Quanta Corporate Citizenship The Corporate Citizenship Stakeholder Curve
| Quanta Corporate Citizenship |
At Quanta we try to avoid using the expression ‘CSR’ or to deliberately say ‘corporate social responsibility’. Not because the expression is a bad one (it is not!), but because, taken in its literal sense, it might convene a narrower idea than the one that can truly benefit companies. Corporate citizenship goes beyond social responsibility: it also encompasses a series of different aspects of the corporate life, such as environmental, cultural and financial responsibilities.
We can easily identify 8 major groups of stakeholders impacted by any organisation’s citizenship: employees, shareholders, suppliers, competitors, clients, government, civil society and the environment. Any organisation can, at any time, expand this list by sub-dividing it further for greater detail. For instance, it could split competitors between competitors and potential competitors; or government between local government, national government and the government of the country where its head office is. To keep things simple, I will focus on these 8 larger groups.
We can easily identify 8 major groups of stakeholders impacted by any organisation’s citizenship: employees, shareholders, suppliers, competitors, clients, government, civil society and the environment. Any organisation can, at any time, expand this list by sub-dividing it further for greater detail. For instance, it could split competitors between competitors and potential competitors; or government between local government, national government and the government of the country where its head office is. To keep things simple, I will focus on these 8 larger groups.
One same person or organisation can be in more than one category at the same time. In relation to Apple, Google is both a supplier of a search engine and other tools for the likes of iPhone and MacBooks, but it is also a competitor, providing alternatives to MobileMe and iPhone.
Although on a theoretical level the stakeholder groups can be clearly defined, in practice it becomes substantially more difficult, especially as we move away from those stakeholders that are directly managed by the organisation – e.g. employees – to those that are in contact with the organisation on many different levels and through many different mediums – e.g. civil society and the environment. Whilst an organisation has a very clear knowledge about who is on its payroll, it is very difficult for it to determine who is the “society” or the “environment” although it knows it definitely affects, and is affected by, these later groups. The fact that these are diffused groups does not make them any less relevant. If anything, because diffused stakeholders are less tangible both in terms of identification, as well as assessment of contact points and mutual impacts, they need more, not less, attention when it comes to understanding and planning an organisation’s strategic citizenship.
On the other hand, groups more easily determined, such as employees and shareholders, are more easily assessed. Furthermore, because it is easier to define and assess their impact and needs, as well as the results of any potential commitment in relation to them, the organisation has greater control over its relationship with them. But as the stakeholder groups move towards the right of the curve, i.e. become more diffused and less defined, the relationships also become less defined, and therefore more complex.
The consequence of this increased complexity is that decisions are more contradictory and, therefore, need to assume a strategic perspective more frequently. It is a relatively easy operational decision to make sure all employees are protected from sexual harassment. It is much more complex, and therefore necessary to assume a more strategic position, when making a decision between investing in a cheaper plant producing greater amounts of CO2 and investing in a substantially more expensive plant producing a lower amount of CO2. It is a relatively straightforward decision to produce annual reports on the corporate citizenship commitments from the organisation. Much more so than the decision to close operations in a developing country and make thousands of local employees redundant because the local government disrespects the company’s intellectual property, or demands briberies to let the organisation operate efficiently, or violates local human rights. Strategic decisions, as mentioned before, are generally less straightforward and require a significant amount of tradeoffs.
It is not only that different stakeholders present different levels of difficulty to be framed. Similar stakeholders can become more difficult to be properly framed because the whole curve moves up-and-right. For instance, the stakeholder curve generally moves up-and-right as the scale of operation of an organisation increases. Establishing a sick leave policy is relatively easy for an organisation with 150 individuals, where all of them know each other and have personal relationships that probably go beyond the corporate walls, regardless of internal hierarchies. However, an organisation with fifteen thousand employees, where the anonymity generally creates incentives for free riders and misrepresentations, it becomes far more difficult to frame the stakeholder.
Although on a theoretical level the stakeholder groups can be clearly defined, in practice it becomes substantially more difficult, especially as we move away from those stakeholders that are directly managed by the organisation – e.g. employees – to those that are in contact with the organisation on many different levels and through many different mediums – e.g. civil society and the environment. Whilst an organisation has a very clear knowledge about who is on its payroll, it is very difficult for it to determine who is the “society” or the “environment” although it knows it definitely affects, and is affected by, these later groups. The fact that these are diffused groups does not make them any less relevant. If anything, because diffused stakeholders are less tangible both in terms of identification, as well as assessment of contact points and mutual impacts, they need more, not less, attention when it comes to understanding and planning an organisation’s strategic citizenship.
On the other hand, groups more easily determined, such as employees and shareholders, are more easily assessed. Furthermore, because it is easier to define and assess their impact and needs, as well as the results of any potential commitment in relation to them, the organisation has greater control over its relationship with them. But as the stakeholder groups move towards the right of the curve, i.e. become more diffused and less defined, the relationships also become less defined, and therefore more complex.
The consequence of this increased complexity is that decisions are more contradictory and, therefore, need to assume a strategic perspective more frequently. It is a relatively easy operational decision to make sure all employees are protected from sexual harassment. It is much more complex, and therefore necessary to assume a more strategic position, when making a decision between investing in a cheaper plant producing greater amounts of CO2 and investing in a substantially more expensive plant producing a lower amount of CO2. It is a relatively straightforward decision to produce annual reports on the corporate citizenship commitments from the organisation. Much more so than the decision to close operations in a developing country and make thousands of local employees redundant because the local government disrespects the company’s intellectual property, or demands briberies to let the organisation operate efficiently, or violates local human rights. Strategic decisions, as mentioned before, are generally less straightforward and require a significant amount of tradeoffs.
