Stakeholder Relations: 2-3 March 2020

Current Issues in Sustainability and Accounting
2-3 March 2020
Stakeholder Relations
(1) Who owns and for whom?
(2) Stakeholder Theory and Waseda
Management University
(3) Stakeholder Engagement
©K.Tanimoto@Waseda University 1
(1) What is a company?
Who owns and for whom?
©k.Tanimoto @Waseda University 2

Question
 Who owns a company? For whom? 　

　　　・ shareholder, employee, customer/consumer, community
 What is CSR ？　
　　　・ compliance, philanthropy, environmental management…
 Who takes responsibility?

　　　・ CEO, manager, employee, shareholder, government/regulator…
 What is a ‘good company’? 　
Changing business roles and legitimacy
 Company Law
 shareholder
　　　 rights and obligations upon providing capital, ownership rights
 Economics
 shareholder, investor
　　　　 profit maximization 　 capital provider/investor’s return
　　　　 shareholder (principal) -- board of directors – manager (agent)
 Organizational Theory
 employee
　　　　 collaboration as a team in a organization, distribution of the fruits
 Corporate Systems Theory
 stakeholder
　　　 corporate system exists in society, in the relationship with SHs
　　　　　・ shareholder, employee, labor union, customer/consumer, affiliate company,
　　　　　　 government, NGO, community, environment
Who owns a company?
　 public opinion survey in Japan ：
shareholder 31.6%, employee 25.2%, CEO 15.6%, whole society 15.3% ･･･
(Yahoo&Intege, 2005 ）
Survey for New Employees

(Japan Management Association, 2012)
shareholder 33.7%, employee 28.3%,
CEO 9%, customers 22.2%
Why do they think so??
Mutual Holding - Mutual Control
5 Income Gain (dividend) ?

1％ Capital Gain (stock price) ?
A B
51 ％
A
12.75 ％
B E
Interlocking Directors
Serving more than two company’s
outside directors
C D
former six major Corporate Group
 Mitsubishi group
 Sumitomo group
 Mitsui group
 Fuyou group (Fuji BK)
 Sanwa group
 Dai-ichi Kangyo group
*Mutual-Holding of Shares 　
Historical backdrops 1987 ： 18.4% 　 2002 ： 7.4%
1 ． dissolution of Zaibatsu after WWII
2. accession to OECD in 1964 *Stable shareholding 　
3 ． in the 1980s high stock prices policy 1987 ： 45.8% 　 2002 ：
27.1%
 Management control *Foreigner
1989 ： 3.9% 　 2002 ； 23.7%
　 2014; 31.7 ％
Sumitomo Group 1993 Mutual Holding Relationship
Strategically important business objectives in late 1980s
Japan US
Development of new products and new business 60.8% 11.0%
Maintain and increase market share 50.6% 53.4%
Maintain and increase return on investment 35.6% 78.1%
Maximized sales 27.9% 15.1%
Investor capital gain 2.7% 63.0%
Source: Keizai Doyukai, Company White Paper, 1988.
the medium- and long-term business strategies formulated within Japanese

companies (in contrast to the US) placed more focus on capital investment
or in the development of new products than on maintaining a good
relationship with stockholders.
Changing Mutual Holding Relationship
 Since collapse of the Bubble Economy in early 1990’s,

　　 mutual-holding shares had been sold out.
　　 relationship between Main Bank and Business Corporations  fluid
 Corporate Groups have been melting down.

　　
　　
 In contrast, foreigners’ share rapidly grown

　　 90: 4.0%, 95: 10%,
　　 03: 21.8%, 06: 27.8%, 13: 30.8 ％ , 2014: 31.7 ％
 weigh heavily on institutional shareholders, strategic IR required.

