Chapter 6: Stakeholders & institutions

Question 1

What is shareholder value?

Answer 1

Milton Friedman developed the doctrine as a theory of business ethics that states that “an entitys greatest responsibility lies in satisfaction of the shareholders.” Therefore, the business should always aim to maximize its revenues to increase returns to the shareholders.

Question 2

What is stakeholder theory?

Answer 2

R.E Freeman said that a firm should create value for all stakeholders, not just shareholders. This is a perspective that stresses the interconnected relationships between a business and its customers, suppliers, employees… and others who have a stake in the organization.

Question 3

What is the definition of stakeholders?

Answer 3

Stakeholders are individuals or groups that
depend on an organisation to fulfil their own goals and on whom, in turn, the organisation depends on

Question 4

What are the five different categories of stakeholders?

Answer 4

Economic stakeholders.

Social/political stakeholders

Technological stakeholders

Community and society stakeholders

Internal stakeholders

Question 5

What is stakeholder mapping?

Answer 5

Also called the power/attention matrix. There’s so many stakeholders: categories them and understand the priority stakeholders by mapping them.

Question 6

Which are the four different groups in the power/attention matrix? (Stakeholder mapping)

Answer 6

A. Key players (high attention and high power)
B: Sleeping giants (low attention but high power, keep them satisfied)
C: Gadflies (high attention but low power)
D: Irrelevants (low power and low attention)

Question 7

How can you deal with different expectations of stakeholders?

Answer 7

CSR
Triple Bottom Line
Shared Value
Hybrid organization (different institutional logics)

Question 8

What is organizational purpose?

Answer 8

Purpose defines what an organisation is FOR; what they are trying to achieve with their strategy. But coherence around purpose is hard to achieve with the potential for conflict, particularly between financial and non-financial forms of value. Therefore it is important to address the relationship between purpose and the goals of various stakeholder groups.

Question 9

What creates organizational purpose?

Answer 9

It is the goals of stakeholders (investors, costumers, employees and communities) that typically inform organisational purpose.

Purpose becomes strategic when it is incorporated into the mission, vision and objectives of the organisation.

Question 10

What is CSR?

Answer 10

Corporate social responsibility. It is the commitment by organizations to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as the local community and society at large.

Question 11

What are the 4 different approaches to CSR?

Answer 11

The four approaches to Corporate Social Responsibility describe how different organizations view their responsibility to society.

1. Laissez-faire:
   This approach is hands-off, where companies believe they should focus on making a profit and not worry about social issues beyond what the law requires.
2. Enlightened Self-Interest:
   Here, companies do some good for society, but mainly because they believe it will benefit their business in the long run (like improving their reputation).
3. Forum for Stakeholder Interaction:
   In this approach, companies actively engage with their stakeholders (like customers, employees, and local communities) to understand their needs and address them.
4. Shaper of Society:
   • Explanation: Companies with this approach see themselves as responsible for leading and driving positive changes in society, even beyond business interests.

These approaches range from minimal involvement (laissez-faire) to proactive engagement (shaper of society), depending on how the company views its role in society.

Question 12

What are the critiques of CSR?

Answer 12

Greenwashing at a firm level and product/service level.

Question 13

What are the critiques of Triple Bottom Line?

Answer 13

Just used as an accounting tool and not set into practice.

Question 14

What is the Triple Bottom Line? (3)

Answer 14

The Triple Bottom Line (TBL) is a framework that expands the traditional focus of business performance from just financial outcomes to include social and environmental impacts as well. It emphasizes the idea that companies should measure their success not only by profits but also by their contributions to people and the planet. (also called the three Ps; profit, people and planet.)

The factors of TBL include: economic, environmental and social.

Question 15

What is a hybrid organization and how can they create value and be managed?

Answer 15

A hybrid organization combines values and structures that normally would not go together. Having different institutional logics. Like Capio being in the public sector, healthcare, but is privately owned, meaning they are for-profit.

1. Shared value approach (Virtuous cycle model)
   Strategy is set to serve both social and financial objectives at the same time. The social and financial feed into each other in a self-reinforcing circle. For instance, more better healthcare will be great both for patients that receive high quality care and for the shareholders, since it might attract more patients and hence increase revenue.
2. Dynamic balance model
   Fits situations where social and financial objectives conflict with each other. So there are real trade-offs between objectives.

Question 16

What is the dynamic balance model and what are the three ways of managing it?

Answer 16

The dynamic balance model is one out of two ways to manage hybrid organizations.
Using the dynamic balance model fits situations where social and financial objectives conflict with each other. So there are real trade-offs between objectives.

The three ways of managing it are as follows:

1. Establishing organisational guardrails
Top managers can install structures or systems that safeguard the social aspects. The guardrails sets boundaries for organizational conduct. It never goes to more social or financial.

2. Dynamic decision-making
Decision makers recognize the important of responding flexibly to changing circumstances. Ex: Lululemon balances between a employee-centric culture and a more hard managerial style. The company avoids being at some of the extremes and instead readjusts as the circumstances require. In favorable economic times, it might be possible to do more for social goals, and in tougher times it might be better to focus more on the financial goals.

3. “Both/and” leadership
Leaders need to be committed to both social and financial aspects of organisational purpose, not se themselves as the guardians of just one or the other. Both/and is better than either/or. A CFO should care about social and financial goals.

Question 17

What is the shared value approach and what are the three key opportunities for creating shared value?

Answer 17

Shared Value is a concept noted by Porter and its one way of dealing with different expectations of stakeholders, particuarly for hybrid organizations. It is closely connected to the virtous cycle model.

