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Lecture Notes Chapter 4

I. This chapter discusses business responsibility and stakeholder management. It provides an overview of the origins and evolution of business responsibility concepts. The key objectives are to maximize stakeholder value and manage businesses responsibly through stakeholder engagement. II. Stakeholder management is the main tool used to achieve business responsibility. It involves understanding stakeholders through assessment, and interacting with them through engagement. Assessment includes identifying and prioritizing stakeholders, while engagement consists of communication and jointly creating activities with stakeholders. III. The overall goal of stakeholder management and business responsibility is to create shared value for both stakeholders and the company. This can be assessed using measures of corporate social performance.

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478 views

Lecture Notes Chapter 4

I. This chapter discusses business responsibility and stakeholder management. It provides an overview of the origins and evolution of business responsibility concepts. The key objectives are to maximize stakeholder value and manage businesses responsibly through stakeholder engagement. II. Stakeholder management is the main tool used to achieve business responsibility. It involves understanding stakeholders through assessment, and interacting with them through engagement. Assessment includes identifying and prioritizing stakeholders, while engagement consists of communication and jointly creating activities with stakeholders. III. The overall goal of stakeholder management and business responsibility is to create shared value for both stakeholders and the company. This can be assessed using measures of corporate social performance.

Uploaded by

Gontzi Marinus
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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RESPONSIBILITY: MANAGING FOR STAKEHOLDER VALUE

CHAPTER 4
RESPONSIBILITY: MANAGING FOR
STAKEHOLDER VALUE
INTRODUCTION
This chapter focuses on the topic of business responsibility and its core concept of stakeholder
theory. The first section looks at the development of different theories of responsible business,
including critics like Milton Friedman and conceptual milestones like Edward Freemans stakeholder
concept. It follows a description of how the understanding and terminology of business responsibility
has changed from its religious roots to the most current variant of corporate social entrepreneurship.
The first section closes with facts and figures about important institutions in business responsibility
and with an outlook on current advanced business responsibility implementation methods. The
second section takes a conceptual perspective by defining and illustrating different domains and
understandings of business responsibility. This section also provides a practical perspective on the
concept of corporate social performance, and its use in assessing the degree of business
responsibility achieved by a business. The third and last section introduces stakeholder management
as the main management tool in business responsibility. An introduction of salient stakeholder
management tools includes stakeholder identification, establishing stakeholder maps, stakeholder
prioritization, and materiality assessment.

CHAPTER OBJECTIVES
After reading this chapter, students should
. . . know and understand the history of business responsibility.
. . . be able to distinguish the central tools necessary to manage a business responsibility.
. . . manage a business for the creation of stakeholder value.
. . . able to conduct a stakeholder assessment and excel in stakeholder management.

CHAPTER OUTLINE
I.
Origins of Business Responsibility
A.
Business Responsibility: Roots: Religious morality for so many fields has, as
in different disciplines, defined the baseline for responsible business conduct, long
before there was an acknowledged field studying the responsibilities of business. Once
the field had begun to develop, the terminology used and the related understanding of
business responsibility developed through many stages from businessman
responsibility in the 1950s to the current understanding of corporate social
entrepreneurship and corporate responsibility.

RESPONSIBILITY: MANAGING FOR STAKEHOLDER VALUE

B.
Theoretical Advances and Institutionalization: The most significant
theoretical advances of the business responsibility field came with Milton Friedmans
criticism the only responsibility of business is profits, with the popularization of
stakeholder theory through Edward Freeman, and through the Archie B. Carrolls
responsibility pyramid. Prominent institutional developments are the European Union
corporate social responsibility (CSR) strategy, the United Nations Global Compact
(GC), and the ISO 26000 norm.
C.
Status Quo and the Future: During the early 2000s, assuming stakeholder
responsibilities became a true business imperative for big businesses. Nevertheless,
small and medium-sized businesses, businesses in developing countries are lagging
behind in implementation. A new, advanced form of implementation of business
responsibility, featuring the following characteristics is on the way:
Integration: Part of the core business
Transformation: Changes to structure, processes, and products
Scale: Large impact
Entrepreneurship: Opportunity and venture thinking

II.

Concepts of Business Responsibility


A.

