Ontemporary Issues in Management - Essay Example

Contemporary Issues in Management Introduction Stakeholders exist in every organisation whether it is profit or nonprofit. Stakeholders can be summarised as the people who form the internal and external environment of any organisation. Stakeholders are, in essence, the organisation. Consequently, it is important for organisations to understand the role played by stakeholders so that they can enhance it as well as improve their relations with them (Atay, 2014:16). The objective of this paper is to provide a critical evaluation of the role of stakeholders within CSR and illustrate arguments presented with a case study from a contemporary organisation. Freeman’s Stakeholder Theory Freeman’s stakeholder theory highlights and models the stakeholders of an organisation, and both defines and suggests methods by which senior management can duly recognise and address the interests of these entities. In summary, Freeman tries to address the “who or what matters” concept. In the traditional perspective of the organisation – the shareholder perspective - the shareholders are the owners of the organisation and the company has an irrevocable fiduciary responsibility to prioritise their needs and enhance value for them (Boubaker, 2012:19). In previous input/output organisational models the company was expected to transform the contributions of employees, suppliers and investors into salable products that consumers purchase, hence providing some capital benefit to the organisation. Using this model, companies only address the requests and needs of four groups: customers, employees, suppliers, and investors. In spite of this, Freeman argues that there are other entities involved, including political groups, trade unions, communities, governmental agencies, potential customers, trade associations, potential employees, and the general public. Sometimes even rivals are classified as stakeholders (Boubaker and Nguyen, 2014:34). The stakeholder perspective of strategy is a crucial concept of the organisation, incorporating both the market-based and resource-based views and integrating a socio-political angle. The organisation’s view is used to describe the explicit stakeholders of a firm and to assess the circumstances under which these entities should be handled as stakeholders (the descriptive concept of stakeholder importance). These two concerns constitute the contemporary approach to Freeman’s theory. The initial objective of the stakeholder theory was to present an alternative vision of what an organisation’s mission is. At the time he developed it, the dominant mentality among personalities like Milton Friedman was the notion that a firm’s purpose is to accrue profit with the intention of redistributing it amongst shareholders. Freeman states that this is a gaffe. According to him, profit is a product of the organisation’s activities, not its primary motivation (Brust, Sarkis, and Cordeiro, 2013:31). From his perspective, Friedman’s concept means that companies only concentrate on shareholders and ignore the others also affected by the firm’s activity (e.g., clients, suppliers, and staff). The irony is that without these other groups the firm would effectively go bankrupt. Freeman infers that the organisation’s objective is to satisfy the needs of its stakeholders, which in this case means everybody who is impacted by the company’s decisions. Doing this would ensure that profit is made. Freeman’s view is pioneering because it provides a completely new view of companies (Clarke and Branson, 2012:21). He also backs the names and faces method. His perspective comprises the three biggest factors that make the whole clear: • Stakeholders are known people and the organisation must be willing to negotiate with them and determine suitable representatives of various stakeholder concerns to make this realistic. • Freeman is realistic and pragmatic. From a philosophical point of view, Freeman is of the opinion that absolute decision values should not exist (Crane, 2014:27). The firm must be willing to challenge all its views in order to take its stakeholders’ needs seriously. Obviously, it is not expected to forget all its values, but it will at least debate their relevance. • Freeman is convinced that consensus is always feasible. If there are different visions between stakeholders, the organisation must select one over the other but must create a middle ground, a third option which will address both visions (Crane, 2014:28). Consequently, Freeman remains adamant that CSR inspires innovation by creating opportunities in a world of possibilities. Role of Stakeholders in CSR In the perspective that dominated the United States and different European nations in the late 1990s, CSR is the aspect that offers theoretical backing for the evolution in business management. This evolution occurs by moving from targeting quantitative growth to targeting quantitative enhancement (Harrison and John, 2013:42). In spite of this, there is currently no thorough description of CSR. Consequently, although there are efforts of some sort for assessing CSR practically, this is conducted using CSR frameworks comprising of