Chapter 2

Sustainability,
Stakeholders and
the Nature of the
Firm
Presentation prepared by
Noel Tracey
Queensland University of
Technology
Understanding stakeholders

Learning objectives:
Explain the impact of stakeholder theory and
practice on sustainable business practice
Discuss the influences of the internal and external
business environments on sustainability
implementation
Describe the paradigm change required in the
transformation of business sustainability
Explain the frameworks for supporting business
sustainability and outline some of the business
indexes that focus on sustainability
 Stakeholder theory and
practice
Freemans, (1984) original definition:
Any group or individual who can affect or
is affected by the firms objectives.
Basic premise:
Firms are better able to achieve their
strategic objectives if they engage with
their stakeholders.
Practical application:
Mechanism for better decision-making.
Stakeholders and sustainability
Stakeholders and sustainability
 Stakeholder salience

Based on three attributes:

Power
The degree to which a stakeholder can
exert its influence on the firm
Legitimacy
Socially accepted structures and
behaviours
Urgency
Time sensitivity of issue
Criticality of issue
Stakeholder typology by
reference
 Stakeholder typology by
reference
The dormant stakeholder
Possess power
Claims not seen as legitimate and lack
urgency
Do not require the firms immediate attention
Generally have little contact with the firm
Discretionary stakeholder
Claims are seen as legitimate, but not urgent
Lack power in relationship with firm
Little need to engage with these stakeholders
 Stakeholder typology by
reference
Demanding stakeholder
No power or legitimacy
Claims are seen as urgent
No more than a bothersome irritant
Dominant stakeholder
Claims are seen as legitimate, but not
urgent
Has the power to influence decisions of
the firm
Stakeholder typology reference

Dangerous stakeholder
Possess power and urgency, lack legitimacy
Dependent stakeholder
Lack power but have legitimacy and urgency
Definitive stakeholder
Possess all three attributes

What effect might a change in one attribute

have on stakeholder salience?
 Stakeholder management
strategies
Stakeholder valence
Supportive (positive relationship)
reinforcement strategies
Obstructive (negative relationship)
containment strategies
Passive (neutral relationship)
stabilising strategies
 Stakeholder management
strategies
When there are more supportives than
obstructives:
win-win continues
When there are more passives than
supportives:
Scope for firm to sway passives to be
supportives
Also scope for obstructives to sway
passives
Factors influencing
sustainability
implementation
 Factors influencing
sustainability
implementation
External influences:
Demand from sustainable practice
E.g. from suppliers, consumers, customers
and shareholders
Fear of competitors sustainability practices
Sustainability decision drivers:
Environmental/operational issues
External stakeholder market issues
Workforce issues
Reputation/innovation/compliance issues
 Factors influencing
sustainability
implementation
Foundational organisational
enablers:
Top management support
Sustainability related values which are
ingrained into the business
Business strategy with a central focus on
sustainability
 Factors influencing
sustainability
implementation
Internal inhibitors:
Lack of awareness and understanding
about sustainability
Lack of standardised metrics for
performance benchmarks
Lack of specific ideas on what to do and
when
Lack of a strong business case for
sustainability
Sustainability and firm size

Does size matter?

Rationale:
Larger firms have a larger range of
stakeholders than smaller firms
(e.g. more customers, more suppliers, more
shareholders, more diverse locations)
Increases complexity
Some evidence of relationship between size
and more accomplished sustainability
practice
What of Greenwashing?
 What is Greenwashing

A firm reporting about its sustainability

practice in ways that are more favorable
than the practice itself.
A corporate leader in ozone destruction
takes credit for being a leader in ozone
protection.
A giant oil MNC embraces the
precautionary approach to global
warming.
Sustainability and time-to-
reap
Time-to-reap:
The time between implementing a
sustainability initiative, and the point at which
the benefits of the practice are realised.
Low-hanging fruit (turning lights off,
recycling)
Low implementation cost
Almost immediate time to reap
Medium/long term initiatives need to be
evaluated for time-to-reap
Influence of government and
society
Civil society and sustainability

Four stages of issue maturity:

Latent issues
Emerging issues
Consolidating issues
Institutionalised issues
Model reflects relevant characteristics
of society, not stage of
implementation in company
 NGO (ENGO) influences on
business
sustainability
Broad variety of NGOs
Seen to exhibit either an:
Advocacy function
Service function
Can also be categorised by the
beneficiaries for whom they operate:
Themselves and/or others
 Government influences on
business sustainability
Dual role:
Support business for the enhancement of the
economy
Protector of civil society
Creates Tension:
Not limited to one level of government
E.g: Carbon Tax:
Cost imposed on business, passed onto
consumers
Tax rebates/welfare payments to cover costs
to consumer
 Business associations and
industry groups
Collective groups of businesses and
industry peak body organisations are a
common feature
Often formed to provide business
management support for forms or
operate as a collective lobby group
Approx. 1400 registered clubs in NSW
Industry peak body Clubs NSW is
influential
Sustainability and paradigm
change
Sustainability through accountability:
Command and Control
Business mandated by law to identified
levels of sustainable practice.
Self-regulation
Voluntary implementation for some
economic/strategic incentive
Co-Regulation
Influence of multiple stakeholders on design
and implementation sustainable practice
Frameworks for supporting
Business Sustainability
With the importance given to
sustainability in commerce, many
associations and industry groups provide
programs that designed to support their
firms:
Government
Civil society
International
 Government frameworks

Multiple examples of sustainability

support programs provided by
governments at all levels.
Federal gov., all states and territories
have departments that focus on
sustainability.
Political significance of sustainability and
frequency of amendments make
initiatives susceptible to frequent and
steady change.
 Civil society frameworks

From the civil society sector, there are many

organisations focused on providing support for
businesses in the area of sustainability.
Number of different forms:
Pay-for-service business sustainability
consultants
Subscription-based associations of members
May operate in conjunction with gov.
departments
In general terms, such consultancies provided
environmental audits for businesses.
 International frameworks

Globally, the UN schemes include the UN

Global Compact
Brings corporations together with
programs that ae focused on sustainable
and inclusive economies
Voluntary participation
Principles include: adopt a precautionary
approach to environmental challenges;
undertake initiatives to promote greater
environmentally responsibilities; and
encourage the development and diffusion
of environmentally friendly technologies.
Sustainability business indexes

Dow Jones Sustainability Index (DJSI):

The first global indexes tracking financial
performance and sustainability-driven
companies world wide.
Sustainability-driven rather than sustainable.
No genuine assessment of sustainable
practices.
More a marketing tool to attract sustainability-
conscious investors.
Relies on corporate self-reporting of
sustainability.
 Chapter 2 Sustainability,
stakeholders and the nature of
the firm
Summary
Explain the impact of stakeholder theory and
practice
Discuss the influences of internal and external
business environments
Describe the transformation to business
sustainability
Outline the frameworks for supporting
sustainability
Outline the business indexes that focus on
sustainability