt Romney. Overall, he seems to believe that the less state intervention exist in the market-economy (taxes, regulations etc.) the better it performs. The state primarily handicaps economic freedom and is a threat in general. If things would be so easy we never had the sub-prime or other economic crises.

To stay ideologically fair, we can take a look to the ideologists on the other side of the continuum, the state-centrists. Indeed most of them learned at latest after the fall of the Berlin wall that a pure centrally planned economy does not lead to salvation and comprehensive well-being. But, there are still contemporaries who try to save as much as possible from this state-centric ideology by ignoring facts and reality. The latest example is the President of France, François Hollande, a Socialist. As soon as he was in power he reduces the retirement age back to 60 years although the public purse is nearly empty and the people’s life expectancy rises and rises.

Either market-purist or state-centrist both are ideologically conservative and therefore also structurally conservative: old and outdated structures (e.g. pension age 60 in France, the intention to prolong temporary tax reliefs for very wealthy citizens by Romney in the USA although also here the public purse is scarce) will be preserved with such bodies of thought. Ignored thereby is the reality. A reality in which capital investors demand state interventions. It is obvious: such realities need new and a more progressive and pragmatic political thinking and measures. It is very important to adapt the institutional structures to the new needs which are already here and recognizable in the daily life. Ideologies are principally ok as guidelines but they have to develop themselves by incorporating actual reality. The other way is fatal: to simply serve the ideological clients by trying to impose ideological purism in reality.

Claude Meier

Tales from the “Real World” – how much ethics can the world of business tolerate?

In my last blog post I described a concrete example of a moral dilemma that I faced while I worked in the international business arena (and I use the word “arena” for a reason…). I posed the question as to what realistic options are available to business leaders should they like to take the moral high road. The answer hinges upon, I think, how we should like to define “realistic”.

Would it have been “realistic” for me to go sign up the fledgling start-up as our distributor in Tunisia, foregoing engaging the established Dutch firm? As much as I am loath to admit it, I think not. The company I worked for was operating in a highly competitive industry where thin profit margins provided for very little largesse in choices that were not tightly aligned to short-term profitability. In another industry, with a pioneering product with no immediate competitors, or in a domestic market artificially shielded by high entry level costs or tariffs, there might have been more room to maneuver. But when one was competing tooth and nail for survival, this was not a viable option.

Prior to working in the low profit margin apparel industry, however, I worked in a radically different industry for a medical laser manufacturer where profit margins hovered around 60%. While obviously also a competitive industry (after all, everybody was scrambling at getting a piece these dream margins…), there certainly was more room for maneuver from a moral point of view. Regrettably, this option was not always exercised. A case in point: over the course of several years I had the pleasure – and it was indeed a pleasure – to nurture a start-up firm in Russia to be our distributor in this promising market. They were highly motivated and worked endless hours. Even though they had very limited resources, they sent one of their engineers over to the United States for a one week product training program we offered to our distributors. After two years of major investments and working the market, the company was finally poised to make some important sales. This was, however, also the point in time when the medical laser company I worked for was bought by another medical device company and consequently overnight we had two distributors in virtually all of our markets.

Our new owners insisted on using their own distributors in all of the countries where they themselves were present or alternatively forced our distributors to become sub-distributors, which for our distributors essentially meant giving up all control of the business and taking a major cut in their earnings. I remember being on the phone with a manager at our new parent company and him telling me to terminate the sales agreement we had with our Russian partner. When I explained to him that our Russian partner had worked for two years to build up the necessary relations in a market that had very long decision making procedures, he told me that “first cut him, bring him to his knees and then we renegotiate our terms with him from a position of strength.” So the basic strategy was to first make him desperate (he would lose two years worth of investments!) and then try to squeeze the max out of him so that he could salvage at least a pittance of what he had invested. Hardly a win-win strategy.

While many people sincerely tried to do their best to remain “humane” in an essentially a-moral system and things seem – at least in public discourse - to be changing somewhat these days, many of the things I saw and heard while in the business world were diametrically opposed to a human centered, win-win, stakeholder approach. A few of the ones I still remember I wish to share with you here (some are paraphrased by me, their essence is however retained):

·         “There is no ethics in the business world”

·         “If we don’t do it, somebody else will”

·         “No matter how much you may like somebody and how close you get to them in your work dealings, never make the mistake to think that they are your friends”

·          “The [neo-liberal] economic system as it is today reflects a deeper reality that is inherent in all of nature and therefore cannot be changed: just look at Communism!"