Defining Business Responsibility: Business responsibility refers to


voluntarily assuming accountability for social, economic, and environmental issues related
to stakeholders aiming to maximize stakeholder value and applies to all types of business
equally, independent of size, maturity, or organizational structure.
B.

Business Responsibility and Related Terms: Business responsibility can be


subdivided into the two synonyms of corporate responsibility, and corporate social
responsibility. The sub-group of business philanthropy is based on altruism, corporate
citizenship on community thinking, and corporate social entrepreneurship on venture
thinking. Business ethics is often seen as an important foundation of business responsibility,
business sustainability, as one of its main purposes.
C.

Classifying and Interpreting Business responsibility: Business


responsibility can be divided into four sub-domains:
Instrumental: Tool for profit generation
Political: Role of business for society
Integrative: Business can only survive, prosper, and grow if it integrates
stakeholder demands into its activities.
Ethical: Business-society relationship as embedded into an ethical framework
D.

Assessing Corporate Social Performance: Corporate social performance


(CSP) is an umbrella term referring to the assessment made by both qualitative and
quantitative methods used to evaluate the degree of responsibility assumed by a company. A
qualitative assessment of a companys social performance may be based on the following
four performance dimensions:
1) Responsibility category: Type of responsibility assumed based on the CSR pyramid
2) Social responsiveness: Mode of reaction to stakeholder claims
3) Issues maturity: Sophistication of issues covered
4) Organizational implementation stages: Degree to which stakeholder responsibilities
are embedded into a companys processes

RESPONSIBILITY: MANAGING FOR STAKEHOLDER VALUE

III.

Responsibility Management as Stakeholder Management: Responsibility


management is based on stakeholder management. Stakeholder management is the process of
managing relationships with the various groups, individuals, and entities that affect or are affected by
an activity.
A.
The Goal: Stakeholder Value: The goal of responsibility management should be
to create shared value for the stakeholders and the company and to optimize the value
created for the various internal and external stakeholder groups. To optimize stakeholder
value we can resort to the following two principles:
Maximization suggests that we should aim to achieve the maximum possible
stakeholder value.
Fairness suggests that stakeholder value distribution should be fair in process and
outcome.
B.
Management Process 1: Stakeholder Assessment: Stakeholder
assessment is the process of understanding stakeholders and their relationship to a specific
activity; it can be subdivided into two steps, stakeholder identification and stakeholder
prioritization. Tools and processes to be used for stakeholder assessment are stakeholder
maps, stakeholder categories (e.g. external/internal, social/non-social, and prioritization
models (e.g. power, urgency, legitimacy).
C.
Management Process 2: Stakeholder Engagement: Stakeholder
engagement is the process of interaction with stakeholders and can be subdivided into
stakeholder communication and the co-creation of joint activities. A crucial first step for
stakeholder engagement is to involve into a stakeholder dialogue to define the materiality of
issues. Materiality describes the shared importance of a specific issue to both
company and stakeholders.

PRINCIPLES OF RESPONSIBILITY: MANAGING FOR STAKEHOLDER


VALUE (SUMMARY)
I.

Through business responsibility, a company voluntarily assumes accountability for social, economic, and environmental issues related to its stakeholders and aims to maximize stakeholder value.

II.

Responsibility management is an administrative practice centered on stakeholders and


aimed at the maximization of stakeholder value, which is a necessary condition to become a responsible business.
Stakeholder value is created in many different ways and differs from stakeholder to
stakeholder. The goal of responsible business and management is to create shared
value between external and internal stakeholders.
Corporate social performance (CSP) is a theoretical construct that aims at defining the
degree of responsibility achieved by a company. Corporate social performance can be
determined quantitatively and qualitatively. CSP provides an estimate for the amount
of stakeholder value created.
The process of stakeholder management consists of the two tasks: stakeholder assessment (understanding stakeholders) and stakeholder engagement (interacting with
stakeholders).

III.

IV.

V.

RESPONSIBILITY: MANAGING FOR STAKEHOLDER VALUE


VI.

VII.

Stakeholder assessment consists of the two steps of stakeholder identification, through


which stakeholders are mapped, and stakeholder prioritization, through which stakeholders characteristics are understood and categorized by their priority for engagement.
Stakeholder engagement consists of the two steps: stakeholder communication,
through which direct contact with stakeholders is established, and the co-creation of
activities, through which stakeholders and the company start to collaborate for a joint
objective.

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