Table of Contents
List of Abbreviations
List of Figures and Tables
1.1 Problem Definition and Objectives
1.2 Course of Investigation
2 Stakeholder Theory
2.2 Including Stakeholders in Strategic Decisions
3 Inducement-Contribution Theory
3.2 Applying the Inducement-Contribution Theory
4 A Stakeholder Approach towards Social Business
4.1 The Concept of Social Business
4.1.1 Why Social Business?
4.1.2 The Principle of Social Business
4.1.3 Social Business versus Corporate Social Responsibility
4.1.4 Social Business versus Social Entrepreneurship
4.2 Stakeholders’ Inducements for engaging in a Social Business and their Contributions
4.2.1 Stakeholder Theory and Social Business
4.2.8 Non-Governmental Organizations
6 The Business Case of Grameen Danone Food Limited
6.1 Partners of the Joint Venture
6.1.1 The Danone Group
6.1.2 The Grameen Familiy
6.2 Grameen Danone Food Limited as the First Real Social Business
6.2.1 Evolvement of the Business Idea
6.2.2 Objectives of Grameen Danone Food Limited
6.2.3 Financing of the Company
6.2.4 Support by the Global Alliance for Improved Nutrition
7.2 Impact and Limitations
List of Abbreviations
Abbildung in dieser Leseprobe nicht enthalten
List of Figures and Tables
Figure 1. Stakeholder Typology: One, Two, or Three Attributes Present (from: Mitchell et al., 1997, p. 874)
Figure 2. Framework of Circumstantial Domains of CSR Stakeholder Dialogue Practices (from: O'Riordan & Fairbrass, 2008, p. 751)
Figure 3. Phases and Steps within the CSR Process (from: O'Riordan & Fairbrass, 2008, p. 753)
Figure 4. Number of people living below the poverty time between 1990 and 2005 (from: World Bank Website)
Figure 5. Comparison between Social Businesses, Profit-Maximizing Businesses, and Not-For-Profit Organizations (from: Yunus et al., 2009, p. 23)
Figure 6. The Concept of Social Business: Combining Characteristics of Charity Organizations and Capitalistic Firms (from: Spiegel, 2008, p. 8)
Figure 7. Maslow’s Hierarchy of Needs (from: Robbins & Judge, 2007, p. 187)
Table 1. Chronology of the definition “stakeholder” (from Mitchell et al., 1997, p. 858)
Table 2. Different Stakeholder Groups' Inducements for Engaging in and Contributing to Social Businesses
1.1 Problem Definition and Objectives
During recent years, much has been written about Corporate Social Responsibility (CSR), sustainability, sustainable and ethical supply chains, and the power of organizations that reaches beyond their core business activities. Social Business, a rather new form of using corporate power in order to act in a socially desirable manner, was first established by Professor Yunus, Noble Peace Prize winner (2006). It is in contrast to charity because it is not a donation or charitable giving but a real investment into a business. The important difference is that with a social business the entrepreneur or the participants in a social venture business do not intend to maximize profits but will always reinvest profits into the business and will keep costs and prices low so a broad range of non-affluent consumers can afford the product or service (Yunus, Bertrand, & Lehmann-Ortega, 2009, p. 5). Yunus (2006) calls this “doing business for others instead of for oneself” (p. 4).
Since Social Business is a very new concept, little has been written about it yet. There is not even a generally accepted and shared definition of the term “Social Business”. Millions of small social start-ups, whose founders intend to do something socially beneficial and who only take out from the business the money they need for their own upkeep, already exist. However, to differentiate between charity projects and real social businesses is difficult. For this reason, it is impossible to collect empirical data about these start-ups and projects. Much more in the focus of the public eye are social businesses founded by multinational companies (MNCs) or at least renowned national companies. This often includes a product relating to the key competence of the firm which is adapted to the needs of less-well-off consumers and thereby solves a shared social problem. MNCs often use the know-how and competence of non-governmental organisations (NGOs) or similar institutions and start social joint-ventures. Since it is much easier to collect data about this kind of social business and since their influence and recognition in industrialized countries at the moment is much bigger than of the numerous small start-ups, this paper is going to focus on social businesses initiated by big companies.
