Total stakeholding: leading stakeholder networks to sustainable success

In: MA-Thesis - Master

Abstract

Inhaltsangabe: To introduce this work the author refers to the World Economic Forum Annual Meeting 2011, which took place in Davos from the 26th - 30th of January 2011, its agendas and reports (The World Economic Forum, 2011). At first view this meeting looks like a get-together of several leaders from different backgrounds, meaning leaders from different industries as well as political and religious leaders. But the huge amount of attendees and their position in the world turns this get-together into a platform to discuss strategies and solutions for the world's future economy and how to overcome the latest issues regarding the financial crisis. The theme of this year's meeting was 'Shared norms for a new reality', indicating, that the world has reached a turning point where change is important to assure a sustainable future. Abhisit Vejjajiva, Prime Minister of Thailand, for example states 'Governments and businesses should start revising their social contracts with their stakeholders in the light of the new realities of the post-crisis world". Furthermore his concern is that today's leaders are mostly just focused on the short-term success, due to the high pressure from their shareholders and thus work in their own borders without caring about the common good outside the borders in order to generate sustainable success. This concern gets a higher emphasis by Indra Nooyi, Chairman and CEO of PepsiCo, who actually attacks today's businesspeople and want to send them back to university because they just aim for short-term profits, rather than worrying about a sustainable future. In addition it is about the future leadership role of China considering multi stakeholders to achieve win-win solutions (Victor Chu, First Eastern Investment Group), leadership for people (Christine Lagarde, French Minister of Finance) and finally an optimistic outlook for the future, especially Europe, and the request of change and more transparency by David Cameron, Prime Minister of the United Kingdom. At the end buzzwords like stakeholders, sustainability, partnership, social responsibility, growth, balance and responsible leadership, just to name a few, can be found throughout all statements. As a matter of course all these statements are in a broader context meaning global issues, but can easily transferred to normal businesses. Reason for this project: Sustainability has become, as seen above, a huge topic paired with a more social behaviour for the common good and let the feeling arise that a new era has begun, that some of the main leaders have started to develop a new 'Zeitgeist". The question now is how this dissertation can contribute to the on-going change in order to achieve sustainable success. Sustainable success is depended on the competitive advantages, which is often tried to gain through reengineering, process improvement, etc. According to Huber, Scharioth, Pallas (2004) this is initially a good idea, but even if there are differences putting these into practice, the performance standard is often quite similar and the competitive advantage, which is won by these initiatives, is not as significant as desired. That is why they are putting the emphasis on stakeholder management with the purpose to not left the relationships with stakeholders on its own. Stakeholder management is actually an idea developed within the 80's by Freeman (1984) in order to strategically align the stakeholder's interest, using a rough framework, finally resulting in improved success (Stoney Winstanley, 2001). Success is nowadays often seen in form of financial benefits and at least in this point Berman, Wicks, Kotha, Jones (1999) see a positive impact on the part of stakeholder management. Nonetheless sustainable success is not just about finances and thus it is interesting to investigate what sustainable success is and how stakeholder management nurtures all its components. But why is each stakeholder so important? Giving some examples according to Huber, Scharioth, Pallas (2004), it points out that no matter if employees or suppliers they all have an essential impact on the business. Employees for instance have a high impact on the customer retention and company's profitability (improvement of 20% - 50%) and therefore put before customer by