changing the structure of Corporate Governance in JCs
different from before
©K.Tanimoto@Waseda University 2015 Shareownership Survey, 2016.6.20 11
ratio of shareholding and ration of mutual holding in listed companies
『金融』 2011. 7
What is CSR?
Japan
employment, good products, Japan: Keizai DoyuKai (2005)
and environment
US
philanthropic activities in
community
EU
unemployment, social exclusion
(immigration)
Indonesia?
 Oil industry ：
environmental protection and local community/Government
 Chemical industry ：
safety of chemical materials, safety management of factories and employees
 Food industry ：
food quality and safety, sanitary control, traceability
 Financial industry ：
　 control of customers private information, environmental finance,
Principle of Responsible Investment (PRI)
 Manufacturer ：
environmentally-friendly products, 3R (recycle, reuse, reduce),
supply-chain management
 Construction industry ：
fair trade practice, safety management, consideration for environmental
conservation, Responsible Property Investment (RPI)
 Hard regulation: company law, listing regulations
Soft regulation: Corporate Governance Code
*corporate governance, internal control, external director, corporation with committees
*non-financial reporting, disclosure of risk information: climate change, conflict mineral
 Critical attitude toward corporate scandals/crimes

　　　 - env., labor/human-rights, safety and health, information security, accounting fraud
　　　 - severe criticism from society  extract a price
 Global trend of ‘CSR’

　　　　 changing corporate roles/responsibilities
　　　　 - global CSR trend ： 1990s-
 UN, EU, NGO, consumer org., labor union, managers org, trans-sectoral org
　　　　 - International Code of Conduct, standard: UNGC, PRI, ISO26000…
 Internalization vs Localization
 How to tackle with unceasing Corporate Scandals/crimes?
　　 Criticism against 1) excess profit maximization (?)
　　 2) lack of managers’ ethics
　　  should focus on the structure of corporate society and
organizational culture
 How to understand stakeholders’ positioning?

　　 core stakeholders ：
　　　　 peripheral stakeholders ：
　　　　 stakeholders potential for threat

　　　　 stakeholders potential for cooperation ：
(2) Stakeholder Theory and Management

Your image of Japan’s int’l competitiveness
IMD WORLD
COMPETITIVENESS
RANKING 2018
IMD WORLD TALENT RANKING 2018

Investment & Development 　 2018 Rank
Total public expenditure on education Percentage of GDP 57
Employee training is a high priority in companies 6
　　　
Appeal 　 2018 Rank
Quality of life is high 26
　　　
Readiness 　 2018 Rank
International experience of senior managers is generally significant 62
Competent senior managers are readily available 55
University education meets the needs of a competitive economy 45
Management education meets the needs of the business community 53
Language skills are meeting the needs of enterprises 61
Educational assessment - PISA PISA survey of 15-year olds 4
in Japanese company’s organization
 relatively homogeneous community
 confucian sense of seniority
 sense of fraternity
 sense of conformity
 inward-looking
 Long-term employment (with no written contract, no written job-discription)

 Promotion/payment by seniority, Internal job mobility, on-the-job-training
Internal (corporate) Labour Market, in-company union
Immature of Labour market
 internal high pressure of organization

- No free atmosphere making an objection against their boss
- small group activities - continuous improvement of existing tech  mgt participation or
kaizen
- low rate of taking paid-leaves, lowest in OECD (rate of taking 50%, 2017)
(guilty feeling - always caring about others - avoid mischievous behavior)
 very slow to change the basic organizational fundamentals
- not easy to change precedents
Japan reduce int’l competitiveness
After 1991- collapse of bubble economy, and 2007- Financial crisis
Employment maintenance of middle-aged and older workers
 cooperation between labor and management

salary of regular employees kept lower
Non-regular employees growing up to 40%
1990s-2000s – age of rapid digitalization and globalization

