Stakeholder Relationships and Engagement

By Alan S. Gutterman

It is generally acknowledged that an organization's primary stakeholders, those key to the organization's survival, include owners, investors and shareholders, employees (managers and non-managers) and workers throughout the supply chain (and their elected representatives, if any), customers and clients, suppliers, vendors, distributors, contractors and other key business partners (e.g., lenders and insurers).  However, other stakeholders can also be very important to a company: governments (local, provincial and national) and intergovernmental bodies, which provide the licenses for businesses to operate and establish, interpret and enforce the laws and regulations under which businesses must conduct their affairs; the community, which includes local government, the natural and physical environments and the quality of life provided to residents in the areas where the company conducts its business; special interest groups, which include industry and trade associations, political action committees, social activists, cooperatives, professional associations and consumer interest groups; creditors; for- and non-profit partners (i.e., "strategic partners" such as universities and research institutes) that provide support and collaboration on development of new technologies, products and processes; the "media"; competitors; and non-governmental organizations, international organizations and other affected by the activities of the business.

Foundation to strong stakeholder relationships is stakeholder engagement, which includes the formal and informal ways of staying connected to the parties who have an actual or potential interest in or effect on a company's business (i.e., the company's "stakeholders").  Engagement implies understanding the views and concerns of stakeholders and taking them into consideration, being accountable to them when accountability is called for, and using the information gleaned from them to drive innovation.  Stakeholder engagement is related to the fundamental principle of corporate social responsibility that calls for companies to acknowledge that their businesses do not and cannot exist in isolation.  Stakeholder engagement is more than just listening, although that is obviously very important, but extends to forging working alliances with stakeholders to pursue and achieve mutually agreed results.  Companies that fail to pay attention to the concerns and opinions of their stakeholders can suddenly find themselves confronted with an array of problems that go to the very heart of their businesses.  When companies are unresponsive to their customers, they begin to lose business and revenues tumble.  Companies that do not pay attention to the needs of their employees are unable to recruit and retain the talent necessary to remain competitive.  In addition, failing to explain strategies and financial performance to investors jeopardizes the availability of capital.

This book discusses and describes stakeholder theory and continues with chapters on the expectations of key stakeholder groups—employees, customers, communities, investors, the environment and suppliers--regarding social responsibilities of businesses.  The book also covers stakeholder engagement, the role of the board of directors in engagement and specific steps that businesses can take to engage with members of their communities.

• Language: English
• Publisher: Sustainable Entrepreneurship Project
• Release date: Oct 16, 2019
• ISBN: 9781393403760

Alan S. Gutterman

This book was written by Alan S. Gutterman, whose prolific output of practical guidance and tools for legal and financial professionals, managers, entrepreneurs, and investors has made him one of the best-selling individual authors in the global legal publishing marketplace.  Alan has authored or edited over 300 book-length works on entrepreneurship, business law and transactions, sustainability, impact investment, business and human rights and corporate social responsibility, civil and human rights of older persons, and international business for several publishers including Thomson Reuters, Practical Law, Kluwer, Aspatore, Oxford, Quorum, ABA Press, Aspen, Sweet & Maxwell, Euromoney, Business Expert Press, Harvard Business Publishing, CCH, and BNA.  His cornerstone work, Business Transactions Solution, is an online-only product available and featured on Thomson Reuters’ Westlaw, the world’s largest legal content platform, which covers the entire lifecycle of a business.  Alan has extensive experience as a partner and senior counsel with internationally recognized law firms counseling small and large business enterprises, and has also held senior management positions with several technology-based businesses including service as the chief legal officer of a leading international distributor of IT products headquartered in Silicon Valley and as the chief operating officer of an emerging broadband media company.  He has been an adjunct faculty member at several colleges and universities, and he has also launched and oversees projects relating to promoting the civil and human rights of older persons and a human rights-based approach to entrepreneurship.  He received his A.B., M.B.A., and J.D. from the University of California at Berkeley, a D.B.A. from Golden Gate University, and a Ph.D. from the University of Cambridge, and he is also a Credentialed Professional Gerontologist (CPG).  For more information about Alan and his activities, please contact him directly at [e-mail], follow him on LinkedIn (https://www.linkedin.com/in/alangutterman/), and visit his personal website at www.alangutterman.com to view a comprehensive listing of his works and subscribe to receive updates.  Many of Alan’s research papers and other publications are also available through SSRN and Google Scholar.