Nayar (2010). On the other hand suppliers need a lot of attention, due to 'Outsourcing', 'Lean' and scarcity of raw materials, to get required quality, quantity and delivery time. But also other external stakeholders are from high importance to avoid higher financial risks, as already pointed out in the 1990s by McGuire in Savage, Nix, Whitehead, Blair (1991), and thus must be managed well in order to not loose the support of a specific group and thus getting hindered on the journey to sustainable success (Reynolds, Schultz, Hekman, 2006). This is where 'managing", also understood as 'balancing" (Avery, 2005), the different interests comes into play, whereas it can become difficult, if the company is highly depending on one specific stakeholder. This could be an investor, who is holding a lot of shares, or a supplier, who is having a monopole, leading to generated bias and an exposure of sustainability (Savage, Nix, Whitehead, Blair, 1991). Furthermore a company or a company network respectively, is seen as an alliance of stakeholders (Freeman, Harrison, Wicks, 2007), and their sustainable success is ensured by sticking together and behaving like a moving target (De Wit Meyer, 2005), in order to withstand evolutions in the industry and the corresponding challenges. It also could be refereed to a company as organisation, an amalgamation of people or groups of people with the aim of accomplishing productive activities, which is seen as difficult on an individual basis (Chemers, 1997). However there are also arguments against stakeholder management as enabler for sustainable success (Stoney Winstanley, 2001), at which the only purpose of a company is seen by Friedman (1962) in Stoney Winstanley (2001) in making profit and thus stakeholder management is an attack on the individual wealth of shareholders (Sternberg, 1997). In addition stakeholder management has found one of its biggest critics in Stoney Winstanley (2001) who complain about the complexity of this approach and finally its misuse as just a new tool to control the participants. Nonetheless these concerns are generally based on traditional and old-fashioned views and the question arises if the time is ripe for change, meaning the move away from just sustainable shareholder success. Considering the criticism above it seems that one of the biggest drawbacks of stakeholder management is the actual realisation, meaning the consideration of everyone's interest. This is why De Wit Meyer (2005) see good leadership skills as crucial to balance the discrepancies mostly between shareholders and other stakeholders, and lead through an alliance with different partners, affected by mistrust, due to fear that others always want a bigger part of the cake. So one major pitfall of leaders regarding stakeholder management is that of avoiding bias. There are differences between the stakeholders, for instance regarding the flexibility. Employees are mostly depending on their workplace, whereas shareholders can always choose from a wide range or portfolio of possible investments and therefore the risk of favouring shareholders is quite high (De Wit Meyer, 2005), caused in their higher direct influence (Savage, Nix, Whitehead, Blair, 1991). Additionally it should be born in mind that CEO's and the board often hold a share of the own company or are even obligated to, according to several financial reports (e.g. Finsbury, Reckitt Benckiser). Thus the own opulence is affected by the profitability of the company. In this case a bias is self-evident. On the other hand advocates of stakeholder management see the necessity for shareholder value (Freeman, Harrison, Wicks, 2007), but state that it can be just sustainably realised if it is not seen as the main purpose, according to William George, chairman of Medtronic, in De Wit Meyer (2005). Instead of focusing on shareholder value, the actual focus should be concentrated on 'customer satisfaction" and 'integrity" as stated by Porras Collins (2005). In addition a motivated workforce can be seen as a crucial aspect of sustainable success, due to difficulties of competitors to copy it (De Wit Meyer, 2005). Buying in the workforce, but also other stakeholders, by creating a vision, maintaining it and finally make it live through the whole company is seen as one of the major and most difficult tasks of a leader (Ware, Michaels, Primer, 2004) and