The idea of shared value is about businesses making money while also helping solve important social problems. Instead of just focusing on profits, companies can create value for both themselves and society. It will be a win-win situation where businesses help solve societal issues while also boosting their own success. Social demands are not a constraint but a source of economic opportunity.

The three key opportunities for creating shared value are

1. Re-imagining Products and Markets:
   Companies can create products that solve real-world issues. For example, instead of just making food that tastes good, food companies could focus on making healthier options that benefit people’s health.
2. Re-defining productivity in the Supply Chain:
   Companies can save money and help the environment by changing how they get their materials. For instance, they can buy locally, which reduces both shipping costs and carbon emissions.
3. Supporting Local Communities:
   Companies can invest in the communities where they operate. For example, they might help improve local schools or training programs, which benefits both the company (by building a skilled workforce) and the community.

Question 18

What is the critique of shared value? (4)

Answer 18

1. Unoriginal:
   Critics say the concept of share value isn’t really new or groundbreaking. Businesses have long been trying to do good while making profits, through corporate social responsibility (CSR) or ethical business practices. So, the idea of balancing social impact and business goals isn’t something new, even if it’s being packaged differently as “shared value.”
2. Ignores the Tensions between Social and Economic Goals:
   In reality, businesses often face trade-offs between doing what’s best for society and what’s best for profits. For example, paying workers more or reducing environmental harm can cost companies more money. Critics argue that the shared value approach oversimplifies this and assumes that doing good for society will always be good for business, when sometimes these goals can conflict.
3. Naive about Business Compliance Challenges:
   Critics say that shared value doesn’t fully acknowledge how hard it can be for companies to follow laws, regulations, or ethical standards in complex industries or countries with weak regulations. Implementing shared value might sound easy, but in practice, businesses face major challenges like corruption, political instability, or conflicting legal standards.
4. Shallow Understanding of the Corporation’s Role in Society:
   Critics argue that the shared value concept has a narrow view of what businesses should do in society. It focuses too much on what benefits the company and its profits, without recognizing that businesses have broader responsibilities—such as addressing inequalities, labor rights, or environmental impacts—even if these don’t directly improve profits.

By Crane et al, 2014.

Question 19

What are the strengths of shared value? (2)

Answer 19

1. Elevates social goals to a strategic level
Traditionally, companies focused on profit maximization, often viewing social responsibility as a separate concern. The shared value concept encourages businesses to integrate social goals directly into their core strategies. This means companies are not just donating to charity or engaging in corporate social responsibility (CSR) as an afterthought; instead, they align their business goals with societal needs.
By addressing social issues (like poverty, education, or environmental sustainability) through their business models, companies can create long-term competitive advantages. For example, a company might invest in local communities, which not only improves those communities but also builds a customer base that supports the business.

2. Aritculates a clear role for governments in responsible behavior
The shared value concept suggests that businesses and governments should work together to tackle societal issues. Governments can create policies that encourage companies to adopt responsible practices. This collaboration helps ensure that businesses contribute positively to society while remaining profitable.
Governments can establish clear regulations that guide businesses in responsible behavior. For example, environmental laws can push companies to innovate in sustainable practices. By providing a framework, governments help businesses understand their responsibilities and the societal benefits of acting responsibly.

By Crane et al, 2014.

Question 20

Give an example of when insisting institutions can be profitable

Answer 20

Teslas electrical car: going beyond the dominant design.

Question 21

What is organizational governance?

Answer 21

Governance is concerned with the structures and systems of control by which managers are held accountable to those who have a legitimate stake in the organization, like the owners.

Question 22

What is the governance chain?

Answer 22

Its where managers and stakeholders are linked together.

Question 23

How can you analyze the relationship in a governance chains?

Answer 23

Principal-agent model.

Question 24

The governance issue in principal-agent theory arise from three problems. Which?

Answer 24

1. Knowledge imbalances (usually the agent (manager) know more)
2. Monitoring limits
3. Misaligned incentives

Question 25

What did Freeman et al say about Stakeholder Theory and The Resource-Based View of the firm?

Answer 25

They explored the similarities between the RBV and stakeholder theory.

1. It is important to build sustainable stakeholder relationships because stakeholders enable a firm to exist (Coase, 1937), because stakeholders are vital to the survival and success of the firm (Freeman, 1984), and because it is simply the right thing to do from an ethical perspective (Donaldson & Preston, 1995).
2. Using the resource-based perspective of the firm is a powerful framework to build sustainable stakeholder relationships (Harrison et al., 2010; Tantalo & Priem, 2016) and to help a firm suc- ceed (Barney, 1991; Wernerfelt, 1995).

Question 26

What did Ronald Coase 1937 say about the combination of relationships and resources?

Answer 26

The combination of relationships and resources are the main reason for a firms existence. This is why stakeholder relationships should be of utmost importance for the firm, since they define the firms existance in the first place.

Question 27

What is the meaning of the article 25 Years Ago I Coined the Phrase “Triple Bottom Line.” Here’s Why It’s Time to Rethink It. by John Elkington

Answer 27

the triple bottom line is a sustainability framework that examines a company’s social, environment, and economic impact

original idea was wider still, encouraging businesses to track and manage economic (not just financial), social, and environmental value added — or destroyed. This idea infused platforms like the Global Reporting Initiative (GRI) and Dow Jones Sustainability Indexes (DJSI), influencing corporate accounting, stakeholder engagement and, increasingly, strategy. But the TBL wasn’t designed to be just an accounting tool. It was supposed to provoke deeper thinking about capitalism and its future, but many early adopters understood the concept as a balancing act, adopting a trade-off mentality.