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1

Stakeholder Theory

IT IS BELIEVED THAT the term stakeholder in relation to organizations has been used since the 1930s, when Harvard Law Professor E. Merrick Dodd suggested that businesses had at least four major groups of stakeholders: shareowners, employees, customers and the general public.[1]  Decades later, as interest in corporate social responsibility (CSR) has increased, one of the foundational elements of the CSR movement has been stakeholder theory, which Maon et al. explained as emphasizing that organizational survival and success hinges on the organization’s ability to generate sufficient wealth, value, or satisfaction for all of its primary stakeholders, but not exclusively for shareholders.[2]  Stakeholder theory is based on the premise that businesses operate in an ecosystem of various stakeholders, each of which contribute to the sustainability of the business and the ability of the firm to create value for any stakeholder group.  For example, while shareholder primacy has been a guiding principle for decades, it has become clear that sustainable shareholder value cannot be achieved without strong and constructive relationships with other stakeholders (e.g., customers, supplier, employees, communities etc.), relationships that must be forged through engagement to achieve alignment throughout the ecosystem on goals and strategy.

Daft and Marcic described a stakeholder as any person or group within or outside the organization that has a stake in the organization’s performance.[3]  The GIIRS explained that the term stakeholders generally refers to any individual or group that, either positively or negatively, impacts or is impacted by the decisions and action of an organization.[4]  Freeman was one of the first to argue for a stakeholder approach to strategic management and defined stakeholders as any group or individual who can affect, or is affected by, the achievement of a firm’s objectives.[5]  Other definitions and conceptualizations of the concept of stakeholders include those groups who have a stake in or a claim on the firm[6], all of the entities with a critical eye on corporate actors[7] and those groups without whose support the organization would cease to exist[8].  The term stakeholder can take on different meanings depending on the context.  For example, when engagement is carried out in anticipation of a new project in a specific community the community-based stakeholders would include any individual, group or institution who has a vested interest in the natural resources of the project area and/or who potentially will be affected by project activities and has something to gain or lose if conditions change or stay the same.[9]

Stakeholder theory and the emergence of the stakeholder model need to be understood in the context of a long-standing framework of corporate governance that has been based in the shareholder model.  The IFC and Global Corporate Governance Forum have explained that in most countries, including the US, the courts and corporate governance academics and commentators (as well as economists such as Milton Friedman) have made it clear that the shareholders are the owners of companies and that the primary fiduciary responsibility of the directors and managers of companies in their agency roles is to act in the best interests of the shareholders so that shareholders are able to achieve the financial return on their investment that they expected when they committed their capital to the purchase of their shares.  Some have argued that shareholders actually have a personal property interest in the firm and its assets; however, while shareholders do have the right to vote on how assets are used and disposed of and to vote on the election of directors and other matters relating to the sustainability of the firm and the operation of its business, they are not the only group of stakeholders whose interests are protected under the law.  For example, companies enter into binding legal contracts with customers and suppliers and employees and customers have specific rights in their relationships with companies that have been created by statute and interpreted and enforced by regulation and the judiciary.[10]

The framework described above, which is essentially the shareholder model, does not completely ignore a company’s legal obligations to customers, employees, suppliers and other groups that are not shareholders; however, it does demand a focus on creation of financial value for shareholders in the boardroom and in the C-suites.  In seeming contrast, the stakeholder model has been described as being based on the idea that a wide range of stakeholders, not just investors providing capital, contribute, either voluntarily or involuntarily, to a company’s wealth-building capacity and that since they are potential beneficiaries of the company’s activities with contributions that are at risk in the hands of the company’s management it is only appropriate that their interests be considered at the board and management in the same way as shareholders.[11]

