I sense of these criteria, stakeholders have commonly
I Introduction The world that corporations face today is considerably more complex than they have ever been. Technological advances have rendered operation of corporations considerably more visible than they have ever been, resulting in increased demands for greater corporate transparency and accountability. One response to these shifts by corporations has been to collaborate with stakeholders who represent interests outside of traditional corporate interests. This paper will evaluate the efficacy of stakeholder engagement (SE) as it applies to global corporations.It proposes that potential of SE to maximize business integrity is undermined by elusiveness of the stakeholder concept and problems that flow from it.
II Confusion Surrounding Stakeholder Theorizing and Definitions A Defining Corporate Citizenship Although many corporations use the corporate citizenship (CC) model to engage with stakeholders, this concept is not easily defined. While some define this concept interchangeably with corporate social responsibility (CSR), others define it in its own right.Simply put, CSR represents the continuing commitment by organizations to promote economic development while improving the quality of life of society. CSR is therefore a way for corporations to increase long-term profits by linking financial goals and social expectations. In contrast, those who make the distinction define CC as a process of managing an organization’s wider influences on society for the benefit of the organization and society. CC is therefore a way for corporation to express its value vis-a-vis society.
This section argues that depending on which definition a corporation takes, stakeholders that it chooses to recognize may (not) conflict with the law, which may have implications on the SE process. Before embarking on this argument however, it is necessary to define stakeholder. B Identifying Relevant Stakeholders Generally, stakeholders include anyone who can affect or be affected by an organization’s activities. However, this definition is very broad and consequently a maddening list of criteria for stakeholder has developed.This is a problem in itself, as the first step of any SE process is stakeholder identification. To make sense of these criteria, stakeholders have commonly been split into two categories: internal and external. Internal stakeholders are those who have major time commitments to the organization and vie among themselves for power, such as shareholders and management.
All other stakeholders are deemed external. C Legal Interpretation of Stakeholders Australian law favors internal stakeholders over external shareholders.Section 180 and 181 of the Corporations Act 2001 (Cth) prescribes directors with duty to act in the best interests of the company. Sections 182 to 184 of the Act constantly put the corporation first by requiring directors to operate in good faith, care and diligence for proper purpose. Under these provisions, directors are prohibited from improperly gaining advantage or causing detriment to the corporation. Precedents also indicate that directors must put the interest of the corporation as a whole foremost.Even in extremely rare situations where shareholders may be owed a duty individually, it is still the economic position of shareholders that is of utmost priority.
Section 124(1) of the Act provides corporations with the same legal capacity as an individual, including the power to make an agreement. Although corporations can exercise this power to make donations as an individual could, the law forbids corporations from being socially responsible – at least genuinely so.This is reinforced by the decision in the Adler case that directors are in breach of their duties if a corporation enters into any transaction that has no possibility of producing a benefit for the corporation. D Evaluation If a corporation equates CC with CSR, it is essentially identifying relevant stakeholders as more internal than external. Such a definition is largely compatible with the law. If a corporation considers CC as a model of business within society, it is essentially identifying relevant stakeholders as both internal and external.
This complicates the SE process, since the law puts the shareholders first and foremost. Moreover, this approach seems to suggest that different categories of stakeholders must be balanced. This creates further problems, because being a stakeholder and having one’s interest balanced are matters of degree.
This approach says nothing about how to determine who counts as a stakeholder, or when an appropriate balancing has occurred. This kind of vagueness impedes successful SE, and is as problematic as the starting definition of stakeholder. III Critique of SEA Defining SE Like the term stakeholder, SE can be defined in many ways. A simple definition of SE is a process where stakeholders participate, to varying degrees, in particular aspects of an organization. SE represents a progression from unilateral stakeholder consultation to interactive dialogue.
Effective, efficient and equitable SE contributes to identification for solution of key issues using local knowledge. This ensures all considerations to be discussed in implementing business proposals that may have a significant effect on broader scale.This way, the potential negative impacts of a proposal can be minimized and its benefits maximized.
Furthermore, it enables corporations to understand the degree to which other parties are willing to accept any tradeoffs that may be required. This ensures sustainable development. However, poorly run SE processes have led to a large degree of cynicism on the value of SE. Stakeholders often consider it as an opportunity for political grandstanding, or simply as a “token” requirement. These pessimistic perceptions stem from two fundamental problems: context-related challenges and how SE process is run.B Contextual Challenges to SE In most countries there is no institutional framework for SE.
Even if such a framework exists, this has not always been implemented into practice. SE is often only undertaken after most strategic-level decisions have already been made, leading to accusation that SE lacks substantial meaning. In countries such as Australia, which has a history of oppression, wide distrust persists in society. Even if oppressive governments have since been replaced, a strong culture of SE may not exist, because communities may still fear adverse consequences if they express a difference of opinion.Such a difficulty is exacerbated by cultural hierarchies, age or gender based, and income gaps, which limit the ability of less powerful members from contributing.