a triple-bottom-line of social, environmental and economic issues. A crucial concern is the nature of stakeholder relationships when organisations are evaluated from the perspective of CSR. For instance, shareholders, who are some of the most influential stakeholders in an organisation, typically want good returns on their investments. As a result, they request high share prices, growth, and profits. Failure to attain these exerts considerable pressure on management through the shareholders’ board or they simply dispose of their shares by selling them. In summary, the conduct of shareholders forms a major limiting factor in an organisation’s operations (Heal, 2013:29). On the other hand, shareholders have taken actions in the context of CSR and the impact of SRI (socially responsible investment) resources can be cited as an example in this regard. SRI schemes have a perspective of investment that comprises considering social and environmental factors and financial results when choosing the firms with which to invest. These resources maintain a formidable position, particularly among institutional investors like pension schemes. One of the instruments used by SRI resources in selecting firms in which to invest is known as negative screening. This entails juxtaposing firms with ethical procedures and deselecting companies involved in unethical corporate activities. Such activities comprise paying low wages, having insecure or unhygienic working conditions, etc (Idowu, Nielsen, Mermod, and Frederiksen, 2014:35). If the fund deems a firm to be stubborn in one or more of these issues, it removes it from its class of investment-worthy entities. Alternatively, if it already has investments with the fund, it sells up and ends all relations. Moreover, shareholder activism is a strategy employed by SRI schemes. This means that the fund asks the firms it wants to invest in to conduct their operations in line with the social and environmental issues the shareholders value. This implies that shareholders exercise the rights they have, like the rights to present motions and make decisions. When these avenues are considered, shareholders, like stakeholders, can also be perceived as constraining elements on CSR. Another problem is the relationships between not-for-profit organisations (NPOs) – which are increasingly becoming perceived as stakeholders – and CSR. NPOs, which are a third sector (besides commercial firms and government), have recently become more active in many fields (Lindgreen, Maon, Kotler, and Vanhamme, 2014:17). They are on course to nurture different relationships, as stakeholders, with the CSR practised by organisations. As the objectives and organisations of commercial firms and NPOs are worlds apart, there is little harmony and their relationships are often perceived as antagonistic. When firms destroy the environment or have poor working conditions resulting from prioritisation of profit, they are sometimes harshly criticised or actively uncovered by NPOs. For example, in the 1990s Royal Dutch Shell faced two dilemmas associated with its operations in various parts of the world. The first involved the disposal of Brent Spar, a rig for storing oil and loading tankers in the North Sea (Okpara and Idowa, 2013:58). The second involved its position on the actions of Ken Saro-Wiwa, whom the Nigerian government executed for his criticism of its military dictatorship. On the Brent Spar, Shell suggested hauling the surplus rig into the Atlantic and submerging it in deep water. However, NPOs like Greenpeace opposed this suggestion because it would pollute the ocean, and organised a massive boycott of Shell gas stations. Regarding Saro-Wiwa, Shell’s prominent role in the country’s economy subjected it to pressure from the Nigerian government, so it was reluctant to wade into politics and offered no firm response. The company was, therefore, subjected to fierce criticism from human rights groups. It was accused of having buckled under political pressure and focusing on profits. Another instance, which has demonstrated the role of NPOs in CSR, is one which involved Nike (Perez and Leonard, 2013:39). This occurred because it does not operate its own plants, and uses an outsourcing business framework in which manufacturing is hired out to cheap Chinese and South East Asian plants. Despite this, these establishments have been lambasted by NPOs for providing poor working conditions comprising sexual harassment, extremely low salaries, and child labor. In the beginning, Nike insisted that these issues were not in any way associated with the company since they were largely handled by contract firms, hence did not warrant a response. Failure to respond to NPOs’ calls for accountability led to a widespread boycott of its products, which had a significant impact on its profits (Atay, 2014:24). The Nike and Shell cases are common knowledge, but there have been many similar cases of bad relations between NPOs and firms. In other words, it is safe to say that NPOs act as constraining factors on CSR (Ruschak, 2012:46). An often ignored entity that plays a crucial role in the definition, and implementation of CSR is the UN. Although it is not