It is fair to ask just how much difference there is between the shareholder and stakeholder models and it has been argued that the distinction is a false dichotomy and since all of the stakeholders, including shareholders, have an interest in the sustainability of the companies with which they have relationships and should be supportive of initiatives that create long-term value in a balanced manner.  In fact, the concept of enlightened self-interest has been advanced as a rationale for shareholder acceptance of the stakeholder model and argues that shareholders will ultimately be better off (i.e., wealthier) if they allow and encourage managers to pursue long-term objectives and they can do so without undermining their supremacy as the owners of the company and still demanding that directors and managers prioritize short-term stakeholder interests.[12]  The enlightened self-interest approach has been integrated into corporate governance frameworks in various countries, often by allowing and requiring directors to not only act in the best interest of all current shareholders but also to consider the interests of future shareholders and other interests that may affect the company’s success.

While the enlightened self-interest approach is to be praised for recognizing the interests of multiple stakeholders, it has been rightly criticized for the difficulties that directors must overcome in trying to resolve conflicts between increasing profits to satisfy shareholders and address stakeholder interests that may be at odds with the pursuit of profits.  There will clearly be difficulties for directors in trying to balance and prioritize competing stakeholder interests and simultaneously take into account short- and long- term shareholder value; the interests of the company’s employees; the strength of the company’s relationships with suppliers, customers and others; the impact of the company’s operations on the community and the environment; and the reputation of the company among its stakeholders.[13]  Overlaid on top of all this is a patchwork of statutory and regulatory obligations to stakeholders that is constantly changing in response to political, social, cultural and technological factors.

In a handful of countries the decision seems to have been made that the only way that there can be assurance that stakeholder interests are being given appropriate weight is to adopt what has been described as the pluralist approach, which requires that the board demonstrate that the business is operated in a way that take the interests and concerns of stakeholders into account and often includes formal mechanisms for stakeholder input such as the supervisory board including employee representatives required in Germany, the mandate that workers’ representatives be allowed to attend board meetings in France and Works Councils for larger EU companies.[14]  However, the pluralist approach does not necessarily reduce the challenges for directors since the conflicts referred to above still need to be resolved.  What it does do is make it even clearer that a transparent engagement process must be in place to demonstrate that stakeholder views have been solicited and that their interests have been analyzed and considered in the process of making decisions in the boardroom.

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Business Roundtable Shifts from Shareholder to Stakeholder Primacy

Interest in, and debates about, stakeholders and stakeholder theory surged in August of 2019 when the Business Roundtable updated its Principles of Corporate Governance, which were first introduced in 1978.  On August 19, 2019, the Business Roundtable announced the release of an updated Statement on the Purpose of a Corporation signed by 181 CEOs that redefined the purpose of a corporation as stated in previous principles to move away from shareholder primacy (i.e., that corporations exist principally to serve shareholders, a concept that had been championed in the principles since 1997) to promotion of an economy that serves all Americans and included commitments to operate companies for the benefit of all stakeholders: customers, employees, suppliers, communities and shareholders.  Several of the CEOs explained that the changes were necessary in order to reflect the way that companies can and should operate and the essential role that companies must be willing to play in improving society through job creation, innovation and delivery of crucial goods and services.  The updated principles also explicitly recognized that CEOs needed to look beyond generating profits and returning value only to shareholders to building long-term value for all stakeholders.

The Statement on the Purpose of a Corporation reads as follows:

"Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity. We believe the free-market system is the best means of generating good jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all.

Businesses play a vital role in the economy by creating jobs, fostering innovation and providing essential goods and services. Businesses make and sell consumer products; manufacture equipment and vehicles; support the national defense; grow and produce food; provide health care; generate and deliver energy; and offer financial, communications and other services that underpin economic growth.

While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders. We commit to:

Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.

Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.

Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions.

Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.

Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.

Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country."