·         “Survival of the fittest”

·          “Markets always know best”

·          “If you can’t beat them, join them”

·         “The corporate world is essentially one of war without weapons”

·         “Money is success and success is no coincidence”

·         “Make money first, then do good”

·         “Too much ethics is a weakness and we have no place for weak people in our management team”

·         “The business world is the only real world and we who actually operate in it have nothing much to learn from researchers and intellectuals as they live – at best - in a naive utopian, imaginary one”

What all these quotes reveal is that, at the end of the day, there was a widely prevalent attitude (even if not voiced thus publically) that ethics, a humane stakeholder approach and the competitive business world simply don’t mix. Regrettably, the way our current economic system is set up and the widespread normative mantra of “profit and shareholder value maximization” inculcated into students, employees and managers, this has become in many ways a self-fulfilling prophecy.

In my next blog posts, we shall take a look at these proclamations and how they fit or don’t fit into a sustainable economic system.

Manuel Heer Dawson

The Need for Humanism in Management Across the World

Over the last weeks I spent my summer holidays travelling through northern and western Madagascar – a wonderful country with charismatic people, a variety of landscapes and unique flora and fauna. But this is not meant to be a travel report and to my delight I frequently stumbled across what is supposed to be the underlying subject matter of my research topic – microentrepreneurs or commercially active people living on a few bucks per day. For example, there was this artisan group of neighboring women producing gorgeous silk embroideries and selling them in a small shop on a veranda. In another village, there was a man crafting delicate artwork and articles for daily use out of polished cow horn with the help of an old washing machine’s engine. Like in every developing country, the majority of Malagasy people, however, were working on fields, planting rice and spices or farming cattle. Here and there, I spotted agencies of microfinance institutions (MFIs) in surrounding villages, indicating that financial services were potentially available for the aforementioned random acquaintances.

Back home, I found the report of the Microfinance Banana Skins Survey 2012 from the Center for the Study of Financial Innovation (CSFI) fresh from the press (www.csfi.org). With the title ‘staying relevant’, this is the 4th edition of what can be regarded as the most comprehensive risk perception survey in the sector. According to this year’s report, the most pressing risk is - for market observers unsurprisingly - overindebtedness among microfinance borrowers. However, the overindebtedness problem is symptomatic of deeper difficulties in the industry - first of all the overemphasis on growth and profit at the expense of prudence and the lack of good governance, management skills and professionalism in local MFIs: “Corporate governance is widely perceived to be inadequate, failing to provide sufficiently strong leadership to keep MFIs on a healthy growth path. Management quality is also seen to be lacking in many markets…, including the quality of risk management which is seen to be low or nonexistent in some sectors” (p. 8).

Reflecting on my holiday experience with regard to the responsibility of business schools and research for establishing a new paradigm of leadership, this made me realize that it is clearly not only western, industrialized countries, for which a new generation of managers and leaders is needed, but certainly also developing countries. Although they weren’t directly liable for the recent crises in the global economy or necessarily affected by the numerous management scandals in multinational corporations, narrow-mined short-term thinking with a sole focus on profit-maximization there too takes its toll. The microfinance experience in developing countries shows again that economic progress and societal development cannot be sustainable without appropriate management education and responsible business leaders with a sense of solidarity for all their stakeholders. The humanistic mission of initiatives like “People for People” seems therefore equally important for fighting inequality across the world and the aspiration for prosperity of underdeveloped regions.

Marc Moser

Value Creation with the Humanistic Mission of ‘People for People’

During the last several years both business and society are undergoing substantial change. A few key examples illustrate this change: the oil spill in the Gulf of Mexico; the nuclear catastrophe in Japan; the ongoing European debt crisis and social movements such as “Occupy Wall Street” that have spread around the globe. All these changes show that it is not simply single actors who are salient, but rather networks of actors. This interconnectedness is the critical feature of today’s reality. Value creation takes place between firms and stakeholders in networks to achieve greater service to society. Such networks of value creation encompass the boundary of sectors (economic, political, and societal) as well as the degree of institutionalization (formal and informal).

Business schools are responsible for preparing new generations of leaders for a networked globalized society in which intra- and inter-network cooperation is key. The responsibility of business schools was also the topic at the caucus session we conducted at the annual meeting 2011 of the Academy of Management (AoM) (http://www.fh-hwz.ch/g3.cfm/s_page/63780/s_name/socialmovementinitiativeteaching). The focus was to assess whether there is sufficient interest in the core challenge of nurturing humanism in management education by creating a network of interested scholars. The shared understanding of participants was that it matters what business schools do in educating future leaders and managers. The participants came to the conclusion that as educators of future leaders and as world citizens we have to foster teaching and research that contributes to the humanistic mission of ‘People for People’. "People for People" describes the humanistic mission of all management: human beings helping others.