But Japan behind the movement..
fail to secure adequate human resources in the strategic business field
fail to adapt organizational transition, fail to change the conventional organizational

culture to keep up with high speed env. changes
fail to change the old J’s university system
IMD competitiveness and talent ranking - moving down on the lists..
innovative ideas and business schemes needed  not be created in the

homogeneous organization
still hanging on the old model, dwelling on one's past success
 Discussion
How do Indonesian companies understand and

construct the relationship with stakeholders?
 Corporation--Stakeholders Institutionalized/not-Institutionalized relations
formalized/not-formalized
Employees Stockholders
Labor Union Investors
Industrial Investor
Relations Relations
Public Customer Customers
Public Society
Relations Corporation Relations
Supply chain
Community
Media Relations
Relations Clients
Community Relations
subcontract
NGO Media
 Each stakeholder simply does not exist in parallel, nor simply in a good balance.
　 How to explore the relationship between corporation and stakeholders?
 Mitsubishi UFJ Financial Group
https://www.mufg.jp/english/csr/stakeholder/
 Kao
https://www.kao.com/global/en/sustainability/
Stakeholder Theory
 R.E. Freeman, Strategic Management: A Stakeholder Approach, 1984.
Stakeholder ： "any group or individual who can affect or
is affected by the achievement of an organization’s purpose” p.46
　　
SH The stakeholder view of strategy

Management Traditional management has not taken into account SHs
& Strategy Company can and should control stakeholders
 1980s-90s ： SH management theory has developed from various

perspectives
 The most theories recognize corporations separated from society, and

CSR is doing something good.
Stakeholder Theory
1 ． How to consider the
relationship between
corporation and
stakeholders?
Power Approach
Power relations between
corporation and its stakeholders,
check and balance model
G.A.Steiner,et al. (2012), Business, Government and

Society, 13th ed., p.17.
2 ． How to define stakeholder attributes?
how to make strategic decisions?
1) Principle of Who and What really Counts

A theory of stakeholders identification and salience based on stakeholders possessing
one or more of three relationship between attributes:
Power, Legitimacy, and Urgency
- Power: the stakeholder's power to

influence the firm
- Legitimacy: socially accepted & expected
structures or behaviors of the firm and
stakeholders
- Urgency: the degree to which stakeholder
claims call for immediate attention
Michell et al(1997) p.874
- Supportive Stakeholder:
Low on potential threat but
high on potential for cooperation
　　 involve it
- Marginal Stakeholder:
Neither highly threatening nor
especially cooperative
 monitor it
- Non-supportive Stakeholder:
High on potential threat but low on
potential cooperation
 defend against it
- Mixed blessing Stakeholder:
High on potential threat and cooperation
 collaborate with it
©K.Tanimoto@Waseda University Savege et al(1991) p.65 27

NOVARTIS （ Pharmaceutical company, Switzerland ）
Stakeholder Dialogue on production process: value chain,

to know the relationship with stakeholders and the crucial issues
　　 Government 　　 Research Institution 　 Neighbor 　　　　 Competitor 　　 Hospital

　　 Patient 　　　　　 Employees 　　　　　 Official Institution Client 　　 Patient
　　 Society 　　　　　 Investors 　　　　　 Supplier 　 Media 　　　　　 Official Institution
Marketing 　 Patient
Needs 　 R&D 　 Production
Distributing 　 Client
Ethical Discussion 　 Animal test 　　　 Employment condition 　　　 Healthcare system 　 Access
Future generation 　　 Clinical test 　　　 Health/Safety/Environment 　　 Price 　　　　　　　 Consumer-
Disease 　　　　　　 Patient 　　　　 Resource 　　　　　　　 Marketing 　　 oriented
©K.Tanimoto@Waseda University NOVARTIS, Corporate Citizenship in Novartis, 2001, p.11. 　 28

e.g. Manufacturing Industry - consumer electronics company
How to make a good relationships with SHs?
in the all process of value chain from resource procurement to sales
Value Chain
Proceeding of Manufacturing
Transportation Distribution End use
Raw materials of products
CSR issues CSR issues CSR issues CSR issues CSR issues
Stakeholders Stakeholders Stakeholders Stakeholders Stakeholders
e.g. Manufacturing Industry
making relationships with SHs
In the all process of value chain from resource procurement to sales
(3) Stakeholder Engagement

