Stakeholder Theory Perspective: A Case for Social Responsbility Integration


The article below originally appears in the Quality Management Forum (Winter Edition 2017) and was written by Pro QC's Regional Director, Jennifer J. Stepniowski. ----------------- In contrast to Milton Friedman's idea of profit as the primary motivator of an organization, ASQ and others now consider the Triple Bottom Line, which expands from strictly economic terms and incorporates societal and environmental considerations. ASQ provides the following direction: "Social responsibility (SR) is a means of achieving sustainability. Adopting key social responsibility principles such as accountability and transparency can help ensure the long-term viability and success of any organization or system." Stakeholder Analysis: Stakeholders, the primary entities affected by the activities of an organization, realize several benefits and greater value from organizations that integrate social responsibility (SR) into their management systems. The ISO 26000 SR guideline refers to stakeholders as an "individual or group that has an interest in any decision or activity of an organization." In fact, respect for stakeholder interests is included as one of the Seven Key Principles of ISO 26000. A stakeholder analysis is a commonly used and recommended grid tool for stakeholder identification, including their roles, interests, influence, expectations, etc. Edward Freeman described Stakeholder Theory as a proactive approach to corporate social responsibility (CSR). Looking outward to groups or individuals impacted by an organization's activities, Stakeholder Theory encourages organizations to identify key entities affected and consider their interests and rights as they relate to that organization's actions. Considering the most common key stakeholders, the case for SR within an organization is made by demonstrating tangible benefits and value within each. Five key stakeholders for further examination include: Customers Peter Drucker referred to the purpose of a company as creating customers. According to a CECP report analyzing corporate giving and employee engagement, 55% of customers are willing to pay more for products from socially responsible companies. In addition, a 2013 study by Cone Communications and Echo Research concluded that 82% of U.S. consumers consider CSR when deciding which products or services to buy and where to shop. The same study found nine out of ten global citizens would boycott if they learned of irresponsible behavior. Corporate Social Responsibility (CSR) is also known to build brand loyalty among consumers, with 93% of those surveyed in a follow-up Cone Communications survey in 2015 indicating they would have a more positive image of that company. In addition, 90% communicated they are more likely to trust the company and 88% to be more loyal. When given the choice between two products with similar pricing, 90% will switch to the brand with a better CSR perception. Overall, these studies clearly demonstrate diverse market support for SR, resulting in tangible benefits to the organization. Consumer issues are expanded on and identified as one of the Seven Core Subjects within the ISO 26000 SR guideline. Consumer issues include health and environmental impacts of products and services, waste reduction in packaging or other, privacy, fair marketing, etc. Suppliers If product is destined for Walmart, Lowe's, Dick's Sporting Goods, or other large retailers, compliance to supplier-specific codes of conduct or other requirements are mandatory and often confirmed through 3rd party on-site evaluations. Retailers and several other key industry groups have adopted components of various standards/guidelines, such as SA8000 (SR), ISO 26000 (SR), ISO 14001 (environment/sustainability), C-TPAT (security), etc. and require ongoing compliance verifications that can be costly if a reactive approach is in play. SA8000 and ISO 26000 are commonly used to evaluate on-site compliance where non-industry or specific vendor requirements exist. SA8000 is used as a voluntary on-site supplier assessment standard with nine elements that include: Child Labor Forced or Compulsory Labor Health & Safety Freedom of Association & Right to Collective Bargaining Discrimination Disciplinary Practices Working Hours Remuneration Management System The ISO 26000 guideline includes human rights and labor practices as part of the Seven Core Subjects addressed. Dialogue and cooperation to improve CSR performance is noted as strengthening relations with suppliers and contributing to increasing productivity and reducing costs. Responsible supply chain management protects organizations from negative PR as a consequence of SR issues within the supply chain. In some cases, legal liability can also occur where human rights and/or labor violations are concerned. Employees SR issues related to employees include recruitment, development, retention, safe working environments, fair wages, etc. A primary benefit of proactive SR within an organization's management system is the increased ability to attract and retain workers. A 2014 Nielson survey examined more than 30,000 consumers in 60 countries to better understand the impact of CSR on behavior. The study concluded that 67% of those surveyed prefer to work for socially responsible companies. The survey also concluded that implanting employee related CSR activities over the long-term reduces costs, increases loyalty and commitment and improves the overall quality of process performance. Where applicable to the supply