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A number of attempts have been made to identify and distinguish stakeholder categories, with the most common approach being to call out groups of primary and secondary stakeholders.  Primary stakeholders include not only the shareholders that provide the company with capital to conduct its operations, but also those groups that have s direct relationship with the company that is essential for the company to realize its mission in producing goods and services for customers.[15]  According to Maon et al., secondary stakeholders include social and political actors who support the mission by providing their tacit approval of the organization’s activities, thereby making them acceptable and giving the business credibility. Such secondary stakeholders include local communities, governments, NGOs and academics with whom a company may collaborate on research.[16]

Daft and Marcic noted that owners, investors and shareholders, employees (managers and non-managers) and workers throughout the supply chain (and their elected representatives, if any), customers and clients, suppliers, vendors, distributors, contractors and other key business partners (e.g., lenders and insurers) should be considered to be a company’s primary stakeholders, without which the company would not be able to survive. However, other stakeholders can also be very important to a company: governments (local, provincial and national) and intergovernmental bodies, which provide the licenses for businesses to operate and establish, interpret and enforce the laws and regulations under which businesses must conduct their affairs; the community, which includes local government, the natural and physical environments and the quality of life provided to residents in the areas where the company conducts its business; special interest groups, which include industry and trade associations, political action committees, social activists, cooperatives, professional associations and consumer interest groups; creditors; for- and non-profit partners (i.e., strategic partners such as universities and research institutes) that provide support and collaboration on development of new technologies, products and processes; the media; competitors; and non-governmental organizations (NGOs), international organizations and other affected by the activities of the business.[17]

Maon et al. suggested that the literature on relationship marketing was an interesting source for analyses and specifications of stakeholders, noting that Morgan and Hunt identified stakeholders into four categories—internal (e.g., employees, business units and functions); suppliers of goods and services; intermediate and ultimate buyers; and lateral stakeholders (e.g., competitors, nonprofits, governments and communities)—and that Christopher et al. offered a model based on the following six market categories as a normative model for categorizing the stakeholder groups to which the organization is responsible since each of them could influence positively or negatively the achievement of the company’s mission and thus the company’s relationship with them should be actively managed: customers, internal customers (i.e., employees), suppliers, influencers, recruitments, and referrals.[18]

Stakeholder categories also emerge from efforts to develop and describe sustainability strategies.  For example, Willard argued that companies should develop business cases for sustainability-related projects and initiatives by reference to the 21 Future-Fit business goals proposed by the Future-Fit Business Benchmark and the 17 Sustainable Development Goals of the 2030 Agenda for Sustainable Development developed and implemented under the auspices of the United Nations.[19]  Surveying these goals, Willard recommended that they could be broken out into five categories for purposes of identifying goals, developing strategy and selecting and implementing appropriate sustainability projects and initiatives:

Security of supply initiatives, which address materials, water and waste elimination and protect and restore renewable and non-renewable resources (i.e., materials and water) and protect ecosystem services on which the company and its value chain depend (i.e., reduce/eliminate polluting waste).

Climate stability initiatives, which address energy and carbon emissions and reduce or eliminate the company’s carbon footprint by reducing its dependency on fossil fuels for its energy and prepare the company’s value chain for a climate-destabilized world.

Society wellbeing initiatives, which ensure that the company does not compromise, and instead improves, the wellbeing of the local communities throughout its value chain and in society-at large.

Customer wellbeing initiatives, which address customer needs and concerns and ensure customers’ overall health is not compromised by the company’s products and that they are well informed about possible environmental and human impacts of the product’s use and post-use disposal.

Employee wellbeing initiatives, which address employee needs and concerns and provide decent, well-paying work and safe, healthy, respectful working conditions for all employees in the company’s own operations and throughout its value chain.

Each of the categories captures opportunities for companies to flourish while pursuing a more sustainable world and activities that companies should be engaging in to mitigate the risks to businesses from an array of global challenges and threats.[20]  The first two categories suggest the environment as a stakeholder, although actual engagement on environmental issues will be conducted with individuals and groups that are impacted by the company’s use of natural resources and how the company’s operational decisions and activities contribute to overall climate stability.  The last three categories are focused on communities, customers and employees, respectively, and all of the categories assume understanding of and, as necessary, intervention through engagement and otherwise in the operating practices of value chain partners.

