by Oliver Laasch Center for Responsible Management Education

by Oliver Laasch, Center for Responsible Management Education (CRME) and Roger N. Conaway, Tecnológico de Monterrey (ITESM) 1

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After reading this chapter… 3

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LEGO: A Stakeholder-Driven Brand? � Four promises for main stakeholders through the core business Customers (play promise): LEGO aims to satisfy and educate its � customers at the same time. The company engages with children (“LEGO builders”) and parents, mainly through the issues of product safety, education (“learning manifesto”), and an extensive collaboration with parents. Employees (people promise): LEGO engages with employees about the main issues of gender diversity, motivation and satisfaction, work– life balance, and health and safety. Partners/suppliers (partner promise): Topics addressed with partners are the sustainability of materials (polymers), anticorruption policies, auditing, and supplier responsibilities toward their own stakeholders. Environment (planet promise): Issues related to the environment at LEGO are energy efficiency, waste reduction, recycling, and the end of life of the product. Activities for other stakeholders through the LEGO foundation © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 5

RESPONSIBILITY: MANAGING FOR STAKEHOLDER VALUE © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 6

ORIGINS OF BUSINESS RESPONSIBILITY

Food for Thought © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8

Table 4. 1 Historic Milestones in the Development of Business Responsibility © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9

Religious Morality as Roots of Business Responsibility �Confucianism Community thinking �Judaism and Christianity Donations �Islam Values of justice, balance, trust, and benevolence © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 10

Development of Terminology � Responsibility of the businessman 1950 -1960 � Corporate social responsibility from 1960 � Corporate philanthropy from 1960 � Corporate citizenship from 1990 � Corporate social entrepreneurship from 2010 � Corporate responsibility from 2010 © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 11

Theoretical Milestones �Milton Friedman (1970) “There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits. ” �Edward Freeman (1984) Strategic Management: A Stakeholder Approach �Archie B. Carroll Pyramid of corporate social responsibility © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 12

Institutionalization Landmarks �European Union corporate social responsibility (CSR) strategy (2006) �United Nations Global Compact (GC) (2000) �ISO 26000 (2010) © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 13

Figure 3. 2 Figureheads and Central Ideas of Business Responsibility © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 14

Status Quo and the Future �Exemplary size of business responsibility networks in 2010 Global Compact, more than 6, 000 companies CSR Europe more than 3, 000 companies �Areas of opportunity Developing countries and small and medium-sized enterprises (SMEs) © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 15

The New Business Responsibility �Integration Part of the core business �Transformation: Changes to structure, processes, and products �Scale Large impact �Entrepreneurship Opportunity and venture thinking © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 16

CONCEPTS OF BUSINESS RESPONSIBILITY

Food for Thought © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 18

Defining Business Responsibility �Business responsibility refers to voluntarily assuming accountability for social, economic, and environmental issues related to stakeholders, aiming to optimize stakeholder value. applies to all types of business equally, independent of size, maturity, or organizational structure © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 19

Business Responsibility and Related Terms � Corporate social responsibility (CSR) has been long-established and uses the word social to refer to the social characteristics of stakeholders. � Corporate responsibility (CR) has been introduced, mainly through practitioners, in order to avoid the purely social bias and to include also responsibilities toward environmental stakeholders. � Corporate citizenship describes responsible business activities focusing on businesses´ role in and contribution to community. � Social entrepreneurship describes responsible business activities with an entrepreneurial venture approach to addressing social and environmental issues. � Corporate social entrepreneurship (CSE) refers to a big established business that aims at solving social stakeholder problems. 20

Figure 4. 3 Common Terms Used to Describe Responsible Business © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 21

Understandings of Business Responsibility �Instrumental Tool for profit generation �Political Role of business for society �Integrative Business can only survive, prosper, and grow if it integrates stakeholder demands into its activities. �Ethical Business-society relationship as embedded into an ethical framework © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 22

Interpretations of Business Responsibility �Explicit versus implicit �Convergent versus divergent �Social versus nonsocial stakeholders �Responsibility and accountability �Soft versus hard or (even) radical © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 23

Defining Corporate Social Performance �Corporate social performance (CSP) is an umbrella term referring to the assessment made by both qualitative and quantitative methods used to evaluate the degree of responsibility assumed by a company. © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 24

Qualitative Corporate Social Performance Assessment Criteria �(1) Responsibility category Type of responsibility assumed based on the CSR pyramid �(2) Social responsiveness Mode of reaction to stakeholder claims �(3) Issues maturity Sophistication of issues covered �(4) Organizational implementation stages Degree to which stakeholder responsibilities are embedded into a company´s processes © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 25

Figure 4. 4 Dimensions of Corporate Social Performance © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 26

Application Levels of CSP Dimensions © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 27