Stakeholder Engagement
ISO26000 (Guidance on Social Responsibility): Activities undertaken by an organization
to create opportunities for dialogue between the organization and one or more of its
stakeholders, with the aim of providing an informal basis for the organization’s decisions.
Kegiatan yang dilakukan oleh suatu organisasi untuk menciptakan peluang dialog antara
organisasi dan satu atau lebih pemangku kepentingannya, dengan tujuan memberikan
dasar informal untuk keputusan organisasi.
AccountAbility (2005): Dialogue with the people and groups who have an interest in the
business of the company or may be affected by it or have an effect on it.
Most important is to reflect the proposals offered by stakeholders as well as ideas for the
management policies and activities, and to change management behavior. Stakeholder
engagement can inform an organization’s decisions by helping it to acquire a better understanding,
that it would not otherwise have had, of the likely consequences of its actions and its impact.
Yang paling penting adalah untuk mencerminkan proposal yang ditawarkan oleh para pemangku
kepentingan serta ide-ide untuk kebijakan dan kegiatan manajemen, dan untuk mengubah perilaku
manajemen. Keterlibatan pemangku kepentingan dapat menginformasikan keputusan organisasi
dengan membantunya memperoleh pemahaman yang lebih baik, bahwa hal itu mungkin tidak
akan terjadi, tentang konsekuensi yang mungkin timbul dari tindakan dan dampaknya.
Methods
- Survey
- Dialogue
- Interview
- Management participation
home & overseas
Purposes
- License to operate (legitimacy)
- Create a new idea, Innovation
- Development of business chance
- Building a partnership
Challenges
- Selection of SHs
http://www.accountability21.net/
- Power relations between SHs
- Democratic process
- Lack of experiences
©K.Tanimoto@Waseda University AccountAbility （ 2011; 2018) 34
Challenges:
1) Identifying the purpose, target and scope of the engagement

2) identifying relevant material sustainability topics and their solutions
3) Sharing the engagement method with SHs beforehand
4) Ensuring the transparency. Disclosure of the discussion and result.
Summary
Environmental Analysis of Stakeholder Engagement for Identification
 Learn what are CSR issues  Setting definite themes

 Identify social impact of the  Identify key stakeholders
issues  Set priority of stakeholders
 Set priority of issues  Internal analysis
(urgency, materiality) 　　　 (vision, values, claims)
 Plan and implement policies

　　・ urgency and materiality
　　・ confirm management resources
　　・ merit by doing / demerit by not doing
 Decrease risks by finding social demand and
problems
 Learn specific issues in the country which they
come into
Vodafone （ UK, ICT ）
Vodafone started SE in the early stages
 Corporate Responsibility Report Vodafone Group Plc, 2004/05

　　 ‘ We said, We have, We will’
　　 they set a target of CSR (We said), show what they have done for the last one
year （ We have ） , and target setting for the next year (We will).
 Vodafone UK 05/06 、 07/08 --

　　　・ Stakeholder Engagement
　　　・ Independent Assurance by Deloitte
（ you said ）
 Vodafone have moved more toward an ‘issues-based reporting’ approach

grounded in Vodafone's new strategy and communication on sustainability
since 2011
Our stakeholders include:
• non-governmental organisations (NGOs) and sustainability opinion formers,
who are often interested in our approach to specific issues
• consumers and enterprise customers (small and large businesses and
organisations), who relate to us as a service provider
• communities, who may be concerned about the siting of our network
infrastructure
• governments and regulators, who can affect our business through new
legislation and regulations, see our Public policy section
• investors, employees and suppliers, who are directly affected by our
business performance.
We tailor our engagement processes to suit each different stakeholder group.

Our local markets play an important role in forming relationships with local
stakeholders
In Japanese cases
 Formality
 Explanatory meeting with relevant SHs
in-house workshop (awareness study for employees)
‘Dialogue’: talk about general topics, not feedback 　
 Domestic: with Japanese SHs only
For what? With whom? Where?
 Expected to gain experiences year by year,

at home and overseas bases
 It is not possible to construct a trusting relationship by just
only exchanging views with SHs
 engagement with SHs, collaboration
Discussion
 How should Indonesian companies strategically have

a Stakeholder Engagement?
and
How should stakeholders engage/communicate with
companies in Indonesia?
Core reading:
 Lawrence. A.T. & Weber. J. (2017) "The Corporation and Its Stakeholders", in
Business and Society, 15th ed., McGraw Hill.
 Savage, G. T., Nix, T. W., Whitehead, C. J. & Blair, J. D. (1991) “Strategies for
Assessing and Managing Organizational Stakeholders”, Academy of Management
Executive, Vol. 5, No. 2.
• Bhattacharya, CB, Sen, S. & Korschun, D. (2011) Leveraging Corporate

