LO6
EXPLAIN STAKEHOLDER THEORY
Stakeholders are all the groups affected by a corporation’s decisions, policies and operations. The
number of stakeholders and the variety of interests that a company’s management must consider
when setting its aims and objectives can make decision making a complex process. The amount of
influence would depend upon the amount of power each group of stakeholders could wield and
this will tend to vary over time.
Stakeholder theory suggests that there is a number of groups to which a business is answerable
when pursuing stated aims and objectives. Traditionally it has been held that these will be the
shareholders, customers and employees of the business – a very narrow definition that concentrates
on those groups involved directly with the organisation.
ENVIRONMENTAL MANAGEMENT: AN ISSUE OF CORPORATE RESPONSIBILITY
Organisations accepting responsibility for the impacts of business process upon air, land and water
is just one of the issues to be addressed within the debate on business attitudes towards corporate
responsibility.
improve their understanding of the issues and resolve the identified problems; in particular, to
reconcile the perceived need for economic growth with the demand for greater environmental
protection and reduced levels of ecological degradation.
as beneficial to the well-being of a society and as an important influence on the quality of life of
its citizens.
consumption have generally been encouraged and welcomed, even though their detrimental effects
on the natural environment have been recognised for some time.
It is the philosophy of sustainable development that many argue is the only way forward for the
world economy. The problem of environmental degradation is closely related to the issue of
economic growth, and both industry and society need to balance environmental protection with
economic development.
of conflicting interests but also in the relative lack of information on the relationship between
economic development and its long-term impact on the natural environment.
environmental revolution is needed which may require a dramatic change in the behaviour of
society and industry as both consumers and producers.
widely accepted view that environmental policy needs to be formalised and coordinated at
international level if it is to be effective in tackling the salient issues. ‘Top-down’ approaches,
however, can only be part of the overall solution and much depends on the actions of firms and
individuals in the market place and on their willingness to accept responsibility for their own
behaviour and its consequences.
CRITICISING BUSINESS RESPONSE TO ENVIRONMENTAL CONCERNS
Corporately responsible actions and/or expenditures have a trade-off cost: the alternatives that the
money, resources, time and effort could have been used for if they had not been devoted to more
socially oriented goals, this is generally known as the ‘opportunity cost’, the notion that in a world
of finite resources, whatever a business chooses to do, it does at the expense of something else, the
opportunity forgone. As a result, the timing of returns is a critical factor in the decision-making
process.
The returns to investment in greater environmental responsibility are, however, likely to be of a
long-term nature, a situation which may offer little comfort to firms, particularly small businesses
that are fighting for survival and need short-term returns. Thus while businesses, in general, may
want to provide a more environmentally responsible policy – particularly if their stakeholders are
forcing them to look to the wider concerns of business practice and process – the implementation
of such a policy may only occur if it is deemed to be in the best interests of the business: that is,
where the resources are used in an optimum way to provide sufficient reward for the hierarchy of
stakeholders.
In order to develop greater environmental awareness in business it is necessary to review the way
objectives are prioritised to take account of the viewpoints of indirect stakeholders, thus ensuring
that the issue of sustainable development is brought on to the corporate agenda.
Conclusion
the conclusions reached highlight the fact that organisations will not normally pursue a proactive
role in the development of environmentally responsible policies. The initial short-run costs are
prohibitive when the payback is generally assumed to be over the long term. What might be
required is a re-education of those involved in the decision-making process so that they understand
the benefit of aand can identify policies that offer a sustainable competitive advantage over time.
This is true for all strategy and is therefore applicable to the implementation of environmental
policies.
IDENTIFY INTERACTION OF BUSINESS AND SOCIETY
relationship is defined as how a company interacts with society. There is an obvious and symbolic
relationship between business and society that has been observed and evaluated for generations.
that make us feel the sense of being with others and having a discussion as a part of the exchange
of ideas.
tion exists in all forms of our society and includes business, family and all sorts of
groups and entities. Thus we can say that human beings are social elements and like to be with
others like them. This makes the foundation of strong connection between business and society.
an organization. The important fact to remember is that business is about relationships and a
successful firm is the one that is able to build good and long-lasting relationships with its
customers.
to maintain good relationships with customers so that they can stay connected with the
organization even during the event when the competition is offering better prices and better
services.
organizations form special departments solely for the purpose of maintaining relationships with
the customers and employees in the firm. Strong relationships are needed to exist with the
management committee at the topmost level in the firm.
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and is well evident everywhere and the firms today need to focus at this aspect more than anything
else to ensure success.