Analogous to CSR, a major incentive for organizations to start a social business is to increase public attention and satisfaction (O'Riordan & Fairbrass, 2008, p. 745). Because it is part of the human character to act in a socially responsible way and because compassion is also popular in today’s society, social business can actually contribute to increase public awareness and to create a positive image. By establishing and discussing the so called stakeholder theory, it has been argued that it is important to involve stakeholders in business operations in order to develop sucessfully. For this reason, this paper is going to focus on the stakeholders of a social business and will attempt to answer the following question: What are the different stakeholder groups' inducements for engaging in and contributing to social businesses?
1.2 Course of Investigation
As just implied, the idea of maximizing shareholder value as the main goal of a corporation has long been criticized, which is why the stakeholder theory emerged. In order to approach the research question, this theory will be explained in the following chapter by first defining the term stakeholder and then arguing why it is important to involve a corporation’s stakeholders in the business. To be able to find an answer to the research question, a second theory is needed, which will be the inducement-contribution theory. Recording to this theory, each participant within a business, for instance an employee, contributes to the needed business-operations (in the case of the employee, this would be his/her work) but also needs inducements (wage, bonuses) in order to be willing to contribute. These inducements and contributions have to be kept in equilibrium. Inasmuch this theory will be helpful for a solution of the research question, the author will elaborate on it in the third chapter. Afterwards, the discussion will be directed towards social business. For avoiding confusion when talking about the rather new concept of social business, the term and its principles will be clearly defined and explained. For the sake of completeness, social business will also be contrasted with CSR and social entrepreneurship. In chapter 4.2 the focus will be turned towards the components of the research question: the stakeholders of a social business and the inducements to them as well as their contributions. Before starting the empirical part of this paper, the methodology of investigation will be explicated. Following this explanation, a case study will be executed by demonstrating the successful social business of Grameen Danone Foods Ltd. Finally, the findings will be summarized, and their impact as well as their limitations will be discussed.
2 Stakeholder Theory
The most well-known definition of stakeholder is the one by Freeman (1984): “A stakeholder in an organization is (by definition) any group or individual who can affect or is affected by the achievement of the organization’s objectives” (p. 46). This is a somewhat broad definition and can hereby include both, unidirectional relationships in which groups either influence the organization or are influenced by it as well as bidirectional relationships (Mitchell, Alge, & Wood, 1997, p. 856). In addition, with the help of this definition nearly any entity could be included in the group of stakeholders of an organization: owners and non-owners of the firm, holders of capital and holders of intangible assets, partners in a voluntary or non-voluntary relationship, neighbours, institutions, and even the natural environment (Mitchell et al., 1997, p. 855). Other scholars provide similar definitions: “Groups to whom the corporation is responsible” (Alkhafaji, 1989, p. 36) or groups which are “in a relationship with an organization” (Thompson, Wartick and Smith, 1991, cited in Mitchell et al., 1997, p. 856). Advocates of this broad view base their definitions on the empirical fact that corporations can affect or can be affected by almost any entity, be it internal or external (Mitchell et al., 1997, p. 857). On the other hand, a number of narrow views on the definition of the term stakeholder exist. Clarkson (1995), for instance, writes: “Voluntary stakeholders bear some form of risk as a result of having invested some form of capital, human or financial, something of value, in a firm. Involuntary stakeholders are placed at risk as a result of a firm’s activities. But without the element of risk there is no stake” (p. 5). Supporters of this or similar narrow definitions search for groups which have a “direct relevance to the firm’s core economic interests” (Mitchell et al., 1997, p. 857). A chronology of both, broad and narrow definitions is attached (Table 1).