Stakeholders are explicitly and implicitly identified in a number of the influential standards and instruments relevant to CSR.  For example, the core subjects of the International Organization for Standardization 26000 Guidance on Social Responsibility are generally topic-based—organizational governance; human rights; labor practices; the environment; fair operating practices; consumer issues; and community involvement and development—but suggest and presume responsibilities to stakeholder groups such as investors, employees and other workers performing services outside the employment relationship, competitors, customers and communities.[21]  The Caux Round Table Principles for Business described below include specific Stakeholder Principles for customers, employees, owners/investors, competitors and communities.  The widely used sustainability reporting standards developed by the Global Reporting Initiative call for reporting on activities and impacts relating to the environment, employees (i.e., labor practices and decent work), gender and inclusiveness, local communities and consumers (i.e., product responsibility).  Other standards, such as Sustainable Development Goals of the 2030 Agenda for Sustainable Development, often referred to as the SDGs, and the UN Global Compact offer goals and principals that can be used as targets for the CSR activities of a particular company, but which will require focused engagement with one group of stakeholders or coordinated engagement with multiple stakeholders.[22]

What should be clear is that organizations generally can identify a number of different stakeholders and each of them has their own unique and specific interest in the organization, its overall performance and the way in which it interacts with and treats its stakeholders.  Post et al. made the point that each of the stakeholder groups is uniquely positioned to make a specific contribution to the wealth of the company that will accrue not only to the benefit of the contributor but to all of the stakeholders.[23]  Examples of how various stakeholders contribute to company wealth include the following[24]:

Investors and Lenders:  Capital, equity and/or debt, and financial market recognition and reputation that can reduce borrowing costs and risk

Employees:  Human capital and collaborative workplace relations

Unions:  Workplace stability and conflict resolution

Customers, Clients and Users:  Brand loyalty and reputation; repeated/related purchases; and collaborative design, development and problem solving

Supply Chain:  Network and value-chain efficiencies and collaborative and cost-reducing processes and technologies

Joint Venture and Alliance Partners:  Strategic resources and capabilities

Local Communities:  Licenses to operate and mutual support and collaboration

Governments:  Macroeconomic and social policies

Regulatory Authorities:  Validation of product/service characteristics or quality levels

Recognizing the various sources of company wealth helps to explains the changes that have been occurring in the expectations that investors have with respect to the priorities of directors and managers.  For example, as described elsewhere in this publication, large institutional investors have publicly and aggressively called on the leaders of their portfolio companies to invest in the development of human capital.

The list of stakeholders for any organization, as well as their relative importance to the organization at a given time, is unique (i.e., the stakeholders of each organization are different) and will depend on a variety of factors such as geography, industry, size, business model and the stage of growth.[25]  When identifying stakeholders, organizations should consider questions such as: to whom does the organization have legal obligations; who might be positively or negatively affected by the organization’s decisions or activities; who would be disadvantaged if excluded from the engagement; who in the organization’s value chain is affected; who is likely to express concerns about the decisions and actions of the organization; and who can help the organization address specific impacts?  For larger organizations, all of these questions will need to be asked for each major operating group within the organizational structure.

Companies typically have a wide range of persons and groups that arguably have a stake in their businesses and the challenge for managers is to define which relevant stakeholders’ categories the company should cooperate and participate with, particularly since stakeholders often conflicting values, objectives, expectations and demands.[26]  Mitchell et al. argued that stakeholders’ categories could be identified by their attributed possession of three key attributes: (1) the stakeholder's power to influence the firm, (2) the legitimacy of the stakeholder’s relationship with the firm, and (3) the urgency of the stakeholder’s claim on the firm; and Driscoll and Starik adapted Mitchell et al.’s model, and added proximity (i.e., the distance between the company and the stakeholder type) as a fourth attribute.[27]

AA1000SES (2015) included the following useful list of attributes that organizations could use when identifying the stakeholders necessary and relevant to conducting an effective stakeholder engagement process[28]:

Dependency:  Groups or individuals who are directly or indirectly dependent on the organization’s activities, products or services and associated performance, or on whom the organization itself is dependent in order to continue to operate

Responsibility:  Groups or individuals to whom the organization has, or in the future may have, legal, commercial, operational or ethical/moral responsibilities

Tension:  Groups or individuals who need immediate attention from the organization with regard to financial, wider economic, social or environmental issues