If you are interested to advance the humanistic mission in management education please join us for our Professional Development Workshop at the annual meeting 2012 of the Academy of Management (AoM) in Boston. Joseph Mahoney (University of Illinois) and I organized this workshop for the following divisions of AoM: Business Policy and Strategy (BPS), Human Resources (HR) and the Social Issues in Management (SIM). Panelists include Sandra Waddock (Boston College), Robert Phillips (University of Richmond), James Post (Boston University), Tom Donaldson (University of Pennsylvania), Ed Freeman, (University of Virginia). The workshop takes place on 03. August 2012, 2:45pm, pm Boston Hynes Convention Center, Room 301 (http://program.aomonline.org/2012/subMenu.asp?mode=setmenu&menuid=14).

I am looking forward to see you there.

Sybille Sachs

Humanistic Perspectives in Management

This June, the Humanistic Management Network organized a conference at the University of St. Gallen, Switzerland, with the topic “Happiness and Profit – Wellbeing as Alternative Objective Function for Business?”. This network has as its objective to promote an economic system which operates in the service of human well-being in the larger context. Out of the many ideas that one could reap at this occasion I would like to highlight the following three:  

1.      Professor Binsweanger, an economist, reminded us that the original economic theory made the comprehensive concept of utility as the goal of our dealings and not the narrow objective of the multiplication of money as has been brought to prominence in both theory and practice these past years. Such a broader understanding of utility is incompatible with both the narrowly conceived shareholder value thinking as also the notion that the gross national product accurately reflects the prosperity, much less happiness, of a society. The financial crisis and the bonus discussion have shown that narrow monetary goal conceptions lead us astray and are nefarious to our common good. This understanding is fully in line with the people for people project espoused here. http://stakeholder-peopleforpeople.blogspot.ch/

2.      Various conference contributions elucidated possibilities as to how the use of multidimensional criteria grids could create indices which reflect the utility of economic as well as ecological and social dimensions. They complement already available approaches in this direction as for example the Global Reporting Initiatives. The utility contribution of a firm or a project is thereby reflected in a more sophisticated manner then a mere monetary measurement. A considerable number of firms already today produce such common-wealth balance sheets and common-wealth reports. Such firms should in the future be privileged by their customers or by the attribution of public commissions, as they serve the common good in a more deliberate fashion. Regrettably, there were no representatives of public institution at the conference; they would, however, have a model function with the promotion of such a common good thinking.

3.      I was especially impressed by an entrepreneur (Mörkisches Landbrot – a bread bakery) who conducts a consequential stakeholder management which is rarely seen in practice. Through a systematic cultivation of the interactions with important stakeholders (for example suppliers or co-workers) he could not just attain a high degree of motivation and loyalty, but also valuable impulses for the increase of innovation and quality. Thereby his operation is also oriented towards a broad segment of the society. This understanding of value creation which he has pragmatically developed reflects to a high degree the theoretical concept which we also elucidated in our book http://tinyurl.com/8ay79k7. He would be a valuable interview partner for our new leadership project http://tinyurl.com/88qqpxy

The most valuable aspect of the conference was the orientation towards practice. The conference also showed me that there is a considerable need to bring these pragmatic approaches onto solid theoretical basis, so that they will not drift off to arbitrariness.

Edwin Rühli

The Empowerment of a Tiny Shareholder through Blogging

Corruption defines the Russian public live at all levels. In the Corruption Perception Index 2011 by Transparency International, Russia is on the rank 143 from 182 (http://snipurl.com/243n31f). It shares this position with countries like Nigeria, Belarus and Mauritania. Preparing for the Winter Olympics 2014 in Sochi, corruption reached such extremes that businesses involved in preparing the Black Sea resort report having to pay kickbacks of more than fifty percent. A Russian magazine calculated that a road in Sochi is so costly that it could have been paved with three and a half inches of Louis Vuitton handbags (http://snipurl.com/2439t4z)!

Former President Dmitry Medvedev was eager to fight corruption in his country. One measure was the online posting of all government requests for tender initiated in 2008. Nonetheless it is said that the size of the average bribe quadrupled. In 2010 three percent of the Russian GDP disappeared annually on government contracts. On the one hand the increase of corruption can be explained by the growing risk of accepting bribes. As it became riskier the price went up. On the other hand people fear that everything is going to collapse, so they want to grab as much as they can (http://snipurl.com/2439t4z). However, thanks to Medvedev’s initiative the prominent blogger Navalny could launch his latest project, the web site RosPil. With the help of citizens the site collects information on obvious violation within the governmental procurement system.  