Responsibility: The Stakeholder Route to Maximizing Business and Social
Value, Cambridge University Press.
• Wasieleski, D.M. & Weber, J.(eds) (2017) Stakeholder Management, Emerald.
• Michell, R. K., Agle, B. R., & Wood, D. J. (1997) “Toward a Theory of Stakeholder
Identification and Salience”, Academy of Management Review, Vol.22, No.4,
pp.853-886.
• AccountAbility (2015) AA1000 Stakeholder Engagement Standard, London.

　　 https://www.accountability.org/standards/

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Current Issues in Sustainability and Accounting

2-3 March 2020

(3) Stakeholder Engagement

©k.Tanimoto @Waseda University 2

 Who owns a company? For whom? 

 Who takes responsibility?

 What is a ‘good company’? 

Changing business roles and legitimacy

Survey for New Employees

Why do they think so??

5 Income Gain (dividend) ?

Source: Keizai Doyukai, Company White Paper, 1988.

the medium- and long-term business strategies formulated within Japanese

 Since collapse of the Bubble Economy in early 1990’s,

 Corporate Groups have been melting down.

 In contrast, foreigners’ share rapidly grown

 weigh heavily on institutional shareholders, strategic IR required.

 Critical attitude toward corporate scandals/crimes

 Global trend of ‘CSR’

 How to understand stakeholders’ positioning?

stakeholders potential for threat

©k.Tanimoto @Waseda University 17

IMD WORLD TALENT RANKING 2018

 Long-term employment (with no written contract, no written job-discription)

 internal high pressure of organization

 cooperation between labor and management

Non-regular employees growing up to 40%

1990s-2000s – age of rapid digitalization and globalization

fail to secure adequate human resources in the strategic business field

fail to adapt organizational transition, fail to change the conventional organizational

IMD competitiveness and talent ranking - moving down on the lists..

innovative ideas and business schemes needed  not be created in the

How do Indonesian companies understand and

SH The stakeholder view of strategy

 1980s-90s ： SH management theory has developed from various

 The most theories recognize corporations separated from society, and

G.A.Steiner,et al. (2012), Business, Government and

1) Principle of Who and What really Counts

- Power: the stakeholder's power to

Michell et al(1997) p.874

©K.Tanimoto@Waseda University Savege et al(1991) p.65 27

Stakeholder Dialogue on production process: value chain,

Government Research Institution Neighbor Competitor Hospital

©K.Tanimoto@Waseda University NOVARTIS, Corporate Citizenship in Novartis, 2001, p.11. 28

Stakeholders Stakeholders Stakeholders Stakeholders Stakeholders

©k.Tanimoto @Waseda University 31

1) Identifying the purpose, target and scope of the engagement

 Learn what are CSR issues  Setting definite themes

 Plan and implement policies

 Corporate Responsibility Report Vodafone Group Plc, 2004/05

 Vodafone UK 05/06 、 07/08 --

 Vodafone have moved more toward an ‘issues-based reporting’ approach

We tailor our engagement processes to suit each different stakeholder group.

For what? With whom? Where?

 Expected to gain experiences year by year,

 How should Indonesian companies strategically have

• Bhattacharya, CB, Sen, S. & Korschun, D. (2011) Leveraging Corporate

• AccountAbility (2015) AA1000 Stakeholder Engagement Standard, London.

 Who owns a company? For whom? 　

 What is a ‘good company’? 　

　　　　 stakeholders potential for threat

　　 Government 　　 Research Institution 　 Neighbor 　　　　 Competitor 　　 Hospital

©K.Tanimoto@Waseda University NOVARTIS, Corporate Citizenship in Novartis, 2001, p.11. 　 28