Cost-benefit analysis is one technique which attempts to set out and evaluate the social cost and
benefits of an action. The essential difference between cost-benefit analysis and ordinary
investment appraisal methods used by firms is the stress on the social costs and benefits, and such
an approach can prove problematical.
Two specific difficulties arise:
1 The measurement of physical units such as improvements or otherwise in the quality of life.
2 The complexity involved in reducing all costs and benefits to some common unit of account
in order to offer a degree of comparison. Since the unit of account most commonly used is
money, this means that values must be attached to environmental degradation, resource usage
and in some instances human life.
METHODS OF ENCOURAGING ENVIRONMENTAL CONCERNS
The quality of the existing environment and improvements in it would be regarded by economists
as a form of public good. This is a good for which the principle of exclusion does not apply; it can
be jointly consumed by many individuals simultaneously, at no additional cost and with no
reduction in the quality or quantity of the public good consumed by any citizen.
Government intervention
Direct action by government within the business sector has not led to improved environmental
responsibility. Nationalised industries have not been the bastions of the ecological environment
and in some instances in the United Kingdom (e.g. the ‘tall stacks’ policy) have appeared to
disregard the environmental degradation that they created. Indirect action through regulation or
legislation may be more effective, but this is not in keeping with the general policy of laissez-faire
which operated in the United Kingdom under the Conservative government throughout the 1980s
and in the 1990s and has been largely followed by the Labour government post-1997.
Market mechanisms
The increased level of environmental awareness among the population – owing to the easier
availability of information – has already led to more informed choices being made by various
stakeholder groups that interact with business.
Customers, suppliers, employees and investors are all more aware of their responsibilities to the
environment, and there are various ways in which their considered decisions can influence the
overall objectives of business and ensure that the organisation is corporately responsible for its
actions.
Increasingly, discerning consumers offer a powerful inducement to firms and despite the lack of
perfect information some product switching is already occurring.
Firms seeking to maintain current market share, or looking for new opportunities, must be aware
of these changes. There has been a number of eco-labelling schemes that have been developed
which have assisted consumers in identifying products which are thought to have the least impact
upon the environment in their particular class.
External pressure
There has been a considerable amount of pressure from external groups upon business; these have
ranged from ad hoc groups formed in local communities to large transnational organisations like
Greenpeace.
The size and scale of the groups may differ but their objectives are similar: to use whatever power
they have at their disposal to influence the decision-making process, and there have been a number
of notable successes.
For many groups, however, this does not go far enough and accordingly the calls for increased
democratisation of the decision-making process to include wider stakeholder groups are becoming
more frequent and vociferous As noted previously, industry is frequently the holder of the
information and expertise required for the effective and efficient implementation of regulation. To
regulate, the government has to acquire that information and this can be an expensive process.
However, if industry were to self-regulate and adopt environmental controls without waiting for
the government, then this process of information gathering could be avoided.
IDENTIFY BENEFITS TO BUSINESS FROM THE IMPLEMENTATION OF
ENVIRONMENTAL POLICIES
In order for organisations to improve environmental performance there needs to be an increase in
information and training, not simply about the environmental consequences, but also concerning
the benefits that are being obtained by organisations that are adopting greater corporate
responsibility.
Efficiency of factor inputs
Business strategists as well as organisations have already generated a considerable amount of proenvironmental jargon; PPP (Pollution Prevention Pays), WOW (Wipe Out Waste) and WRAP
(Waste Reduction Always Pays) are some of the better-known acronyms. The obvious message is
that more efficient use of materials and energy will reduce cost, provide a positive effect on the
company’s accounts and improve the ‘bottom line.
Improved market image
The image that organisations portray to the rest of society is increasingly important, owing to the
development of rapid information flows. Creating this image can be expensive and resources may
be wasted as a result of a careless action or remark.
Providing new market niches
The clear message from the market is that there is a growing number of consumers who are
prepared to be more discerning about the type of goods they buy, thereby taking into account the
impact their purchases have upon the environment. As a result, a number of market niches has
developed and this has proved attractive to business, given that consumers are prepared to pay
extra for a product that is less harmful to the environment. In many cases this means that margins
can be increased, a factor which is contrary to current market trends.
SUMMARY OF KEY POINTS
for the effects of their actions on people, their communities and the environment.
e traditional
concerns with profitability and growth.
Increasingly, business organisations have to take account of the views of their stakeholders on
questions of social responsibility.
operations and decisions on the natural environment.
more
proactive environmental approaches which go beyond compliance with regulatory demands.
market forces, external pressures and self-regulation by organisations.
efficiency, enhanced market image, new market opportunities, increased competitive advantage
and anticipatory reaction.