Managing for Stakeholders: Survival, Reputation, and Success

manging fo rstakeholders:
A great introduction to a new way of seeing business. It is not only about making money, it is about giving a contribution to a better world. Managing for stakeholders is strong in its ideas and practical in how you make them happen. Make money for your owners and aim at doing somthing good for all the other stakeholders as well.

A practical approach to business management
Good business leaders know they can help their firms succeed by connecting to their communities and by improving their relationships with employees, suppliers and customers. Yet, many executives still make the grave mistake of focusing solely on their shareholders and bankers, ignoring other important stakeholders. R. Edward Freeman, Jeffrey S. Harrison and Andrew C. Wicks provide new thinking and techniques to help you best manage stakeholder relationships and boost your firm's success. They offer practical advice for balancing the needs of your financiers with those of other stakeholders. getAbstract recommends this book to all managers and business thinkers. Board members and other professionals who want to understand their new roles and responsibilities in the globalized world of commerce will also value the authors' take on business ethics.

Our complex society requires corporate management to consider its context as well as its income
I really have little use for the socialists who insist they have property rights to influence, control, and even run the daily operations of private (or even publicly traded) companies. This is not only a bad idea, it is bad for society. However, this book stops short of this "social responsibility" claptrap. The idea these authors present is that society is so complex that there is no such thing as a stand alone corporation. Companies require the infrastructure that society provides, they certainly need customers, and most have vendors. Those who pay the taxes, run the companies that supply other firms, and who live in the communities where these companies work, and who work in these companies, all have an interest in how these corporations influence their lives. If a firm bulls ahead without regard to the interest of these stakeholders, they will actually create more problems for themselves.

The idea in the book is that a firm that works WITH its stakeholders actively rather than waiting until problems arise, is going to be more competitive, and contribute more net good to its shareholders and all who are affected by its work.

When anyone claims the stakeholders are equal or greater than the shareholders, you lose me. I don't think these authors are claiming that. They are just claiming that prudence dictates that the corporation has more considerations than just the net income that can be provided to the shareholders. It makes some sense.

Reviewed by Craig Matteson, Ann Arbor, MI

Quick Read - Grist for Meaningful Reflection
Generally, I am suspicious of any book touting a stakeholder model over one grounded on shareowners. The problem is one of identification. Without a clear party in control, the CEO and board can rationalize just about any position based on balancing "stakeholder" interests.

I'm also concerned with a book on ethics sponsored by the Business Roundtable, since that organization has a long history of ill-founded opposition to shareowner interests, such as expensing stock options and proxy access. Despite these reservations, I can honestly recommend Freeman's book. The corporate form exists for more than simply maximizing shareowner wealth. A stakeholder approach is appropriate in most day-to-day decisions, and this small volume offers good advice.

Any executive or board can benefit by more thoroughly examining their corporation's community of interest. As the authors posit, companies which "find a way to create value for conflicting stakeholder interests will be the winners." Engagement often leads to value-creation. Even when it does not, a few simple cooperative steps can often diffuse what might otherwise be a damaging situation. "Unilateral action increases the risk of conflict escalation."

The book lacks ex ante rules for deriving a hierarchy of stakeholders but, instead, takes a more organic approach. More discussion of the fundamental tension between the expectation for substantive debate over disagreements with stakeholders and the reality of our common preference for social cohesion and conflict avoidance would have added value. In Hearing the Other Side: Deliberative versus Participatory Democracy, for example, Diana C. Mutz, reports finding that the degree of cross-cutting discussion decreases as levels of income and education increase. This helps explains why so few corporations make an adequate effort to communicate with stakeholders. Rather than limiting active engagement to the like-minded or withdrawing, Mutz argues for "weak ties" that foster loose engagement and build tolerance.

I would have also liked more of a conceptual framework. For example, readers might have benefited from a discussion of the "rights" of stakeholders using Wesley Hohfeld's fundamental legal concepts of a claim against, a liberty or privilege, an authority or power, and an immunity. Such a discussion would be helpful in framing expectations around stakeholder engagement.

While readers are warned the book is "written for executives, not for academics," and "we are in the process of creating a separate book that will contain all the academic support," this reader would have benefited from more science and a more rigorous conceptual framework. Instead, the authors appear to argue that management is still more art than science.

Still, I liked the discussions on the principles of ethical leadership and on leadership by choice, which emphasizes that people must have adequate knowledge of alternatives and at least some options before they truly engage in a genuine choice to follow. Pack the book for your next flight and you'll probably find a reasonable amount of grist for meaningful reflection.

Another useful tool for identifying at least some of your company's stakeholders is touchgraph.com. Try it out by entering the name of your company or its URL to visually portray your firm's 6 degrees of separation in cyberspace.