Stakeholder Relationship Management

This is an important aspect of the author’s interpretation of what constitutes stakeholder theory as it is aimed at ensuring that stakeholders, especially the firm as represented by managers, properly consider the interests of others with whom they have interactions. This is not just limited to the individuals or groups that are referred to as stakeholders, but beyond that is its concern with the relationships that exists therein and their management (Freeman and McVea, 2001). The firm through its managers are deemed responsible for this, specifically because the success of the firm is dependent on the management of its relationships with its stakeholders (Freeman and McVea, 2001; Freeman and Phillips, 2002). The management of these relationships is so important that they could actually determine the survival or otherwise of the business (Campbell & Alexander, 1997). As a result, the satisfaction of shareholders to a large extent depends on the needs of other stakeholders being met (Jamali, 2008), so the needs of these stakeholders must be aligned more closely with the priorities of the firm to get desired results (Wolfe and Putler, 2002). This process of alignment involves “communicating, negotiating, contracting and managing relationships with stakeholders and motivating them to behave in

89 ways that are beneficial to the organisation and its stakeholders” (Harrison & St. John, 1997, p.14). The balancing of these needs in a way that it seems to satisfy all stakeholders, while also being in line with corporate priorities could result in conflicts which stakeholder theory helps to manage (Frooman, 1999). The divergent interests of stakeholders are deemed as making these conflicts inevitable, but efforts must be made to minimise them in these relationships between stakeholders (Key, 1999; Frooman, 1999). This author argues that conflict is avoidable if the management of these interests are done in a way that they do not arise at all, which benefits all stakeholders especially the firm. It is such aggregation of interests that stakeholder theory aims to assist managers in doing, in their bid to continue profit maximization for the owners of the firm and by so doing keep the firm afloat and alive. This makes managers become regarded as one of the firm’s most important and powerful actors (Williamson, 1985) as they referee between employees and investors (Aoki, 1984). They reconcile different stakeholders’ interests on behalf of the firm through the prioritization of stakeholder expectations based on their levels of salience in line with the firm’s objectives (Hill & Jones, 1992; Agle et al, 1999). The need for such an aggregation cannot be over-emphasized especially when viewed in the light of the multiple positions held with regard to interests, so it is expected that managers acknowledge the validity of diverse stakeholders and respond to them in a mutually supportive way (Donaldson & Preston; 1995).

As a result, there arises the need for prioritization of the competing needs that confront the manager everyday (Phillips, 2003) and then give priority attention to stakeholders that they perceive as highly salient as earlier discussed (Agle et

90 al, 1999). However, this needs to be done in such a way as to reflect a balance of different stakeholders’ interests at every point in time, as stakeholders would not work together except they establish the protection of their interests in the achievement of the common aim (Freeman & McVea, 2001). Four steps of stakeholder management are deemed to make this possible which are stakeholder identification, determination of stakeholder stakes, review of stakeholder expectations and adjustment of corporate policies to align with stakeholder needs (Freeman; 1984). Other authors react to the above stakeholder management steps with Polonsky (1995) insisting that the firm will not always be able to adjust its priorities according to stakeholders needs, so should be ready to rather maximise its relationship with stakeholders by modifying the latter’s expectations. Also, monitoring devices and enforcement mechanisms must be put in place to aid the minimisation of one-sided information dissemination which firms undertake to boost their public image (Hill & Jones, 1992). These enforcement mechanisms are meant to put pressure on the firm to do what is required to maintain all relationships with stakeholders (e.g. law, threat of exit or withdrawal and voice). Below we discuss how firms undertake the management of stakeholder expectations as a way of managing their relationships.

3.3.5.1

Firm Strategies

In discussing the ways organisations respond to pressures to conform to societal expectations, Oliver (1991) asserted that there are five strategies used by firms such as acquiescence, compromise, avoidance, defiance and manipulation, all of which have three tactics or forms of exhibition.

