Engaging Stakeholders: Triple Bottom Line (Economic, Social, and Environmental)

Sybille Sachs outlines how managers should balance the demands and responsibilities of stakeholders in creating wealth.

Posted by Mike Ritzenthlaer

Since the 1950s, “corporate responsibility” has been discussed from the perspective of corporate “social” responsibility. The idea behind this concept is that the traditional responsibility of management to serve owners or investors should be enlarged to reflect the fact that a firm is always part of society and part of the ecological system. The triple bottom line, which includes economic, social and ecological dimensions, became an adequate tool to measure corporate performance in a broader sense. Therefore, the corporate social responsibility debate often focuses on different categories of responsibilities, for example economic, legal, ethical and philanthropical. But in managerial reality, no natural or distinguishable responsibility categories exist.
Furthermore, corporate social responsibility is often criticized for being treated as a moral substitute to compensate for harmful corporate activities. The critics argue for a more comprehensive understanding of corporate responsibility. I propose we consider corporate social responsibility as “corporate stakeholder responsibility”. The value creation process in firms has become more and more complex and knowledge has become its crucial factor. The focus turns to those who contribute to this process: the key stakeholders. This stakeholder view of the firm focuses on the contribution of all relevant stakeholders (employees, investors, regulators etc) to the enhancement of the value of the firm. Management’s responsibility therefore is to develop the interaction with these stakeholders.
Where to leadWhat then are the main tasks for a manager to fulfill this corporate stakeholder responsibility?1. Management has to identify the relevant stakeholders and assess their contributions in the value creation process. Our investigation shows clearly that stakeholders can contribute to new core competencies and innovative solutions. Including key stakeholders systematically into the value creation process enhances the license to innovate.2. The development of relevant stakeholder interactions also means that management not only seeks a favorable position in the competitive environment but in the whole stakeholder network. This contributes to an enforcement of the firm’s license to compete.3. Whereas traditional strategic management focuses on economic causalities of success, the stakeholder view also includes societal factors. It exploits and considers the contributions and expectations of societal and ecological stakeholders to gain and maintain the license to operate by society.In the business model of the stakeholder view, managers are facing the responsibility to keep up these three licenses. These three licenses emphasize that the corporation is only legitimized in its existence and only fulfils its responsibilities if it creates wealth for and with its stakeholders.Consider also the fact that corporate stakeholder responsibility requires procedural and distributive justice. Procedural justice means integrating the values of all-important stakeholders into the development and implementation of a firm’s strategy. The stakeholders are integrated in the strategic processes by either providing or receiving benefits or providing or bearing risks. Distributive justice acknowledges that all stakeholders who make (voluntarily or not) firm-specific investments either by providing benefit or bearing risks should have the right to the residual claim analogous to the shareholders’ firm-specific investment and their right of residual claim based on their risk bearing function. The table displays a possible example.Stakeholder groups(examples) Contributions to wealth creation Stakeholder involvement regarding strategic responsibility process Wealth disseminationShareholders Capital expenditure, capital risk bearer Voting power at general assembly Residual benefit; shareholder valueEmployees Benefits from human capital; firm-specific investments Forum for information and participation of employees (sounding board) Education, employability, bonus systems, motivation etcCustomers/Users Risks of not being served any more due to corporate focusing Round tables for product and service innovations (lead users) Specific conditionsCommunity Bearing risks due to pollution and contamination Involvement of representatives in strategic sustainability boards Corporate philanthropy, financial and non-financial compensations for risks borne My claim for corporate stakeholder responsibility: managers’ mindsets should be focused on value creation with and for stakeholders.