Social Impact: how to engage stakeholders, no ring necessary

Updated: Jan 18


In this blog post, we will be exploring the value that your business brings to the world through innovation, financial sustainability, and scalability (Frumkin in Schwartz, 2017). It is the way your business uses its “financial, social, technological and knowledge resources” (Schwartz, 2017) to affect the world in a positive way. This is about long-term strategy, not short-term gain. This is your business's social impact. To delve into this subject, we will discuss stakeholder culture, salience, and engagement. All of which affect the social impact of your business. To find out more just keep reading.

Stakeholder Culture

The first factor we must consider when talking about your social impact is your stakeholder culture. Your stakeholders are your customers, employees, communities, stockholders, suppliers, partners, trade unions, creditors, regulatory authorities and non-governmental organizations that interact with you and your business. Your stakeholder culture is based on how you and your business manage your relationships with these stakeholder groups “whose interests are often divergent and how (you and your organisation) handle trade-offs among competing stakeholder claims” (Boesso & Kumar, 2016, p. 816-817). All stakeholders hope to gain something from your interactions but sometimes these gains are simply not achievable. You may find that in trying to give to one stakeholder another stakeholder would have to miss out entirely. It’s a fine balancing act and you must also be able to meet your own financial business goals in order to sustain your business. We shall briefly discuss five different stakeholder cultures and how they might apply to your business.

Agency (amoral)

A business with an agency culture is one in which corporate self-interest is the one and only priority. The main aim for businesses with this type of culture is to make shareholders happy and think of short-term financial goals. No other shareholder groups matter. This is why they are considered amoral.

Corporate Egoist (limited morality)

Similar to the above, a business with a corporate egoist culture, might differ only slightly in that they may consider the stakeholder groups that could potentially have an impact on their short-term goals. This is why they are considered to have limited morality.

Instrumentalist (limited morality)

A business with an instrumentalist culture behaves strategically opportunistic manner and keeps up a façade of moral behaviour in order to ensure its “long-term financial well-being” (Jones et al., 2007, p. 145 in Boesso & Kumar, 2016, p. p.817). For this reason, this type of business would be considered to have limited morality.

Moralist and Altruist (moral)

A business with a moralist of altruist culture will see “supporting the broad interests of society” (Boesso & Kumar, 2016, p. p.817) as its top priority. All stakeholder groups will have been taken “into account regardless of economic considerations” (Boesso & Kumar, 2016, p. p.817). Only in dire circumstances will businesses with this type of culture prioritize profit over ethics. This is why businesses with this kind of culture are considered moral.

Stakeholder Salience

Related to stakeholder culture is stakeholder salience or “the extent to which (businesses) perceive power, legitimacy, and urgency to be present in a stakeholder group’s claims (Mitchell et al., 1997 in Boesso & Kumar, 2016, p. 817). Some theorists argue that power and urgency are in fact the same feature and so have replaced urgency with organisation as a feature of stakeholder salience. Below you will see a figure that explains the connections between these three features and details which stakeholder groups are affected by which features.

Figure & Table 1: A revised typology of stakeholder salience (Ali, 2017, p. 163)

Legitimacy

So, what exactly do we mean by a stakeholder’s legitimacy? A stakeholder’s legitimacy “arises from a contract, exchange, legal title, legal right, moral right, at-risk status or moral interest in the harms and benefits generated by company actions (Agle et al., 1999, Lähdesmäki, Siltaoja & Spence, 2017, p. 2). Discretionary stakeholders are said to have legitimacy however they don’t have power/urgency or organisation.

Power and/or Urgency

A stakeholder’s power is based on their power “to bring about the outcomes they desire’ (Salancik & Pfeffer, 1974, p. 3 in Lähdesmäki, Siltaoja & Spence, 2017, p. 2). Their power affects their ability to demand “immediate attention based on the ideas of time sensitivity and criticality or importance” (Mitchell et al., 1997 in Lähdesmäki, Siltaoja & Spence, 2017, p. 2) otherwise known as urgency. Potentially powerful stakeholder groups have power or urgency, but they don’t have legitimacy or organisation.

Organisation Organisation or mobilisation, on the other hand, is the ability that stakeholders have to “compete independently (or to choose to) cooperate and create alliances and persuade other stakeholders to join to put a claim on the firm” (Ali, 2017, p. 161). Potentially weak groups have organisation, but they don’t have legitimacy or power/urgency.