thus leaders often lacking clear direction during this task and therefore fail (Wheeler, Fabig, Boele, 2002). In order to make the organisation in a highly competitive market successful it is important to have a stable financial support, but also a highly trained and motivated workforce (Post, Preston, Sachs, 2002), often requiring a crucial change in the fundamental structure, like financial and/or ownership model (Avery, 2005). These changes are hindered by insufficient human resource models and techniques, the question how to get the employees aboard and finally the persuasion of the upper management, shareholders, etc. (Simmons, 2003). This can be eased the more the leader is convinced of the performance improvement using stakeholder management (Stoney Winstanley, 2001). The fact that people already having assets and power are not willed to share this (Gamble Kelly, 1996) and thus will defend it with all legal means or maybe also illegal, does not make it easier for the leader to put stakeholder management through. The globalisation and the expansion of companies throughout the world held another challenge for the leaders. Business policies must be kept flexible, as basis to deal with different countries, cultures and thus unusual competitive and social conditions and at the same time stick to the fundamental values and principles of the organisation (Post, Preston, Sachs, 2002). Talking about flexibility, it is important to see the flexibility of stakeholders in terms of changing from a supporting to a hampering position (Savage, Nix, Whitehead, Blair, 1991) and therefore the necessity to always reassess the importance and influence of stakeholders (Reynolds, Schultz, Hekman, 2006). In addition leaders need to focus on the right stakeholders in the right situations, different from the CEO of Eastern Airlines who was focusing during a strike just on the stakeholders with the loudest voice, and thus ran into serious trouble regarding the other parties of the strike (Savage, Nix, Whitehead, Blair, 1991). Additionally an issue arises that stakeholder may get the feeling that the decision-making regarding stakeholders is negatively influenced by divisibility of resources, saliency, incentives and sanctions (Ogden Watson, 1999) and let fade away the initial willingness to find a fair balance (Reynolds, Schultz, Hekman, 2006). This is why leaders must be prepared for the future challenges, which are a lot more complex, due to a wider range of expectations by the stakeholders, globalisation and more common pressing problems. So finally wrap the power of all stakeholders to a 'value network", considering the creation of social capital and a benefit for every participant (Maak, 2007) is the responsibility of the leader. Stakeholder Management provides a framework, a concept, which can be used by leaders, who are at the end the persons decide how stakeholder management is understood and what is the driving motivation behind its implementation (Stoney Winstanley, 2001). It was even thought about legislating SM and thus make it compulsory for companies, what is seen critical by Stoney Winstanley (2001), because in their opinion company's leaders should practice stakeholder management voluntary and chose their driver for motivation themselves. Today's environment and the resulting circumstances are continuously changing and require a leader who is always questioning the current status of a company and its direction in a constructive and meaningful way (Ware, Michaels, Primer, 2004). Therefore the leader is seen as a key catalyst in defining success of a company (Shinkle, Gooding, Smith, 2006) and also in order to make change happen to the benefit of sustainable success. Seeing sustainable success as a long-term goal leaders are confronted and hindered by external requirements, like the publication of financial reports (Avery, 2005) and thus it becomes a challenge for them to remain committed and thus have the required authentic 'tone at the top" (Freeman, Harrison, Wicks, 2007). They will decide about success or failure of changes while acting as a role model and therefore have the requirement of caring about ethics and social responsibility, rather than just on making quick money. Finally it is about the ensemble of stakeholders and leaders who need a practical guideline to make their contribution for the organisation's and