Influence:  Groups or individuals who can have an impact on the organization’s or a stakeholder’s strategic or operational decision-making

Diverse Perspectives:  Groups or individuals whose different views can lead to a new understanding of the situation and the identification of opportunities for action that may not otherwise occur

The drafters of AA1000SES (2015) noted that stakeholders may also include those who, through regulation, customs, culture or reputation, could legitimately claim to represent any of these interests as well as the interests of the voiceless, such as future generations and the environment; however, care must be taken to avoid disruption of the engagement process by illegitimate stakeholders, which AA1000SES (2015) described as people who falsely claim to represent a stakeholder group and illegal actors who nonetheless can have an impact on the organization.

A stakeholder relationship is one of mutual dependence and influence.  In other words, while stakeholders look for companies to acknowledge, understand and protect their interests, stakeholders can also have a significant impact on the performance and survival of the company, a situation that often raise difficult issues for company management when doing what is best for one stakeholder harms or disadvantages another stakeholder.  For example, Daft and Marcic referred to Wal-Mart’s well-known tactic of driving hard bargains with their suppliers in order to provide its customers with lower prices and generate profits that benefit Wal-Mart shareholders.  Proponents of this strategy point to the benefits for consumers and the overall utility of pushing suppliers to be more efficient; however, many question the ethics and social responsibility of practices that have forced US manufacturers to lay off workers and close factories, sometimes devastating local communities, because they simply cannot pay their employees from the revenue they would receive under Wal-Mart’s preferred contractual terms and driven businesses to low-wage countries where local workers work in dangerous conditions in order to fulfill orders from Wal-Mart.[29]

The scenario above illustrates how a company’s strategies and performance goals can impact a stakeholder, but stakeholders are not powerless in their relationships with companies.  Daft and Marcic provided a vignette about the struggles that Monsanto underwent dealing with certain of its stakeholders as the company implemented a sweeping strategy to transform itself from a chemical business into a biotechnology company.  The strategy called for development of a new genetic seed business; however, the initiative was meant with protects from consumer activists in Europe who complained about unlabeled, genetically modified food ingredients that they dismissively named Frankenstein foods.  Research institutes were also unhappy about Monsanto’s entry into the new technology and business.  All of this discontent placed barriers in the way of Monsanto’s progress—regulatory approvals for the company’s genetically modified organisms were costly to obtain and time-consuming—and the company’s overall reputation suffered, leading to erosion of investor confidence and a tumble in the company’s stock price.  It was clear that Monsanto needed to do a better job of managing its stakeholder relationship or risk that its stakeholders would actually torpedo the company’s new strategy and even drive it completely out of business.[30]

The learning from the stories above is that each of the company’s stakeholders has a different interest in the company and these differences mean that each stakeholder has its own ideas about what is responsible and that company management will be challenged when pursuit of strategies aligned with the interests of one group of stakeholders also conflicts with the interests of other stakeholders.  For example, while investors and shareholders are interested in profits, a company can expect troubles if they fail to recognize the desire of its employees for fair pay and work satisfaction and turn out products that are competitively priced but fail to meet reasonable expectations of customers with regard to quality and safety.  Actions of a company that management truly believes to be socially responsible may nonetheless disappoint and agitate members of a particular stakeholder group.  Complicating the situation even more is that simply following the letter of the law does not, in and of itself, guarantee that an act will be socially responsible. In this way, the puzzles and problems of pursuing social responsibility are very similar to those that appear in the field of business ethics.  Finally, companies that operate in the global marketplace will quickly find that societal culture plays a big role in people’s attitudes about what is right and wrong, how companies should act and who is the appropriate subject to their attention and respect in making strategic and operational decisions.

While all stakeholders have a stake, or personal interest, in the performance and actions of a company, their specific needs, expectations and levels of interest will vary depending on the type of business and other circumstances.[31]  For example, government regulators will have a high level of interest in the activities of pharmaceutical companies, given the serious health and welfare issues associated with the development and marketing of new drugs, but will generally have little interest in a small pottery business beyond assessing fees for business permits and requiring certifications that the company’s worksite is clean and safe.  In the same vein, strategic and competitive factors will often influence the relative importance of a stakeholder relationship in the eyes of the company, as is the case when a company is dependent on an exclusive relationship with a particular supplier or the ability of the company to commercialize its products hinges on obtaining the approval of a government regulator.