91 Acquiescence is undertaken by the firm to attain compliance and conformity to the minimum requirements of operation expected by society, so it is exhibited via habits, imitation and compliance. Compromise is carried out by the application of balancing, pacifying and bargaining as a strategy used by the firm as a way of promoting its interests while avoidance refers to the strategy used by the firm to refuse to conform to expectations, which is done through concealment, buffering and escape. The firm could also decide to use defiance which is more resistant and active than the other strategies, but it has to apply the tactics of dismissal, challenge and attack where necessary. Manipulation is deemed as the highest and most active form of resistance by the firm to pressures, with its tactics being co-optation, influence and control. The presentation of these strategies seems to be in a linear form, whereby the firm could move from one particular level to the next depending on how active and resistant it is at the particular point in time.

Savage et al (1991) proposed four different strategies, involve, monitor, defend and collaborate which were meant to help managers as a stakeholders management guide used to manage the supportive, marginal, non-supportive and mixed blessings stakeholder types. These strategies are presented in the figure below and discussed briefly below with a focus on the various strategies presented by them as well as Fassin’s (2009) application of these to his categorisation of stakeholders.

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Fig. 3.3: Diagnostic Typology of Organizational Stakeholders (Savage et

al, 1991, p.65)

Involve in the figure above is a strategy meant to be used to manage the

supportive stakeholders to make them use their high potential for cooperation to help the firm and its managers achieve success thereby getting them to partake in decision-making and implementation processes. Fassin (2009) applies this strategy to the group he referred to as the real stakeholders as a result of their status and interests in the success of the firm. Monitor is a strategy used for the management of marginal stakeholders who are low on both potential for threat and cooperation since they are only concerned about specific issues and this on rare occasions. Notwithstanding, they should be watched because some issues can trigger one of their potentials to get high depending on how it affects them, whether positive or negative. Defend is used as a management strategy

93 against non-supportive stakeholders because of their high potential for threat and low potential for cooperation, through the reduction of the firm’s dependence on the resources controlled by these stakeholders. However, the authors note that the firm should try as much as possible to see how key stakeholders can be changed from this category, as defending against them might not always be effective especially considering that it has to do with resources that may not have alternatives or substitutes. Fassin (2009) argues that the category he called stakewatchers could be either managed with the defence or monitoring strategies depending on whether they are non-supportive or marginal. Collaboration is proposed as the strategy that works for the management of Mixed Blessing stakeholders, who are in possession of high potential to both threaten and cooperate with the firm. This strategy if properly applied can ensure that it is only the stakeholders’ potentials for cooperation that are emphasised and maximised, while the other potential for threat will not be very effective even though it is present. As a result, these stakeholders could either become Supportive or Non-supportive stakeholders, depending on how they are managed by the managers of the firm. They concluded by insisting that while these strategies can work in specific cases when used by managers, the aim of these should always be to try and convert their relationships with their stakeholders from less favourable to more favourable. Fassin (2009) acknowledged the complexity of the role of the stakekeepers in his categorisation so he proposed that they could be managed via either collaboration or monitoring, depending on the level of their potential for cooperation or threat respectively.

94 Bunn et al (2002) agreed with the above typology of strategies but added leading and education to the list making the strategies six in total, pointing out that in order to decide on what particular strategy to deploy, the firm has to carry out a resource analysis. Polonsky and Scott (2005) also agreed that the above typology is very useful to stakeholder management discourse as it re-echoes the previous work of Freeman (1984), but insisted that it still needs empirical evidence to show its applicability to the management of stakeholder relationships.

3.3.5.2

Stakeholders’ Influence Strategies

In discussing how stakeholders can be managed in order for firms to achieve their goals, Frooman (1999) developed what he referred to as Influence

Strategies. In his opinion, it is one thing to understand stakeholder behaviour

and another to manage such behaviour once they are understood. He argues that this understanding can only be gained by managers when they identify stakeholders, what they want and how they intend to go about getting to meet such needs. This leads to the proposition of four stakeholder influence strategies which are withholding, usage, direct and indirect strategies. These are meant to be used by one stakeholder to manage its relationship with others and not from the myopic point of viewing the firm as the only one that manages stakeholders, forgetting that the firm can also be a stakeholder of others.