common good, leading to the following research question and its supporting objectives. Research content: Research question: 'What elements and characteristics of leadership would help organisations to achieve missing sustainable success through effective stakeholder management?' Supporting objectives: - Investigate and define sustainable success, stakeholder management and leadership with the purpose to identify what is understood by it and what are their characteristics. - Investigate the correlations and dependencies between sustainable success and stakeholder management to approve their complementarity. - Identify how leadership can overcome possible barriers of balancing stakeholders and creating sustainable success. - Investigate existing guidance and frameworks for the creation of sustainable success, in order to underpin their validity or propose modifications. Scope: The scope of this work is chosen very broadly, due to the nature of the project and its research areas. It is about management in general and is not aiming to be specialised on a specific industry or region. Reason therefore is the involvement of several parties, eventually coming from different industries and indeed the globalisation that does not allow investigating management tools with a narrowed regional view. However the scope is laid on business organisations. Therefore the outcome is neither focused on politics, an area worth investigating in the context of stakeholder management, nor religion. Purpose and contribution: The purpose of this work is to show companies and their leaders a way to manage their stakeholders in form of a proposed framework, to achieve sustainable success. As already mentioned in the introduction, an atmosphere of departure has arisen, due to the last happenings within the economy as well as in the politics. The outcome of this work will be an initiation to change by showing leaders how their characteristics can help to establish a win-win situation between stakeholders. Furthermore it shows the need for today's leaders to care about all stakeholders and that this is not just a matter of instruments, concepts and tools to achieve a balanced stakeholder environment, it is more about the mind-set, behaviour and confidence of the leader itself. It requires a lot of energy and stamina to achieve sustainable success and leaders will face a lot of problems and confrontations. Presenting these issues and discuss them in depth will hopefully support them to defend their view of organisational success.Inhaltsverzeichnis:Table of Contents: LIST OF FIGURESVI LIST OF TABLESVII LIST OF ABBREVIATIONSVIII 1INTRODUCTION1 1.1BACKGROUND OF THE TOPIC AN REASON FOR ITS CHOICE1 1.1.1INITIATION FOR THE PROJECT1 1.1.2REASON FOR THIS PROJECT2 1.2RESEARCH CONTENT8 1.2.1RESEARCH QUESTION8 1.2.2SUPPORTING OBJECTIVES8 1.2.3SCOPE8 1.2.4PURPOSE AND CONTRIBUTION9 1.2.5CHAPTER OVERVIEW10 2THE MANUAL - RESEARCH METHODOLOGY12 2.1FOREWORD12 2.2RESEARCH THEORY12 2.2.1RESEARCH PHILOSOPHY12 2.2.2RESEARCH APPROACH14 2.2.3RESEARCH STRATEGY14 2.2.4THE TIME HORIZON15 2.2.5THE ENQUIRY16 2.3RESEARCH IN PRACTICE17 2.3.1RESEARCH AREA17 2.3.2RESEARCH GUIDELINE18 2.3.3RESEARCH INFORMATION RESOURCES21 2.3.4RESEARCH KEYWORDS24 2.3.5USABILITY OF DATA27 2.3.6HANDLING OF FINDINGS30 2.4CONCLUDING REMARKS31 3THE AIM - SUSTAINABLE SUCCESS32 3.1SUBSTANCE32 3.1.1THE COMPONENT SUCCESS32 3.1.2THE COMPONENT SUSTAINABILITY34 3.1.3THE OUTCOME SUSTAINABLE SUCCESS40 3.2THE IMPORTANCE OF SUSTAINABLE SUCCESS42 3.2.1GENERAL42 3.2.2AFFECTING PEOPLE42 3.2.3AFFECTING FINANCES43 3.2.4AFFECTING REPUTATION44 3.2.5AFFECTING ETHICAL RESPONSIBILITY45 3.2.6AFFECTING RESPONSE TO REGULATIONS AND LEGISLATIONS46 3.4BARRIERS OF ACHIEVING SUSTAINABLE SUCCESS48 3.5CONCLUDING REMARKS51 4THE TOOL - STAKEHOLDER MANAGEMENT52 4.1THE BASICS52 4.1.1DEFINITION52 4.1.2DISTINCTION OF STAKEHOLDERS54 4.1.3PRINCIPLES OF STAKEHOLDER MANAGEMENT58 4.1.4STAKEHOLDER MANAGEMENT THEORIES60 4.1.5PUTTING STAKEHOLDER MANAGEMENT INTO PRACTICE64 4.2LINK TO SUSTAINABLE SUCCESS65 4.3CONCLUDING REMARKS71 5THE ENABLER – LEADERSHIP72 5.1DEFINING LEADERSHIP72 5.2THE LINK OF LEADERSHIP TO STAKEHOLDER MANAGEMENT73 5.3REQUIRED LEADERSHIP CHARACTERISTICS76 5.3.1REALISTIC76 5.3.2INTELLECTUAL / NOUS77 5.3.3DISCLOSING78 5.3.4GENEROUS78 5.3.5GOOD FAITH79 5.3.6SOLID80 5.3.7VISIONARY82 5.3.8RIGHTEOUS83 5.5CONCLUDING REMARKS85 6THE PROPOSAL - TOTAL STAKEHOLDING86 6.1CRITERIA FOR USEABLE FRAMEWORKS86 6.2EXISTING MODELS87 6.2.1FREEMAN'S MODEL REDEFINED87 6.2.2THE EFQM-MODEL90 6.3THE DEVELOPED FRAMEWORK95 6.3.1GENERAL DESCRIPTION95 6.3.2USER'S MANUAL97 6.3.3STAKEHOLDER98 6.3.4LEADERSHIP101 6.3.5SUSTAINABLE SUCCESS101 6.3.6PLAN-DO-STUDY-ACT (PDSA)104 6.4DISCUSSION OF FRAMEWORKS AND VALIDITY OF THE PROPOSED108 6.5CONCLUDING REMARKS113 7DISCUSSION114 7.1SCOPE114 7.2SUSTAINABLE SUCCESS115 7.3STAKEHOLDER MANAGEMENT116 7.4LEADERSHIP118 7.5SPECIFIC LITERATURE119 7.6METHODOLOGY DATA COLLECTION120 8CONCLUSION122 9LIMITATIONS RECOMMENDATIONS FOR FURTHER WORK124 9.1RESILIENCE124 9.2QUADRUPLE BOTTOM LINE124 9.3GROWTH125 9.4CONTRACT THEORY125 9.5ORGANISATIONAL STRUCTURE126 9.6SCORING SYSTEM126 10REFERENCES127 11BIBLIOGRAPHY157 12APPENDICES157 12.1WAYS OF DATA COLLECTION157 12.1.1SURVEYS157 12.1.2CASE STUDIES158 12.1.3SECONDARY DATA158 12.2SEARCH STRING TABLE160 12.3DETAILED STAKEHOLDER LIST161 12.4STAKEHOLDER ALLOCATION TO SUSTAINABILITY ASPECTS169 12.5IDENTIFIED STAKEHOLDER BY FASSIN (2009)170 12.6RADAR ASSESSMENT FOR RESULTS171 12.7RADAR ASSESSMENT FOR ENABLER172Textprobe:Text Sample: Chapter 5.3.6, Solid: The personality of a leader decides whether the leader is anxious of loosing control and power, so that especially wrong strategic decisions are made due to prescient from involving others in the decision-making process (Delbecq, 2008) and not considering their opinion (Avery, 2005:216). Furthermore a strong leader's personality may benefit from a good sense of humour, suggested by (Kets de Vries, Doyle, Loper, 1994) as well as hope, that does not let him give up (Thomas Thomas, 2011). Hope is a crucial point in stakeholder management, with the aim to motivate and therefore overcome the difficulties of making it successful. But finally bravery is a personal characteristic that let the leader stand up fight for the right thing, an important step on the way to stakeholder management (Avery, 2005:79). Collins (2001:21) has done comprehensive research on great leaders and even though he just find a few of them he points out one important characteristic of great leaders: putting the greatness of the company above all. This also means to put it above the own interests, obviously a giant task and thus often doomed to failure. But this does not undermines the importance of this characteristic with regard to stakeholder management. To make this clockwork of stakeholders work the leader must put back the own interest for the benefit of the whole system. Even though it was stated in 4.2 that people are always selfish Mitchell, Agle, Wood (1997) bring forward enough opponents regarding this view, so that it finally depends on the values of the leader (Greer Downey, 1982). Solid in this case indicates that a leader is strong and self-confident in way that he can cope with the previous mentioned. All this results in a characteristic indicated as solid whereas the personality is strong enough to resist external influences. In addition it is pointed to the phrase 'solid as a rock". The leader must be the one standing out of the crowd at least for the followers and keep them grounded. In this position he act as a role model (Oakland, Tanner, Gadd, 2005) an attribute that plays a major role within stakeholder management and sustainable success. The tone at the top is crucial to buy in stakeholders, whereas they must believe in what they are doing to fulfil these expectations (Freeman, Harrison, Wicks, 2007). Being solid in this context also means, as a leader, to recognise that the values are not supported and thus a further collaboration is not efficient. Nonetheless being solid also refers to the time span a leader is staying in its position. In Germany the period in higher management change after 6.1 years whereas it was 8 years in 2003 (Handelsblatt, 2011). Against the trend it is more desirable that leaders stay longer because the biggest problem with changing executives is to find a new one, an undertaking that can become very expensive as well as bear risks (Kennedy, 2000). Research in the 90s showed that the experience of managers has a great impact on their belief and their values, so that the experience of a manager in a company will have a positive impact on his decisions (Höpner, 2003:205) in this context with view to sustainable success. Additionally there is always the risk