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Caux Round Table Principles for Business

One of the most interesting stakeholder-focused standards for corporate governance has been developed by the Caux Round Table (CRT) (www.cauxroundtable.org), which describes itself as an international network of principled business leaders working to promote a moral capitalism. The CRT believes that the world business community should play an important role in improving economic and social conditions and, to that end, has developed the CRT Principles for Business to embody the aspiration of principled business leadership.  The CRT has been proactively advocating implementation of the CRT Principles at the firm level and has created a specially designed process for incorporating the CRT Principles into the culture of a corporation and is also working on ethical training for corporate boards of directors and a new ethics curriculum for business schools.  The CRT Principles are rooted in two basic ethical ideals: the Japanese concept of kyosei, which means living and working together for the common good enabling cooperation and mutual prosperity to coexist with healthy and fair competition; and the human dignity, which is described in the Introduction to the CRT Principles as referring to the sacredness or value of each person as an end, not simply as a mean to the fulfillment of others' purposes or even majority prescription. 

The Preamble to the CRT Principles acknowledges that the mobility of employment, capital, products and technology is making business increasingly global in its transactions and its effects and argues that law and market forces are necessary but insufficient guides for conduct.  Noting that businesses can be powerful agents of positive social change, the CRT Principals admonish businesses that they are expected to act responsibly and demonstrate respect for the dignity and interest of its stakeholders (i.e., customers, employees, owners/investors, suppliers, competitors and communities) in the policies and actions.  The following General Principles in the CRT Principles were intended to serve as a foundation for dialogue and action by business leaders in search of business responsibility and a means implementing moral values into business decision making:

Principle 1. The responsibilities of businesses extend beyond shareholders toward stakeholders

Principle 2. The economic and social impact of business should be focused on innovation, justice and world community.

Principle 3. Business behavior should extend beyond the letter of the law toward a spirit of trust

Principle 4. Respect for rules

Principle 5. Support for multilateral trade

Principle 6. Respect for the environment

Principle 7. Avoidance of illicit operations

Of particular interest are the various Stakeholder Principles in Section 3 of the CRT Principles:

Customers: We believe in treating all customers with dignity, irrespective of whether they purchase our products and services directly from us or otherwise acquire them in the market. We therefore have a responsibility to:

Provide our customers with the highest quality products and services consistent with their requirements;

Treat our customers fairly in all aspects of our business transactions, including a high level of service and remedies for their dissatisfaction;

Make every effort to ensure that the health and safety of our customers, as well as the quality of their environment, will be sustained or enhanced by our products and services;

Assure respect for human dignity in products offered, marketing, and advertising; and Respect the integrity of the culture of our customers.

Employees:  We believe in the dignity of every employee and in taking employee interests seriously. We therefore have a responsibility to:

Provide jobs and compensation that improve workers' living conditions;

Provide working conditions that respect each employee's health and dignity;

Be honest in communications with employees and open in sharing information, limited only by legal and competitive constraints;

Listen to and, where possible, act on employee suggestions, ideas, requests and complaints;

Engage in good faith negotiations when conflict arises;

Avoid discriminatory practices and guarantee equal treatment and opportunity in areas such as gender, age, race, and religion;

Promote in the business itself the employment of differently abled people in places of work where they can be genuinely useful;

Protect employees from avoidable injury and illness in the workplace;

Encourage and assist employees in developing relevant and transferable skills and knowledge; and

Be sensitive to the serious unemployment problems frequently associated with business decisions, and work with governments, employee groups, other agencies and each other in addressing these dislocations.

Owners/Investors: We believe in honoring the trust our investors place in us. We therefore have a responsibility to:

Apply professional and diligent management in order to secure a fair and competitive return on our owners' investment;

Disclose relevant information to owners/investors subject to legal requirements and competitive constraints;

Conserve, protect, and increase the owners/investors' assets; and

Respect owners/investors' requests, suggestions, complaints, and formal resolutions.