Withholding strategies refer to a situation where the stakeholder in question

decides to withhold the resources due the firm as a way of demanding a change in behaviour from the firm. However, for this strategy to work he cited the work of Pfeffer and Leong (1977, p.779) where they insisted that the stakeholder

95 must have the “ability to articulate a credible threat of withdrawal’’ otherwise it would not be taken seriously. The implication of this is that a stakeholder that has power to withhold resources, yet cannot activate such but lets it lie dormant cannot use such as an influence strategy. Nevertheless, he pointed out that despite how important it is for the stakeholder to be seen to possess the ability to carry out the threat of withdrawal, the mere threat of using the strategy could actually be as effective as using it to influence organisational behaviour. Usage

strategies are those ones where the stakeholder still maintains the supply of

the particular resource to the firm, but does so with conditions to be fulfilled attached to such supplies. In both set of strategies there is a demand from the stakeholder on the firm or the other stakeholder for a change of behaviour. Also, withholding strategies can only work in relationships where one party is unilaterally dependent on the other, making it possible for the party depended upon to walk away from the relationship because it really has nothing to lose. So when it is a mutually dependent relationship then it is difficult for any of the parties to withhold their resources from each other, since they need one another and cannot walk away from the relationship.

Direct strategies are those strategies that are applied by the stakeholder in its

relationship with another stakeholder. Withholding and usage strategies are part of the strategies that fall under this category, since they are used by stakeholders against other stakeholders who they are in a direct relationship with. Indirect strategies are usually used in cases where the stakeholder that wants to influence firm behaviour does not have direct relationship with the firm so resorts to using the help of an ally that enjoys such to change firm behaviour.

96 Such an ally can either decide to use withholding or usage strategies as a result of the direct relationship it has with the firm in question.

The above strategies show that both the firm and the stakeholders can manage their relationships with other stakeholders, so it is not just the firms that have to manage their stakeholders and their expectations. The stakeholders also decide either to cooperate with the other stakeholder (firm) or confront it; in the case of confrontation, the stakeholder withdraws the resources under its control which are required by the other stakeholder (firm) in order to meet its goals. On the other hand, there are diverse ways to manage relationships with other stakeholders as can be seen from the ones highlighted above; however whichever is chosen must be aimed at managing stakeholders of strategic importance as partners (Harrison and St. John, 1996). All of these strategies are derived from a focus on the relationships that exists between the stakeholders and not so much of emphasis on the stakeholders themselves. Also, it is noteworthy to point that viewing of this from the point of its effect on the firm only is an anomaly, because the firm itself can also be in a position to withhold its resources as a stakeholder to others. Phillips (2003) tends to agree with the position that a firm can also be regarded as a stakeholder, as he indicates that stakeholder relationships and obligations are normally reciprocal and symmetrical in nature.

3.4 SUMMARY

This chapter has reviewed the literature on CSR and Stakeholder Relationships with their various aspects. The CSR literature shows that there is no generally accepted definition of the concept yet, though the various definitions address

97 the role of business in the improvement of societal welfare but this study takes the perspective that it is now social obligation in the context of the study. There is a dichotomy between the expectations of society and the actual practice as carried out by businesses in their various environments of operation and these need to be managed as part of the company’s business strategy for their impact to be felt. Hence, the focus is meant to be on the stakeholders which explains why the concept is mainly seen as a contribution to community development, especially in the less developed economies.

The stakeholder literature reviewed showed that there is also no consensus on the definition and identification of stakeholders, with various reasons given by authors as being responsible for the granting of stakeholder status. In addition to this, the different elements or attributes deemed critical to making a stakeholder salient in its relationship with other stakeholders, especially the firm are discussed. These attributes are regarded as being key to what category a stakeholder falls into, in terms of its relationship with such stakeholders with whom it is in relationships; while others base their categorisations on the potentials of the stakeholder to threaten or cooperate with the firm as well as relationship with the latter. These relationships between the various stakeholders are either one on one which is referred to as dyadic or interdependent interactions also known as multiple relationships. These relationships are meant to be managed by the various stakeholders in order to maintain their access to the resources they need which brings out power dependencies amongst them. The strategies proposed for the management of

98 these relationships are not just for the firms as earlier posited by Freeman (1984), but also for the stakeholders that these firms interact with.

In carrying out this review, certain points of disagreement on the views of authors have been noted using other authors’ critiques of such works as well as those of the researcher. As a continuation of the review of literature, the next chapter discusses the various theories deemed to be relevant to carrying out this study and answering the research questions as earlier indicated in chapter one.

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CHAPTER IV: THEORETICAL FRAMEWORK