that new leaders turning the whole company upside-down and even if this is often wanted it is not if the new leader does not support the idea of stakeholder management and sustainable success. So all the hard work could turn out to be useless. Deming, 1986:121) sees an obstacle of long-term success in job-hopping due to the fact that leaders do not develop a sense of commitment and that new leaders unsettle the stakeholders. But long-term commitment also must be understood in the commitment to the approach of stakeholder management. So patience is necessary due to the fact that sustainable success and the necessary organisational behaviour is not achieved overnight (Potter, 1994). This requires an aim in the future that can be established as the one of the main motivator 5.3.7, Visionary: To avoid confusion and to respond to critics on stakeholder management a clear direction is vital for the success as discussed in 3.4. So it is about the leader to establish this direction by introducing a vision (Kets de Vries, Doyle, Loper, 1994), that helps to unify the stakeholders behind it, whilst providing clarity about what the vision is not about (Dubrin, 2007). In order to stimulate high performance and motivate followers a leader must lead passionately (Collins, 2001:20) and pragmatic (Frydman, Wilson, Wyer, Senge, 2000) towards a vision giving him/her the opportunity to have a major influence on the stakeholders. This refers back to the characteristic 'solid" (5.3.6) where a leader act as a role model towards the vision, so that stakeholder can follow (Cyert, 2005). It must be assured that the vision meets the requirements of stakeholder management, in particular balance and ethically correct, referred to as righteous. 5.3.8, Righteous: Righteous refers mainly to ethical and moral, including several 'components'. Morality is a key aspect of stakeholder management, resulting in trust and cooperation of the stakeholders. Indeed leaders should be compensated as every other stakeholder but it must be appropriate and not too high, like the stated 326:1 ratio between average CEOs and workers pay (Tang, Kim, Tang, 2000) in order to sustain trust and goodwill of stakeholders. Against the traditional way of high pay equals high performance (Jones, 1995) the survey of (Kennedy, 2000) reveals that challenging work and open communication are far more important than the pay, supported by Freeman (1984) the father of strategic stakeholder management seeing open communication as one enabler of stakeholder management. So this mind-set actually supports to lead stakeholder management, but nonetheless the salary of managers has increased dramatically. This is mainly caused in more freedom and missing internal monitoring of salary (Höpner, 2003:207), leading to a necessary moral respect of this freedom and do not exploit it. But it is not just about the monetary frugality it is also about recognition and awards, where heroism is not appropriate, acting in silence is what turned out to characterise great leaders (Collins J. , 2001:28). This includes the dispense of awards if things go good and blaming oneself if they go bad, this helps to not become arrogant (Kets de Vries, Doyle, Loper, 1994). This is also true for stakeholder management where the collaboration of the whole clockwork should be recognised and the leader act just as the element holding everything together and is not the centre of everything. Ethics is a fundamental characteristics for stakeholder management leaders, whereas Freeman, Harrison, Wicks (2007) see ethical leadership as the one most suitable, backed by McManus (2006:137) advocating ethical behaviour in order to decide to do the right thing, or ethical judgement respectively (Clarkson, 1995). This is why it is also about humanity (Kets de Vries, Doyle, Loper, 1994) and not seeing the environmental and societal responsibility as nonessential (Avery, 2005:216). Leaders also should be aware that they have fiduciary to all stakeholders and thus this fact should become the basis of the ethical mind-set (Kaufman, 2002). This fiduciary towards all stakeholders lead then towards the need of leaders to use this tool in an appropriate manner and to not justify bad decision with this model (Collins, Kearins, Roper, 2005). In addition this brings with it the desired balance of wealth distribution required by Sachs Maurer(2009).