CHAPTER 2

STRATEGIC MANAGEMENT
OF STAKEHOLDER
RELATIONSHIPS
 CHAPTER OBJECTIVES
 To define stakeholders and understand their importance
 To distinguished between primary and secondary
stakeholders
 To discuss the global nature of stakeholder relationship
 To consider the impact of reputation and crisis
situations on social responsibility performance
 To examine the development of stakeholders
relationships
 To explore how stakeholders relationships are integral
to social responsibility
BUILDING EFFECTIVE RELATIONSHIPS

 Building effective relationships is

considered one of the more important
practices of business today.
 STAKEHOLDERS
Those people and groups to which an organization is
responsible
• Customers
• Investors / Stakeholders
• Employees
• Suppliers
• Governments
• Communities

Those with a stake, or claim, in some aspect of a

company’s products, operations, markets, industry, or
outcomes
PRIMARY STAKEHOLDERS
 Groups that are fundamental to a company’s
operation and survival.
◦ Customers
◦ Employees
◦ Investors
◦ Suppliers
◦ Government
◦ Community
SECONDARY STAKEHOLDERS
Group that may influence and / or be affected by the
company, but are not engaged in economic exchange with
the firm:
◦ Media
◦ Specific interest groups
◦ General public

These groups are not fundamental to an organization’s

daily survival
They can place significant pressure on a business and
therefore, cannot be ignored.
STAKEHOLDER ORIENTATION
 The degree to which a firm understands and
addresses stakeholder demands. Companies three
sets of activities:
1. The organization-wide generation of data about
stakeholder groups and assessment of the firm’s
effects on these groups
2. The distribution of this information throughout
the firm
3. The organization’s responsiveness as a whole to
this intelligence
STAKEHOLDER ATTRIBUTES
POWER
◦ Extent to which it can gain coercive, utilitarian, or
symbolic means can be used to impose or communicate a
stakeholder’s view upon an organization
LEGITIMACY
◦ Perception or belief that a stakeholder’ actions are proper,
desirable or appropriate
URGENCY
◦ Pressure that a stakeholder exerts on managers and
organizations by stressing the urgency of its claims
 REPUTATION MANAGEMENT
 The process of building and sustaining a
company’s good name and generating
positive feedback from stakeholders
 Most reputations take long time to build or
change
 Not handling a crisis situation to the
satisfaction of stakeholders can damage a
firm’s reputation
REPUTATION MANAGEMENT PROCESS

 Identify how the organization wants to be

viewed by stakeholders
 Determine how stakeholders evaluate the
company and their impression of its image.
 Evaluate other’s impressions of
organizational performance
 Understand the company’s reputation.
 CRISIS MANAGEMENT
 The process of handling a high-impact event
characterized by ambiguity and need for swift action

◦ Threat to company goals

◦ Short response time
◦ Stressful, emotional, uncertain and demanding context
◦ Close organizational scrutiny by employees, stakeholders,
customers, government regulators, the media, competitors,
and creditors
CRISIS MANAGEMENT PROCESS
PRODRONAL STAGE ACUTE STAGE

Warning signs and Crisis occurs

symptoms occurs

RESOLUTION CHRONIC STAGE

Success and failure Ongoing crisis requires

outcomes for firm and explanation and
stakeholders decision making
DEVELOPMENT OF STAKEHOLDER
RELATIONSHIP

Relationship are founded on principles of:

• Trust
• Commitment
• Communication

They are also associated with a degree of

• Time
• Interaction
• Shared Expectations
 SOCIAL CAPITAL

 An asset, which resides in relationships, that

is characterized by mutual goals and trust

 Facilitiessmooth internal and external

transactions processes
 IMPLEMENTING A STAKEHOLDER
PERSPECTIVE IN SOCIAL
RESPONSIBILITY
 1. Assessing the corporate culture
 2. Identifying stakeholder groups
 3. Indentifying stakeholder issues
 4. Assessing the organization’s commitment to
social responsibility
 5. Identifying resources and determining urgency
 6. Gaining stakeholder feedback
 LINK BETWEEN STAKEHOLDER
RELATIONSHIPS AND SOCIAL
RESPONSIBILITIES
REACTIVE BEHAVIOR
• Denying responsibility and doing less than is required
DEFENSIVE BEHAVIOR
• Admitting responsibility and doing the least that is
required
ACCOMMODATIVE BEHAVIOR
• Accept responsibility and doing only what is required
PROACTIVE BEHAVIOR
• Anticipate responsibility and doing more than is required
 THE REACTIVE-DEFENSIVE -
ACCOMMODATIVE-PROACTIVE SCALE
RATING STRATEGY PERFORMANCE EXAMPLE
Reactive Deny responsibility Doing less than required Exxon’s refusal to
continue oil spill clean up
after a certain date

Defensive Admit responsibility, but fight Doing the least that is Valero Energy’s claim
for it. required that it meets federal
regulations, and therefore
community complaint are
not legitimate
Accommodation Accept responsibility Doing all that is required General Motors promise
of job security if
productivity gains were
realized
Proactive Anticipate responsibility Doing more than is Xerox’s sharing of
required product blueprints with
suppliers and taking
suggestions before
production