In 2007 Navalny’s campaign against corruption began by buying small stakes in publicly traded state-owned companies, which normally have senior government officials in their boards. Through public listings these companies can obtain crucial capital and international legitimacy. In exchange public listings force them to a modicum of transparency that is absent from Russian politics (http://snipurl.com/243apl0). By using his status as a part owner, Navalny harasses senior management with unpleasant and delicate questions for example about suspicious expenses. Navalny publishes all his uncovering of wary acts and his efforts for the rights of minority shareholders in major Russian oil and gas companies, banks and government ministries on his blog (also available in English). With these actions Navalny demonstrates that stock can be more effective in controlling Russia’s ruling class than the ballot box. He earned many admirers in the Russian blogosphere and the independent-minded media. In Russia the blogosphere is a very important forum for free political discussion and gives people an opportunity to become civic activists. Through his blog the stakeholder, who was originally a shareholder interested in a secure investment, became a stakeholder, who is representing the civil society in his fight against the corruption that pervades Russian business and government.  

In December 2010 Navalny launched RosPil.net. The idea for RosPil came up when Navalny heard about the invitation of the Ministry of Health and Social Development to build a two-million-dollar network to connect doctors and patients. The winner of the contract had only sixteen days to develop the site. Navalny was sure that the webpage had already been designed for a much lower sum. He asked his blog followers to send official complaints to the Federal Anti-Monopoly Agency. Nearly 2’000 of them did. The Health Ministry annulled the contract. The idea was born to design a site where people can submit a government request for tender and discuss it. If an associated expert finds the price, the schedule etc. unreasonable Navalny posts the alleged fraud on his blog (http://snipurl.com/2439t4z). Since RosPil started, more than a thousand users and 500 experts have registered to it. According to a tally on the webpage, the project has caused requests for tender worth 6.6 million US-Dollars, to be annulled.  

This example shows that even a tiny shareholder can become an important stakeholder, who can alienate the powerful. Furthermore it demonstrates that things can be changed by enforcing the dialogue between the stakeholders and the companies. By the help of social media Navalny has become a representative of the civil society. We should always keep in mind that Navalny has undertaken all this in a country where a number of people investigating such matters have been beaten or murdered.

Sabrina Stucki

How to measure well-being? OECD’s Better Life Index

In recent years increasing concerns emerged regarding the issue of how to measure people’s well-being and, ultimately, how satisfied people are with their life in general. The traditional economic approach to get to grips with this issue is to use statistics related to a country’s Gross Domestic Product (GDP). In this regard, GDP per capita is a widely used indicator to measure people’s actual economic well-being and its change over time. I would like to highlight just two out of many shortcomings regarding this approach of measuring people’s well-being. First, GDP per capita is calculated as a proxy for the average economic well-being of people living in a specific country. This is problematic, because if inequality in a country increases enough relative to GDP per capita, it is possible that most people can be worse off, although the average income is increasing. Second, statistics related to a country’s GDP are a very distal indicator for people’s well-being, as GDP mainly measures market production in monetary units. This is problematic, because on the one hand, many services relevant for people’s well-being do not have a market price, and on the other hand, individuals assess the different aspects of their well-being by drawing on their subjective values and norms.

During the last years, a lot of work has been conducted to face the challenges of measuring people’s well-being. One out of many promising approaches are the recommendations made by the Commission on the Measurement of Economic Performance and Social Progress (CMEPSP) set up by Joseph Stiglitz, Amartya Sen, and Jean-Paul Fitoussi. These recommendations include, among others, two important basic principles. First, indices should focus on the well-being of people in each country, rather than on the macro-economic conditions of economies. Second, both objective and subjective aspects of living conditions and their appreciation by individuals should be integrated to understand people’s well-being.

By drawing upon those recommendations of the CMEPSP, the OECD has identified 11 dimensions as being essential to people’s well-being and included them in a first attempt to provide a comparable and comprehensive set of indicators at an international level. These indicators include both the people’s material living conditions but also their quality of life. The OECD Better Life Index is available online (www.oecdbetterlifeindex.org) in a sophisticated and fancy tool to compare the different dimensions across countries but also to create one’s own Better Life Index. Give it a try!

Despite my enthusiasm to complement the GDP-based indices for economic wealth by drawing on objective and subjective indices of well-being, the latter are in an early stage of development. They still need to prove that they are a reliable, but also valid measure for people’s quality of life and, finally, could provide policymakers with the information they need to make improved decisions for people’s well-being.

Tom Schneider