From this perspective, R. Edward Freeman of The Darden School, University of Virginia, and S. Ramakrishna Velamuri of IESE Business School argue that the idea of “Corporate Social Responsibility” is simply superfluous. They suggest that such a conceptual scheme – that separates the social responsibilities of a corporation from its business responsibilities – has long outlived its usefulness. Their paper “A New Approach to CSR: Company Stakeholder Responsibility” proposes a stakeholder approach that takes into consideration the intertwined nature of economic, political, social, and ethical issues and that it is applicable as much to an entrepreneurial start-up and to a mid-sized closely-held firm as it is to a corporation with diffuse ownership.
Freeman and Velamuri propose to replace “Corporate Social Responsibility” with an idea called “Company Stakeholder Responsibility”; a new interpretation of the very purpose of CSR: “Company” signals that all forms of value creation and trade, and all businesses (large and small) need to be involved; “Stakeholder” suggests that the main goal of CSR is to create value for key stakeholders; and “Responsibility” implies that business cannot be separated from ethics. They argue that taking a stakeholder approach to business is ideally suited to integrate business, ethics, and societal considerations. Stakeholder theory is about value creation and trade – it is a managerial theory about how business works. It does not subscribe to the separation thesis, so it asks, simulataneously, business and ethics questions about each stakeholder relationship.
The paper provides a brief history of how the stakeholder approach to management developed. A stakeholder approach to business emerged in the mid-1980s, as a response to managers’ needs to understand the concerns of shareholders, employees, customers, suppliers, lenders and society, in order to develop objectives that stakeholders would support. This support was necessary in order to develop business strategies for long-term success. This approach sought to broaden the concept of business beyond its traditional economic roots, by defining stakeholders as “any group or individual who is affected by or can affect the achievement of an organization’s objectives”.
The authors outline four levels of commitment to Company Stakeholder Responsibility, which can be considered steps that firms can take as they, progressively, increase their commitment to the stakeholder approach: At the first level, the entrepreneur or manager needs to understand how the firm can make the customer better off, while at the same time offering an attractive value proposition to employees, suppliers, communities, and financiers. oÃ??nce the most basic level of stakeholder awareness has been achieved, the second level is for the entrepreneur or manager to understand that the continued survival and profitability of the company depend oÃ??n effectively sustaining the cooperation amongst the stakeholders over time. At the third level, the manager becomes aware of and responsive to more and more international issues, without the moral compass of the nation state or religion to provide any further guidance, and can no longer decline to take positions oÃ??n issues that apparently are not purely business related. Finally, at level four, ethical leadership occurs. Recent research indicates a strong connection between ethical values and positive outcomes for the organization such as sustained profitable growth and high levels of innovation. Also, findings show that a sense of moral purpose stands at the center of all successful business innovations and that morality creates a fertile source of business motivation, inspiration, and innovation.
Freeman and Velamuri present ten general principles that make up a “mindset” or “worldview” that is necessary to understand and practice all four levels of Company Stakeholder Responsibility:
Stakeholder interests go together over time- based oÃ??n the idea that the process of value creation is a joint process when managing for stakeholders.
Stakeholders are real people with names and faces and children. They are complex – Even if it seems a truism, this appears to counteract the assumptions that business people are oÃ??nly in it for their own narrowly defined self-interest, or that shareholders oÃ??nly care about returns, and therefore their agents, i.e., the managers, should oÃ??nly care about returns.
Solutions to issues that satisfy multiple stakeholders simultaneously must be sought – The first step in that process is for the manager to actually recognize that simultaneous solutions are required.
Intensive communication and dialogue with stakeholders-not just those who are friendly – Critics are especially important dialogue members, representing unmet market needs, as the critic wants the company to act differently. Too often, executives don’t meet with their critics enough to determine whether or not there is an opportunity to create value. Dialogue is the foundation of a free society, and the foundation of capitalism itself.
Commitment to a philosophy of voluntarism-to manage stakeholder relationships internally, rather than leaving it to government. Voluntarism means that an organization must, of its own will, undertake to satisfy its key stakeholders.
Marketing approach – We need to understand stakeholders’ needs, using marketing techniques to categorise stakeholders to provide a better understanding of their individual needs and using market research tools to understand the multi-attribute nature of most stakeholder groups.
Everything that we do serves our stakeholders. We never trade off the interests of oÃ??ne versus the other continuously over time.
Negotiate with primary and secondary stakeholders -The basic idea behind the stakeholder approach is that if a group or individual can affect a company or be affected by a company then there needs to be some interaction and some strategic thinking.
Constantly monitor and redesign processes to make them better serve our stakeholders – A hallmark of the stakeholder mindset is that the interactions and strategies with stakeholders can always be improved.
Act with purpose that fulfills our commitment to stakeholders. We act with aspiration towards fulfilling our dreams and theirs.
R. Edward Freeman, S. Ramakrishna Velamuri