Figure 4. 5 Carroll´s Corporate Social Responsibility Pyramid © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 28

Intercontinental Hotel Group versus Starbucks: A CSP Challenge �Comparison of responsible sourcing practices Starbucks Coffee and Farmer Equity (C. A. F. E. ) Intercontinental Hotel Group (IHG) Academy © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 29

Figure 4. 6 CSP of Intercontinental’s and Starbucks’s Responsible Sourcing Programs © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 30

RESPONSIBILITY MANAGEMENT AS STAKEHOLDER MANAGEMENT

Food for Thought © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 32

Figure 4. 7 The Responsibility Management Process © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 33

Stakeholder Management and Related Terms � Stakeholder management is the process of managing relationships with the various groups, individuals, and entities that affect or are affected by an activity. � Responsibility management is an administrative practice centered on stakeholders and aimed at the maximization of stakeholder value. � Stakeholders are any “groups and individuals that can affect or are affected” by business activity. � Stakeholder value is the degree of satisfaction of either single stakeholders or of all stakeholders of a specific activity. � Materiality describes the shared importance of a specific issue to both company and stakeholders. 34

Figure 4. 8 Shared Value and Stakeholder Value Optimization © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 35

Stakeholder Value Optimization Criteria �Maximization suggests that we should aim to achieve the maximum possible stakeholder value. �Fairness suggests that stakeholder value distribution should be fair in process and outcome. © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 36

Processes of Stakeholder Management ASSESSMENT ENGAGEMENT � Stakeholder assessment is � Stakeholder engagement the process of understanding stakeholders and their relationship to a specific activity; it can be subdivided into two steps, stakeholder identification and stakeholder prioritization. is the process of interaction with stakeholders and can be subdivided into stakeholder communication and the co-creation of joint activities. 37

Stakeholder Identification Criteria (Exemplary) � Dependency is based on dependence of the organization or stakeholder of one on another. � Responsibility is based on existence of legal, commercial, operational, or ethical/moral responsibilities. � Tension is based on the need for immediate attention from the organization with regard to financial, wider economic, social, or environmental issues. � Influence is based on the impact on the organization’s or a stakeholder’s strategic or operational decision making. © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 38

Categorizing Stakeholders � Internal and External Internal stakeholders are the ones forming part of the company´s internal organizational structure, external stakeholders are not. � Primary and secondary Primary stakeholders have a direct connection with the company. Secondary stakeholders are indirectly connected to the company through a primary stakeholder. � Social and Nonsocial Social stakeholders human beings currently alive, as opposed to nonsocial stakeholders. � Stakeholders and Nonstakeholders Stakeholders are related to the company, nonstakeholders are not. © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 39

Establishing Stakeholder Maps 1. Identify the focal entity A focal entity defines the perspective from which the stakeholder analysis is conducted. 2. List stakeholders Prepare a complete list disregarding type or strength of relationship to the focal entity. 3. Group stakeholders Organize the map in groups of stakeholders with mutual characteristics. © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 40

Figure 4. 9 Categorized Stakeholder Map © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 41

Table 4. 2 Stakeholder Influence in Practice © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 42

Figure 4. 10 Main Stakeholder Prioritization Approaches © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 43

Figure 4. 11 Materiality Assessment for Typical Generic Issues © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 44

Table 4. 3 Understanding the Levels of Stakeholder Engagement © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 45

Principles of Responsibility: Managing for Stakeholder Value I. III. IV. Through business responsibility, a company voluntarily assumes accountability for social, economic, and environmental issues related to its stakeholders and aims to maximize stakeholder value. Responsibility management is an administrative practice centered on stakeholders and aimed at the maximization of stakeholder value, which is a necessary condition to become a business responsibility. Stakeholder value is created in many different ways and differs from stakeholder to stakeholder. The goal of business responsibility and management is to create shared value between external and internal stakeholders. Corporate social performance (CSP) is a theoretical construct that aims at defining the degree of responsibility achieved by a company. Corporate social performance can be determined quantitatively and qualitatively. CSP provides an estimate for the amount of stakeholder value created. © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 46

Principles of Responsibility: Managing for Stakeholder Value The process of stakeholder management consists of the two tasks: stakeholder assessment (understanding stakeholders) and stakeholder engagement (interacting with stakeholders). VI. Stakeholder assessment consists of the two steps of stakeholder identification, through which stakeholders are mapped, and stakeholder prioritization, through which stakeholders´ characteristics are understood and categorized by their priority for engagement. VII. Stakeholder engagement consists of the two steps: stakeholder communication, through which direct contact with stakeholders is established, and the co-creation of activities, through which stakeholders and the company start to collaborate for a joint objective. V. © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 47

People in Responsibility, Managing for Stakeholder Value © 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 48