Another component scholars differ about is whether or not potential stakeholders should be taken into consideration. The question is, whether a stakeholder has to be in an actual relationship with the organization? While for example Ring (1994) argues that, yes, this is a necessary condition, Starik (1994) defines stakeholders as those who “are or might be influenced by, or are or potentially are influencers of, some organization” (both cited in Mitchell et al., 1997, p. 859).
The question about power, dependence, and reciprocity in relationships is also crucial. Interesting enough, some explanations concentrate on the dependency of the firm on its stakeholders, while others focus on the contrary, the stakeholders’ dependency on the firm (Mitchell, 1997, p. 859). A third group of scholars even compare both directions and elaborate on the mutuality of power-dependence relationships.
Mitchell et al. (1997) ascribe three attributes to stakeholders: power, legitimacy, and urgency. Building on this, they divide stakeholders in different groups, depending whether they possess one, two, or all three attributes. They agree with Weber’s (1947) idea that power is “the probability that one actor within a social relationship would be in a position to carry out his own will despite resistance”. Etzioni’s further differentiation from 1964 (quoted in Mitchell et al., 1997, p. 865) is useful for defining stakeholder groups between those exerting coercive power (related to physical power), utilitarian power (based on material resources), and normative power (focused on symbolic resources). Legitimacy refers to behaviours and structures which are socially approved. Often, it is mentioned jointly with power and some scholars (especially those who advance a broad definition of “stakeholder”) even define legitimacy through power: “In the long run, those who do not use power in a manner which society considers responsible will tend to lose it” (Davis, 1973, p. 314). Weber (1947), on the other hand, alleges that power and legitimacy are two different attributes. However, they can be combined to generate yet another attribute: authority. Mitchell et al. (1997, p. 866) prefer the latter view as a stakeholder’s legitimate claim on a firm will only gain managers’ attention if the stakeholder also has the power to enforce his postulation. Therefore, the two terms, power and legitimacy, can indeed be separated. From this emerges Suchman’s (1995) suggestion that legitimacy is “a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions” (p. 574). This proposal also implies that legitimacy is a desirable social good. The attributes legitimacy and power help to identify stakeholders and their salience but do not capture the dynamics of a relationship between managers and stakeholders. Therefore, urgency is introduced as a third variable. It does not only comprise time sensitivity (the length of a time delay in responding to a claim that is accepted by the stakeholder) but also criticality (the importance of the relation to the stakeholder). This results in the definition that urgency is “the degree to which stakeholder claims call for immediate attention” (Mitchell et al., 1997, p. 867). Summarizing, Mitchell et al. (1997) emphasize that the three stakeholder attributes, power, legitimacy, and urgency are not steady but variable. Therefore, the degree of power and legitimacy can be anywhere between complete and nonexistent (p. 869) and urgency can fluctuate across time (p. 870). Secondly, it is stressed that the attributes are socially constructed and not objective reality. Thirdly, it is to be recognized that consciousness of the existence of an attribute and its wilful exercise may but must not exist (p. 868).
As mentioned before, Mitchell et al. (1997) constitute from these three attributes different classes of stakeholders, depending on whether a stakeholder possesses only one of the three attributes, two, or even all three of them. This results in seven different groups as visualized in Figure 1 (p. 872). These seven groups can be combined into three qualitative classes: Those stakeholders who possess only one attribute are latent stakeholders, holders of two attributes are called expectant stakeholders, and those who are characterized by all three, power, legitimacy, and urgency are named definite stakeholders (pp. 874-878). Among latent stakeholders are to be mentioned the dormant stakeholders, who only possess power but who cannot make use of it because a legitimate relationship as well as an urgent claim are missing. Discretionary stakeholders are proprietors of legitimacy. As they do not feature the power to influence the firm, they are only considered by the firm voluntarily. Often discretionary stakeholders are receivers of corporate philanthropy. The last group of the latent stakeholders are the demanding stakeholders, who are the most annoying group to managers because they demand urgently something from the management without having either the legitimacy or the power to actually push through their claim. Dominant stakeholders belong to the second class and holds power as well as legitimacy. Possessing these two attributes, dominant stakeholders - in contrast to the so far three mentioned groups - will definitely be salient to managers. In fact, some scholars refer to them as the only stakeholders of a firm. Dependent stakeholders have urgent legitimate claims. Their name emerges from their dependency on others who have the power to implement their wishes. The executers of the missing power can either be other stakeholders or internal managers of the organization. If stakeholders are powerful and claim something from the firm without being in a legitimate relationship with it, they are called dangerous stakeholders because they have the possibility of being violent. Obviously, this group is not to be recognized as a positive group.
