Unit IV

A STAKEHOLDER APPROACH TO CORPORATE SOCIAL RESPONSIBILITY

(CSR)

Some of the central concepts associated with what is known today as stakeholder theory began to gain
currency during the mid-1980s.

The nature of the firm to encourage consideration of new external stake- holders, beyond the traditional
pool shareholders, customers, employees, and suppliers legitimizing in turn new forms of managerial
understanding and action.

Organizations from this perspective are expected to manage responsibly an extended web of stakeholder
interests across increasingly permeable organization boundaries and acknowledge a duty of care
towards traditional interest groups as well as silent stakeholders such as local communities and the
environment.

Stakeholder theory hence offered a new way to organize thinking about organizational responsibilities.

By suggesting that the needs of shareholders cannot be met without satisfying to some degree the needs
of other stakeholders, it turned attention to considerations beyond direct profit maximization.

In other words, even when a firm seeks to serve its shareholders as a primary concern, its success in
doing so is likely to be affected by other stakeholders.

Some even argue that an inclusive stakeholder approach makes commercial sense, allowing the firm to
maximize shareholder wealth, while also increasing total value added.

By the end of the decade, many researchers were using stakeholder ideas and terminology.

Several authors have indeed favored a stake- holder approach when examining CSR.

In the assessment of CSR in the context of a identified the demands of key stakeholders regarding the
creation of value by the business, resulting in a grid of values, which associates each stake- holder with
value classes that satisfy their respective expectations.

These value classes have been derived based on studies and models already covered in existing
literature, as well as on the basis of the analysis of various social audit and sustainability reports.

Companies in their study are considered as socially responsible if they demonstrate social behavior
satisfying the expectations of at least half of the value classes identified for each stakeholder.

The CSR experience and practice of enterprises in Portugal, whereby five key

stakeholders were

identified, including consumers, suppliers, the community, the government and the environment.

Internally, they also examined workplace practices vis-a-vis employees.

Their research suggests a clear inclination on the part of firms operating in Portugal to attend to the
external dimension of CSR.
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Another study in the Spanish context (Uhlaner et al., 2004) also utilized a stake- holder approach,
defining CSR effectiveness

as the ability to satisfy a wide range of constituents within/ outside the

organization.

Two categories of stake- holders, economic and social, were identified with the findings suggesting the
salience of the economic stakeholders clients and employees over the so- cial ones including sports
clubs, the church, and the environment.

The researchers confirm on the basis of their study the utility of a stakeholder approach in the context of
CSR.

Stakeholder

Expectations divided into value classes

Employees

Health and safety at work

Development of workers skills Wellbeing and satisfaction of worker Quality
of work
Social equity
Partnership between ordering company and supplier
Selection and analysis systems of suppliers
Product quality
Safety of customer during use of product
Consumer protection
Transparency of consumer product information
Creation of added value to the community
Environmental safety and production

Suppliers
Customers

Community

Their rationale for using a stakeholder approach is that stakeholders invariably affect or are
affected by business organizations and therefore can be seen as imposing on them different
responsibilities.

They identify six groups as key stakeholders including employees, customers, investors, suppliers,
the community and the environment and delineate relevant CSR actions vis-a-vis each cluster
respectively

CSR actions vis-a-vis key stakeholders Actions

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Employees

Consumers

Community

Investors
Suppliers
Environment

Provides a family friendly work environment

Engages in responsible human resource management
Provides an equitable reward and wage system for employees Engages in open and flexible
communication with employees Invests in employee development Encourages freedom of speech and
promotes employee rights to speak up and report their concerns at work
Provides child care support/paternity/maternity leave in addition to what is expected by law
Engages in employment diversity in hiring and promoting women, ethnic minorities and the physically
handicapped
Promotes a dignified and fair treatment of all employees
Respects the rights of consumers
Offers quality products and services
Provides information that is truthful, honest and useful
Products and services provided are safe and fit with their intended use
Avoids false and misleading advertising
Discloses all substantial risks associated with product or service
Avoids sales promotions that are deceptive/manipulative
Avoids manipulating the availability of a product for purpose of exploitation
Avoids engagement in price fixing
Fosters reciprocal relationships between the corporation and community
Invests in communities in which corporation operates
Launches community development activities
Encourages employee participation in community projects
Strives for a competitive return on investment
Engages in fair and honest business practices in relationships with shareholders
Engages in fair trading transactions with suppliers
Demonstrates a commitment to sustainable development
Demonstrates a commitment to the environment

and limited attention to suppliers, investors and the environment.

The bulk of the studies encountered in the literature and outlined above fall within the
scope of descriptive stakeholder theory, which seeks to outline the views of participants of
the mission/ objectives of their organization and its actions vis-a-vis different stakeholders.

This methodology can yield interesting insights particularly that organizations are socially
constructed and act in accordance w i t h

shared p e r c e p t i o n s .

There are also flavours in the literature of assessments along the lines of instrumental or
normative stakeholder theory.

Instrumental stakeholder theory assumes that the corporation is an instrument for wealth creation
with CSR conceived as a strategic tool to promote economic objectives.

Normative stakeholder theory on the o t h e r h a n d d e l i n e a t e s philosophically based moral

obligations towards stakeholders, focusing on the ethical requirements that cement the
relationship between business and society.

While the tenet of stakeholder theory is that all stakeholders matter and that organizations
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should integrate their responsibilities to the various stake- holder constituencies, this
balancing exercise has proven d i ff i c u l t to e n a c t in p r a c t i c e .

Rather than producing every kind of social value for every stakeholder, organizations find
themselves constrained in practice by limited resources and bounded rationality, and thus tend
to prioritize their stakeholders according to instrumental and/or normative considerations.

Such stakeholder classification or prioritization usually draws on managerial discretion, their

specific instrumental or normative inclinations as well as their assessment of relational
stakeholder attributes of power, legitimacy and urgency, legitimizing in turn the usefulness of a
descriptive stakeholder theory or methodology.

Overall, stakeholder theory in all its three veins or branches brought to the fore a set of new
insights for CSR academics and practitioners.

It accentuated the notion that corporations must be viewed as operating at the centre of a
network of interrelated stakeholders that create, sustain and enhance value creating capacity
challenging in turn an exclusive focus on shareholders.

The language of stakeholder theory was also easier to grasp by managers/practitioners as most
organizations understood and defined obligations and responsibilities vis-a-vis their traditional
stakeholders.

Stakeholder theory seems also easier to maneuver in collecting and analyzing CSR data as
evidenced by the proliferation of empirical studies that

have essentially integrated a

stakeholder approach as outlined in the previous section.

This stream of research has also led to the delineation of relevant stakeholder issues and associated
measures of impacts, which, with further refinement, can serve as useful guidelines for managers
in their pursuit of CSR actions and interventions.

The next section highlights how a stakeholder CSR approach the EPS proposed by Spiller (2000)
was used to collect and analyze CSR data in the context of a sample of Lebanese and Syrian firms,
allowing in turn to draw relevant implications regarding the usefulness of a stakeholder CSR
approach.