STAKEHOLDER MANAGEMENT

Stakeholder Management

Stakeholder Management

Stakeholder engagement is an emerging approach for thinking about and acting on the complex interplay of relationships and responsibilities of business in society. It focuses on engaging all stakeholders caught up in a shared problem domain in an interactive dialogic learning process so that the messy, interdependent problem can be understood jointly and addressed cooperatively. It is an extension or, some would argue, a transformation of the theory and practice of stakeholder management and the stakeholder theory of the firm. Both stakeholder management and stakeholder engagement arise from R. Edward Freeman's 1984 classic definition of stakeholders as any individual or group who can affect or are affected by the achievement of the organization's purposes or by their unintended consequences. The stakeholder concept dramatically expands the scope of executive responsibilities beyond just the fiduciary duty of a managerial agent to serve the economic interests of the firm's shareholders. Managers are expected to consider the interests of all who have a direct stake in the firm (such as customers, suppliers, and employees) or an indirect stake in the firm (such as interest groups, government, or nongovernmental organizations) because of the firm's operational impacts on the external community or natural environment. (Waddock, 2005, 223)

The concept and practice of stakeholder management is firm centered and calls on managers to review and exercise unilateral control over a series of bilateral stakeholder relationships. These take on a “hub-andspoke” configuration, as managers of the corporate hub work to minimize potential threats to the firm's primary objective function of enhancing financial performance for shareholder principals. This management activity involves the negotiation of trade-offs between financial and social performance expectations. This typically will reduce short-term financial returns but may, arguably, preserve the long-term financial viability of the firm by improving its reputation or perceived legitimacy in the eyes of potentially threatening stakeholder groups, such as irate employees, customers, or environmentalists. Such accommodations are justified as being necessary to avoid or minimize the threat of negative stakeholder responses, such as consumer boycotts, pressures for regulatory intervention, or other adverse actions. In contrast, stakeholder engagement is a network-centered, learning-based process of manager/stakeholder interactions, which locates the firm within a web of multilateral relationships and explores ways to achieve system sustainability by enabling the firm's managers to work with their stakeholders while addressing complex, interdependent, emergent, and messy problems. (Waddell, 2005, 1)

Initiating a process of engagement within a stakeholder network requires a dramatic extension of the responsibilities and capabilities of business managers, as well as the enabling of a variety of stakeholder voices, often represented by nongovernmental organizations (NGOs), such as Greenpeace or Amnesty International. Ann Svendsen and Myriam Laberge, two leading Canadian consultants on “whole system change,” have characterized this process as “cocreative engagement,” highlighting the emergent role of business managers as conveners and facilitators of multistakeholder-learning dialogues that bring the “authentic voices” of stakeholders to the table. They define a stakeholder network as a web of groups, organizations, and/or individuals who come together to address a complex, cross-boundary ...