Suppliers: Our relationship with suppliers and subcontractors must be based on mutual respect. We therefore have a responsibility to:

Seek fairness and truthfulness in all our activities, including pricing, licensing, and rights to sell;

Ensure that our business activities are free from coercion and unnecessary litigation;

Foster long-term stability in the supplier relationship in return for value, quality, competitiveness and reliability;

Share information with suppliers and integrate them into our planning processes;

Pay suppliers on time and in accordance with agreed terms of trade; and

Seek, encourage and prefer suppliers and subcontractors whose employment practices respect human dignity.

Competitors: We believe that fair economic competition is one of the basic requirements for increasing the wealth of nations and ultimately for making possible the just distribution of goods and services. We therefore have a responsibility to:

Foster open markets for trade and investment;

Promote competitive behavior that is socially and environmentally beneficial and demonstrates mutual respect among competitors;

Refrain from either seeking or participating in questionable payments or favors to secure competitive advantages;

Respect both tangible and intellectual property rights; and

Refuse to acquire commercial information by dishonest or unethical means, such as industrial espionage.

Communities: We believe that as global corporate citizens we can contribute to such forces of reform and human rights as are at work in the communities in which we operate. We therefore have a responsibility in those communities to:

Respect human rights and democratic institutions, and promote them wherever practicable;

Recognize government's legitimate obligation to the society at large and support public policies and practices that promote human development through harmonious relations between business and other segments of society;

Collaborate with those forces in the community dedicated to raising standards of health, education, workplace safety and economic well-being;

Promote and stimulate sustainable development and play a leading role in preserving and enhancing the physical environment and conserving the earth's resources;

Support peace, security, diversity and social integration;

Respect the integrity of local cultures; and

Be a good corporate citizen through charitable donations, educational and cultural contributions, and employee participation in community and civic affairs.

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The following chapters of this publication discuss organizational responsibilities to, and engagement strategies with, several of the most commonly mentioned stakeholder groups or topics including employees, customers, communities, investors, the environment and suppliers.  However, this is not necessarily a complete list for any particular organization and notice should be taken, for example, of the need for engagement with governmental agencies that are responsible for issuing the charters and licenses that permit businesses to operate lawfully and for establishing the laws and regulations that those businesses are expected to follow.[32]  Businesses must interact with governmental units at a number of different levels in their own countries.  In the US, for example, companies may be subject to laws and regulations promulgated by federal, state and local governments.  When companies do business outside of their home country they will become subject to regulation by foreign governmental units, a situation that is always challenging given that lawmakers and administrators work differently in foreign countries.  Companies have an obligation to comply with applicable laws and regulations and remit taxes required in order for the government to fulfill its obligations to the public.  In turn, governments want businesses to do well in order for the economy to run smoothly and look to businesses to provide jobs and other services to citizens.  In some cases, governmental approval is required in order for a company to sell its products and services.  Engagement between governments and businesses occurs when decisions are being made about the content of laws and regulations and allocation of government funds to projects or geographic areas.  As companies grow they generally begin allocating resources to lobbying legislators and other government officials, either directly or through participation in trade organizations, and sometimes will make donations to political campaigns.  Relationships with government officials are closely watched by other stakeholders to ensure that companies are not engaging in illegal or unethical activities.

In addition, organization must often interact with special interest groups (SIGs), although the inclusion of SIGs among the stakeholders for a particular organization varies depending on the activities of the organization and may include trade associations, political action committees, professional associations and consumerists.[33]  The influence of activist SIGs has increased substantially with the emergence of the Internet and other technological tools for communications.  Activist groups and individual whistleblowers, supported by the media and technology that allows them to communicate information and messages on their own, have become relevant and important stakeholders for businesses by calling for engagement with respect to issues such as workplace environment and ethical corporate conduct.  Among other things, SIGs can push companies to improve their relationships with other stakeholders, such as employees and the community, and change the focus of their business activities to give greater weight to sustainability and social responsibility.  Not surprisingly, a good deal of the SIG activity relates to environmental awareness