Other impediments include language barriers, the remoteness of the location, and financial and time constraints to participate. These difficulties are often accompanied by lack of interest among stakeholders on broader issues that are seen to conflict, or be irrelevant with their pressing social needs. C Shortcomings of the Process Itself The range of definitions in the SE arena has allowed SE to be interpreted differently by stakeholders.If the level of engagement and the objectives are not clarified from the outset, parties may enter into the process with different understanding of their responsibilities and expectations for others. Running a meaningful SE under these circumstances is difficult, if not impossible. SE may be misinterpreted as seeking to achieve group consensus.
This may discourage certain parties from participating for fear that they will be co-opted by other parties. Alternatively, SE may be interpreted as an obligatory “token” requirement and the process may be planned just to meet the bare minimum legal requirements.Corporations themselves sometimes do not understand the purpose of SE. Often they do not have the right skills and experience to facilitate SE, which usually result in disputes and delays. A knock-on effect is lack of interest and buy-in by other parties.
The selection of inappropriate approaches may further exacerbate the exclusion of certain parties and lack of interaction. The latter may lead to an unequal balance of power, resulting in political grandstanding or avoidance of sensitive issues for sake of maintaining relationships.The cumulative effect of all these difficulties is that the potential value of SE remains hidden. IV Conclusion This paper has examined challenges that modern corporations face in SE. It has argued that the potential of SE to maximize business integrity and respect has been hampered by elusiveness of the stakeholder concept, contextual challenges and problems associated with the process itself.
Based on this observation, it can rightfully be argued that despite the shift from local to global, and from monologue to dialogue, SE continues to be a complex task. ——————————————- 1 . Christopher Marsden and Joan Andriof, ‘Towards an Understanding of Corporate Citizenship and How to Influence it’ (1998) 2 Citizenship Studies 329, 329–30; David Logan et al, Global Corporate Citizenship: Rationale and Strategies (Hitachi Foundation, 1998) 19–39. 2 .
Edward Freeman, Strategic Management: A Stakeholder Approach (Pitman, 1984) 53. 3 . Ron Mitchell et al, ‘Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts’ (1997) 22 Academy of Management Review 853. 4 . Henry Mintzeberg and James Quin, Reading in the Strategy Process (Prentice Hall, 1998) 13. 5 . Ibid.
6 . Ngurli v McCann (1953) 90 CLR 425; Greenhalgh v Aderne Cinemas 1950 2 All ER 1120. 7 . See eg, Percival v Wright 1902 2 Ch 421; Pine Vale Investments v McDonnel & East (1983) 8 ACLR 199; Bruninnghaussen v Glavanics (1999) 32 ACS 294R; Southern Cross Mine Management v Ensham Resources (2004) 22 ACLC 724.
8 . Joel Bakan, The Corporation: The Pathological Pursuit of Profit and Power (Constable, 2nd ed, 2005) 35. 9 .Australian Securities and Investments Commission v Adler (2002) 41 ASCR 72. 10 . Eric Orts and Alan Struder, ‘Putting a Stake in Stakeholder Theory’ (2010) 88 Journal of Business Ethics 601, 603–604.
11 . Ibid. 12 . CCH Australia, Australian Master Environment Guide (CCH Australia, 2010) 62. 13 . Lee Preston and James Post, Private Management and Public Policy: The Principle of Public Responsibility (Englewood Cliffs, 1975) 3; Sandra Waddock, Leading Corporate Citizens: Vision, Values, Value Added (McGraw-Hill, 2002) 151–159. 14 .
Karolina Maliszewska, ‘Social Participation’ in Jakub Kronenberg and Tomasz Bergier (eds), Challenges of Sustainable Development in Poland (Sendzimir Foundation, 2010) 25–27. 15 . International Association for Public Participation, Public Participation: Critical for Sustainable Development 16 . Eva Collins et al, ‘The Risks in Relying on Stakeholder Engagement for the Achievement of Sustainability’ (2005) 9 Electronic Journal of Radical Organisation Theory 1, 9 http://www. mngt. waikato.
ac. z/ejrot/EJROT%28newdesign%29Vol9_1specialissue_front. asp>; Jem Bendell, Talking for Change? Reflections on Effective Stakeholder Dialogue (New Academy of Business Innovation Network, 2000). 17 . Charles Holliday, Stephan Schmidheiny and Philip Watts, Walking the Talk: The Business Case for Sustainable Development (Greenleaf, 2002) 149.
18 . Subhabrata Banerjee, ‘Corporate Citizenship and Indigenous Stakeholders: Exploring a New Dynamic of Organizational-Stakeholder Relationships’ (2000) 1 Organization and Environment 39, 39–55. 19 .
See, eg, George Cheney and Thoger Christensen, ‘Identity at Issue: Linkages Between ‘Internal’ and ‘External’ Organizational Communication’ in Fredric Jablin and Linda Putnam (eds), New Handbook of Organizational Communication (Thousand Oaks, 2001) 169–231; Shirley Leitch and David Neilson, ‘Bringing Publics into Public Relations: New Theoretical Frameworks for Practice’ in Robert Heath (ed), Handbook of Public Relations (Thousand Oaks: 2001) 127–138. 20 . Collins, above n 13.
21 . David Owen, Tracey Swift and Karen Hunt, ‘Questioning the Role of Stakeholder Engagement in Social and Ethical Accounting, Auditing and Reporting’ (2001) 25 Accounting Forum 264.