a direct stakeholder in any company, the UN can be considered as an external stakeholder; one that influences the implementation of CSR in a unique way. The United Nations has organised three major global conferences on international environment protection and has played a crucial role in the global awareness on environmental conservation. It is important to explain Global Compact, which was proposed by Kofi Anna in 1999. He requested global business leaders to observe the need for everybody to gain from globalization. His suggested Global Compact comprised 10 fundamental principles in 4 vital areas: anticorruption, labour, human rights, and the environment. Firms backing these principles promise to uphold them and to report annually to the UN on their operations regarding the principles (Schneider and Schmidpeter, 2012:31). In the case of firms that have signed the pledge, it is possible that instead of being driven by a consensus with, and desire to respect, the 10 principles, their goal is to attain brand statuses. These brand statuses should be not only respected but also trusted by the United Nations, an agency with extremely high public esteem. In this context, the relationship between the firms and the UN can be classified as one of resource exchange (Atay, 2014:32). Relationships between stakeholders and CSR can be explained in two ways: exchange and restriction. This shows that from the perspectives of companies, stakeholders act like restrictive elements in some ways and as resource-exchange agents in others. Consequently, when firms focus on their relationships with stakeholders, the particular attributes of these relationships have become the essence of the assessment and studies evaluating these relationships adopt similar approaches (Tench, 2014:49). In spite of this, there has been a transformation in relationships between stakeholders and CSR. This has birthed a new trait: value creation. This is especially obvious in relationships between either exchange or restrictive-oriented. However, in the new, more common trend, active dialogue occurs between firms and stakeholders. Efforts to find new business management approaches in this dialogue cannot be illustrated strictly using the abovementioned two features. Regarding business management in entirety or specific challenges, since the 1990s there has been a clear movement towards greater dialogue between companies and stakeholders concerning CSR. In the previously cited cases involving Shell and Nike, both companies embarked on aggressive dialogue with stakeholders to repair and then improve their corporate reputation. In Japan, leading corporations like Toyota and Matsushita launched stakeholder dialogue 15 years ago, and other organisations are taking the cue (Visser, 2013:26). The big question, however, concerns why business think stakeholder dialogue is crucial, and the answer to this regards the significance if CSR. This implies that there has been an acceleration of informatisation and globalisation and that the linkages between business management and stakeholders have become more complex and diverse. It also shows that it has stopped being the case that firms only have to maximise profits and keep expanding to appease their stakeholders (Tench, 2014:65). For instance, in the Nike scenario its business model, which was focused on optimising profits, entailed frequently changing plants to which operations were contracted depending on each plant’s cost performance. However, the NPOs engaged in backing factory workers whose contracts were terminated and were, therefore, unemployed, condemned Nike aggressively for the implementation of this business model (Tench, 2014:54). If companies do not focus on the demands and views of different stakeholders and keep working to incorporate these within the business management process, they cannot promise longer-term existence in the 21st century business environment (Werther and Chandler, 2014:47). This is the reason stakeholder dialogue has evolved into such a useful instrument for organisations. It is safe to say that this process is CSR in itself. Companies are engaging stakeholders more in order to cultivate stable relationships with them. This improves their understanding of stakeholder perspectives and worries about vital issues (including CSR) and helps them incorporate those worries and concerns into their corporate strategies. Firms tend to identify and pursue value connected to stakeholder engagement, including averting or minimising business risks using enhanced business intelligence and facilitating informed management and board decision-making. It also includes mixing diverse opinions to enable innovation, and developing and growing business opportunities and brand value (Werther and Chandler, 2014:49). Shareholder activism on CSR aspects, especially those focused on environmental and social challenges keeps rising, enabling more engagement between shareholders and their companies and other stakeholders. According to a 2013 report by the Institutional Shareholder Services, January to June witnessed an increase in the number of environmental and social cases initiated by shareholders with American companies (Werther and Chandler, 2014:53). The report showed that 395 cases were filed in 2013 (versus 368 in 2012). The report also showed that the average shareholder backing for those cases also rose from 19% in 2012 in 22% in 2013, maintaining the general upward pattern of maximising shareholder backing for these for such concerns (Heal, 2013:56). Stakeholder understanding and engagement as well as addressing the CSR concerns of shareholders have become increasingly important as potential investors and shareholders are increasingly assessing CSR issues when examining investment decisions. Under SRI (Sustainable and Responsible Investing) ideals, investors use different CSR criteria in their investment assessments (Tench, 2014:69). In the United States, sustainable and responsible investing reporting increased to almost $4 trillion in managed assets between 2010 and 2012, representing a 22% growth (Tench, 2014:71). Case Study: Coca-Cola Coca-Cola is one of the most popular and respected brands in the world. The company has managed to develop strategies to market its products to billions of people across the globe, and established itself as a leader in brand development and maintenance. However, an often forgotten aspect of the company’s success is its innovative and futuristic approach to CSR (Crane, 2014:38). Coca-Cola ensures that all its stakeholders not only represent but also protect and uphold its CSR strategies. For example, since 2001 the company has engaged its stakeholders more and given the more freedom to contribute towards its CSR strategy. In the past, Coca-Cola’s senior management left all aspects of its CSR strategy to senior management and CSR specialists. However, the current approach shows that the company’s internal and external stakeholders are more involved in the development and implementation of its CSR strategy. The company’s stakeholder engagement approach has been ranked as one of the most effective and innovative in the world. Using its aggressive and powerful advertising machine, Coca-Cola has reached out to all entities that are associated with the company and sought their contributions in improving its CSR approach (Crane, 2014:38). In its 2013 corporate governance report, showed that its CSR strategy was visible in all its operations. The company’s profits also grew in 2013, a factor that was attributed to greater involvement of all stakeholders in the firm’s CSR development and growth. Obviously, Coca-Cola has many stakeholders who want to play a role in improving the company’s CSR strategy and increasing its visibility. The biggest contributors, apart from investors, have been communities in countries where Coca-Cola has operations. Coca-Cola is one of the best companies in the world when it comes to community mobilisation and customer engagement, largely owing to its brilliant and commanding PR arm. In 2003, a report by Indian NGO Centre for Science and Environment (CSE) accused Coca-Cola of making and selling products that contained pesticides (Crane, 2014:39). Tests by the Indian government showed that there were pesticides in the company’s soft drinks that violated international standards, but were within national standards. CSE also accused Coca-Cola of polluting water sources using effluents from its plants, and over utilisation of groundwater sources. These accusations were a major blow to the company’s image, especially in a market as large as India. The company’s profits, particularly in India, were seriously affected by these developments, and the company had to come out to defend itself and rebuild its tainted reputation amongst Indians. Some customers boycotted some of its products while others fanned negative publicity for the company. Although its initial responses were poor, it launched a long-term plan that ensured that it would involve Indian communities in its CSR strategy (Crane, 2014:39). In 2008, five years after the incidents, the firm released its novel environmental performance report on Indian operations. In addition, it established Anandana, the Coca-Cola Indian Foundation, which cooperates with local communities and NPOs to handle water issues. Finally, and most importantly, Coca-Cola launched many community water initiatives across India. The Rainwater Harvesting Project, for example, involved the State Ground Water Boards, NGOs, NPOs, the Central Ground Water Authority, and communities (Crane, 2014:41). Its aim was to handle water scarcity and declining groundwater levels using rainwater harvesting technologies in 17 Indian states. These efforts show not only the role but also the impact of stakeholders on CSR. Conclusion This paper shows that stakeholders have a vital role to play in CSR. Over the years, these roles have become more active than passive and have created new channels for shareholders, employees, and investors to question and contribute to CSR development. It can only be assumed that in the future, stakeholders will have more prominent roles to play than they do now and that stakeholder engagement will improve considerably as a result of greater recognition of their significance. References Atay, B. 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