chain, organizations are increasingly partnering with NGOs and others to ensure lawful, fair treatment and a healthy work environment. For example, Leadership Group for Responsible Recruitment is a collaboration of business and NGO partners working to ensure ethical recruitment and treatment of workers worldwide. The Fair Labor Association (FLA) is considered a collaborative approach and seeks to protect workers who manufacture clothing, footwear, agricultural products and more. Apple made headlines in 2012 as the first electronics company to join FLA after the SR debacle with Foxconn in China. According to information revealed during the 19th International Scientific Conference in 2014, "the cause-effect Ishikawa diagram and analysis of the employees' survey showed that causes of the employees' rotation are poor conditions of working place and weak leadership. The Quality house method showed that implementing employee-related CSR principles in a quality management system can in long-term period reduce employee rotation and organization costs and provide better knowledge management, increasing the loyalty of employees to organization. Committed and loyal employees are precondition of increasing the quality of process performance and sustainability and excellence of organization." Shareholders Shareholders demand social responsibility due to the positive impact on the long-term financial results. Academic research on the topic includes a meta-analysis of over 40 articles with empirical evidence from 16,119 companies. The results noted that 31 studies supported the idea that CSR pays, in comparison to 11 that were mixed/neutral and 2 that noted CSR is more of an expense. One of the two studies concluding that CSR does not pay had a sample of 27 and was conducted in 1988. The evidence is heavily weighted in support of CSR and the associated financial benefits. In summary, almost 94% of analyzed studies found a non-negative correlation between corporate social responsibility and corporate financial performance. The study also referenced that $1 out of our every $9 in U.S. assets in 2012 under professional management was invested in some form of sustainable investment. Local Community Community involvement and development are also included as a Core Subject within the ISO 26000 SR guideline. Issues within that subject include: Community involvement Education & culture Employment creation Technology development Wealth & income creation Heath Social investment Organizations offering volunteer opportunities, for example, realize a number of benefits associated with the employee and community involvement. Research from the University of Georgia Terry College of Business demonstrates that employee volunteering is linked to greater workplace productivity and satisfaction. In UnitedHealth Group's 2013 Health and Volunteering Study, "64 percent of employees who currently volunteer said that volunteering with work colleagues strengthened their relationships." Furthermore, according to a Deloitte Volunteer Impact Study, "92% of surveyed corporate human resources executives agree that contributing business skills and expertise to a nonprofit can be an effective way to improve employees' leadership and broader professional skill sets." During the 19th International Scientific Conference noted previously, it was concluded that, "in the future organizational awareness of CSR strategy implementation will increase and it will become the essential part of organizational culture and policy. CSR and quality management principles provide organization sustainability and business excellence. Quality management system provide a framework for implementing CSR policy, strategy, activities and culture in all management levels of organization, that create basis for establishment of sustainable development policy and provide overall employee and management commitment and continuous improvement of the system. Key for organizational excellence is the combination of focusing on quality in the process level and following the needs of stakeholders, giving the valuable contribution to the well-being of society." To learn more about an organization's SR activities, look for the company's CSR report. Organizations are increasingly formalizing CSR efforts. For example, in 2011, only 20 percent of S&P 500 companies published CSR reports. By 2013, it increased to 53 percent, and by 2014, 75 percent of companies published detailed sustainability reports. Louis D. Coppola, the executive VP of the G&A Institute, noted that the "findings highlight a clear corporate commitment in the U.S. towards sustainability and sustainability reporting- Leaders increasingly understand the critical importance of adopting and implementing strategies, programs and initiatives reflecting the 21st century business environment, and the interest of investors and important stakeholders." Concluding Remarks: Stakeholders, as the key entities affected by an organization's activities, realize several benefits and greater value form organizations that integrate SR into their management systems. For these reasons, Stakeholder Theory supports and justifies the integration of SR into an organization's management system, further demonstrating that adopting key social responsibility principles helps endure the long-term viability and success of any organization or system. **Resources and references posted in original source. **A recent webinar highlighting additional information related to Ensuring Supplier Social Responsbility is found here:

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