It is not only that different stakeholders present different levels of difficulty to be framed. Similar stakeholders can become more difficult to be properly framed because the whole curve moves up-and-right. For instance, the stakeholder curve generally moves up-and-right as the scale of operation of an organisation increases. Establishing a sick leave policy is relatively easy for an organisation with 150 individuals, where all of them know each other and have personal relationships that probably go beyond the corporate walls, regardless of internal hierarchies. However, an organisation with fifteen thousand employees, where the anonymity generally creates incentives for free riders and misrepresentations, it becomes far more difficult to frame the stakeholder.
The curve also shifts up-and-right as the organisation increases the markets it caters for. It is relatively easy to know and interact with a well-defined market composed by a limited number of clients, but as the number of markets increase, so does the complexity of understanding and interacting with them. This is a reality quickly understood by poultry companies in Latin America when they first tried to sell their standard products in markets in the Middle East, and immediately faced the problems posed by their special religious and health requirements.
The curve also shifts up-and-right as the organisation spreads its geographical footprint. An organisation operating in one country can comply with local regulations relatively easy. But as soon as it starts operating in a second location where employment laws establish significantly lower standards, it is faced with key challenges about deciding on fairness of wages, holiday packages etc. Is it fair to pay for an employee working 50+ hours in Kenya a tenth of someone performing an identical job in France, working 35 hours per week, just because he happened to be born in a different place? And if that French employee is transferred to Kenya: should his salary be re-adjusted to Kenyan levels so people working in the same place are paid the same, or should he keep his higher salary because he was originally employed in France?
The curve also shifts up-and-right as the organisation increases the portfolio of industries where it operates. It is significantly easier to understand the stakeholders in one industry, especially when their roles are very clearly defined. But as the number of industries increase, similar agents start assuming different roles as stakeholders. If GE operated only in the production of commercial jet engines, its interface with the government would be primarily through taxation and health and safety regulations. But as it also operates on security, the government also becomes a key client, drastically increasing the complexity of its interactions with the government, and therefore making decisions regarding how it will frame its relationships with the government substantially more strategic.
For a similar reason, the shift also happens as the organisation moves from service to production. Google experienced this shift when it decided to start selling phones. Its relationship with its clients was significantly simpler when it was providing only IT services. When it decided to start providing equipment (or, to be precise, distributing), it shortly realised that its contact points with consumers increased in complexity very quickly. Consumers that were great Google fans and had their Gmail accounts for years suddenly changed their attitude when their Nexus One handsets did not perform as they expected.
On the other hand, the curve shifts downwards as the organisation becomes more experienced and moves along in its learning curve. Decisions about how to deal with corrupt government officials might have a strategic importance to the organisation in the first few times it has to deal with the issue, but once the practices and policies are ingrained in the modus operandi of the organisation by consistent practices, the decision about how to deal with it becomes much more an operational issue, requiring less high-level guidance and supervision. Experience, clarity of purpose and consistency are the three major elements required to move the curve downwards. In other words, learning how to do things, and then doing it in a consistent and systematic way is the most efficient way for an organisation to shift its curve down.
The curve also shifts up-and-right as the organisation spreads its geographical footprint. An organisation operating in one country can comply with local regulations relatively easy. But as soon as it starts operating in a second location where employment laws establish significantly lower standards, it is faced with key challenges about deciding on fairness of wages, holiday packages etc. Is it fair to pay for an employee working 50+ hours in Kenya a tenth of someone performing an identical job in France, working 35 hours per week, just because he happened to be born in a different place? And if that French employee is transferred to Kenya: should his salary be re-adjusted to Kenyan levels so people working in the same place are paid the same, or should he keep his higher salary because he was originally employed in France?
The curve also shifts up-and-right as the organisation increases the portfolio of industries where it operates. It is significantly easier to understand the stakeholders in one industry, especially when their roles are very clearly defined. But as the number of industries increase, similar agents start assuming different roles as stakeholders. If GE operated only in the production of commercial jet engines, its interface with the government would be primarily through taxation and health and safety regulations. But as it also operates on security, the government also becomes a key client, drastically increasing the complexity of its interactions with the government, and therefore making decisions regarding how it will frame its relationships with the government substantially more strategic.
For a similar reason, the shift also happens as the organisation moves from service to production. Google experienced this shift when it decided to start selling phones. Its relationship with its clients was significantly simpler when it was providing only IT services. When it decided to start providing equipment (or, to be precise, distributing), it shortly realised that its contact points with consumers increased in complexity very quickly. Consumers that were great Google fans and had their Gmail accounts for years suddenly changed their attitude when their Nexus One handsets did not perform as they expected.
On the other hand, the curve shifts downwards as the organisation becomes more experienced and moves along in its learning curve. Decisions about how to deal with corrupt government officials might have a strategic importance to the organisation in the first few times it has to deal with the issue, but once the practices and policies are ingrained in the modus operandi of the organisation by consistent practices, the decision about how to deal with it becomes much more an operational issue, requiring less high-level guidance and supervision. Experience, clarity of purpose and consistency are the three major elements required to move the curve downwards. In other words, learning how to do things, and then doing it in a consistent and systematic way is the most efficient way for an organisation to shift its curve down.
The author, Gus Romano, is a partner and co-founder of Quanta Corporate Citizenship