Stakeholder Engagement Activities

So, we’ve discussed stakeholder culture and salience and the features of legitimacy, power/urgency, and organisation. But how exactly do we best interact with these stakeholders? Well, that depends on whether their interests are economic, social, environmental, or regulatory (Kumar, Rahman & Kazmi, 2015, p. 53). These interactions are often referred to as stakeholder engagement activities because they are a way to “create and sustain moral relationships, and fairly distribute the harms and benefits of corporate activities among those who can affect or are affected by the business (Freeman, 1984 in Dawkins, 2016, p.284). The type of SEA or stakeholder engagement activities that your business will partake in will not only be influenced by the interests of the stakeholder but once again your business culture. As we can see in the table below it would be ideal if your business had an instrumental culture where good citizenship and mitigation of harm are high priorities. So, how about we delve a little deeper into these SEA’s?

Table 2: Stakeholder culture and engagement activities (Boesso & Kumar, 2016, p. 825)

Good Citizenship

This refers to being “attuned to the evolving social concerns of stakeholders” and “supporting local organizations or causes and positive involvement in the community” (Boesso & Kumar, 2016, p. 819). Good citizenship activities usually involve having open and transparent communication customers, employees, regulatory bodies, and the wider community about issues that concern them.

Mitigating Harm

This refers to “assessing the social and environmental risks that are associated with the impact” (Boesso & Kumar, 2016, p. 819) of the business. Mitigating harm from the businesses value chain might involve transparently and actively dealing with problems associated with your business’s activities.

Transforming Activities

This refers to transforming value chain activities which means “understanding and dealing with the social and environmental problems that may arise from the value chain of their business activities” (Boesso & Kumar, 2016, p. 820). Transforming value chain activities might involve proactively dealing with the potential affects your business may have on your stakeholders.

Strategic Philanthropy

This refers to identifying “social issues where they can make a difference in society and “build focused, proactive and integrated social initiatives in concert with their corporate strategies” (Porter and Kramer, 2006, p. 16 in p. 820). This requires SMART (specific, measurable, attainable, relevant and time-bound) goals that make the best use of the resources and capabilities of the business.

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In this blog post, we explored the value that your business brings to the world through its social impact by using its “financial, social, technological and knowledge resources” (Schwartz, 2017) to affect the world in a positive way. We delved into diverse stakeholder cultures from amoral to moral. We delved into stakeholder salience which is informed by the legitimacy, power, and organisation of stakeholder groups. And lastly, we delved into SEA’s which are about god citizenship, mitigating harm, transforming value chain activities and strategic philanthropy. framed and engagement. Hopefully, this post has given you a clearer picture of what it really means to have an impact and truly engage with your audience.

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References:

Ali, M.A. 2017, "Stakeholder Salience for Stakeholder Firms: An Attempt to Reframe an Important Heuristic Device", Journal of Business Ethics, vol. 144, no. 1, pp. 153-168, viewed 24 April 2019, doi:http://dx.doi.org.ezproxy.lib.swin.edu.au/10.1007/s10551-015-2819-6

Boesso, G. & Kumar, K. 2016, "Examining the association between stakeholder culture, stakeholder salience and stakeholder engagement activities", Management Decision, vol. 54, no. 4, pp. 815-831, viewed 24 April 2019, https://search-proquest-com.ezproxy.lib.swin.edu.au/docview/1786770188?accountid=14205

Dawkins, C.E. 2014, "The Principle of Good Faith: Toward Substantive Stakeholder Engagement", Journal of Business Ethics, vol. 121, no. 2, pp. 283-295, viewed 24 April 2019, doi:http://dx.doi.org.ezproxy.lib.swin.edu.au/10.1007/s10551-013-1697-z

Jones, T.M. Felps, W. & Bigley, G.A. 2007, “Ethical theory and stakeholder related decisions: The role of stakeholder culture”, Academy of Management Science, vol. 32, iss. 1, pp. 137-155, viewed 24 April 2019, https://core.ac.uk/download/pdf/18516741.pdf

Lähdesmäki, M. Siltaoja, M. Spence, L.J. 2017, “Stakeholder Salience for Small Businesses: A Social Proximity Perspective, Journal of Business Ethics, p.1-13, viewed 24 April 2019, https://doi-org.ezproxy.lib.swin.edu.au/10.1007/s10551.017.3707-z

Schwartz, A. 2017, “What is social impact anyway?”, The Centre for Social Impact Strategy, viewed 24 April 2019, https://socialimpactstrategy.org/what-is-social-impact-anyway/

Westrenius, A. & Barnes, L. 2015, "Managing complex business relationships: Small business and stakeholder salience", The Journal of Developing Areas, vol. 49, no. 6, pp. 481-488, viewed 24 April 2019, https://search-proquest-com.ezproxy.lib.swin.edu.au/docview/1706232866?accountid=14205

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