However, it is important to also identify this kind of stakeholder, to monitor them, and to manage their presence in order to impede attacks by them. The most salient class of all are the definite stakeholders. They possess all three attributes. As mentioned before, dominant stakeholders are salient to a firm. If they even have an urgent claim, managers will attend them immediately and hereby definite stakeholders are the most salient group. It was explained before, that all attributes are variable and can be gained over time. By this, a stakeholder can move from one class to another. The most common movement is from the group of dominant to definite stakeholders.
2.2 Including Stakeholders in Strategic Decisions
After having explained what a stakeholder is and after having divided them into different groups and classes, the question that arises is why to pay attention to stakeholders at all? What is stakeholder theory all about? The first ones to discuss this theory were Freeman and his colleagues. They define: “Stakeholder theory is a theory of organizational management and ethics” (Phillips, Freeman, & Wicks, 2003, p. 480). Indeed, they allege that all theories about strategic management approach morality to some extent. However, while this is often done implicitly, stakeholder theory “addresses morals and values explicitly as a central feature of managing organizations” (Phillips et al., 2003, p. 481). Still, it is not meant to be a comprehensive moral theory but depicts the obligations that result from a particular organizational relation. Groups which do not correlate with a firm are not addressed by stakeholder theory (Phillips, 2003, p. 142).
The best-known and highly regarded book about stakeholder theory is Strategic Management. A stakeholder Approach by R. Edward Freeman (Phillips, 2003, p. 164). Freeman’s own summary in the “Zeitschrift fur Wirtschafts- und Unternehmensethik” in 2004 is very helpful in understanding the theory:
(1) No matter what you stand for, no matter what your ultimate purpose may be, you must take into account the effects of your actions on others, as well as their potential effects on you.
(2) Doing so means you have to understand stakeholder behaviors, values, and backgrounds / contexts including the societal context. To be successful over time it will be better to have a clear answer to the question “what do we stand for”.
(4) We need to understand how stakeholder relationships work at three levels of analysis: the Rational or “organization as a whole”; the Process, or standard operating procedures; and the Transactional, or day to day bargaining.
(5) We can apply these ideas to think through new structures, processes, and business functions, and we can especially rethink how the strategic planning process works to take stakeholders into account.
(6) Stakeholder interests need to be balanced over time. (p. 231)
The most controversial theory in opposition is Friedman’s opinion that the only goal managers should strive for is the maximization of shareholders’ wealth (1970). Obviously, this is opposed by the argument that paying attention to the interests and well-being of those who can influence (be it positively or negatively) the success of a corporation, i.e. the stakeholders, should be an essential part of strategic management (Phillips et al., 2003, p. 481). Of course, stakeholder groups with a mainly instrumental relationship remain, above all shareholders, but good and effective management is much more than simply maximizing shareholder wealth. In fact, the right that is owned by shareholders relates to a residual cash flow, which is nothing else but a financial instrument, not the firm itself. “The corporation is an independent entity that is owned by no one” (Phillips, 2003, p. 156).
This might sound as if managing stakeholders was a unilateral approach. This is wrong. Especially in the case of discretionary stakeholders, it is rather about an exchange of benefits. Typically something of value is offered by the firm to a key constituency (for example, a public service) and, in return, the company receives support by key sociopolitical groups in the firm’s environment (O'Riordan & Fairbrass, 2008, p. 748). It should also be considered that the actual interaction with groups of interest as well as the perception of this relationship is evaluated by all stakeholders. This appraisal will underly any future interplay (Murray & Vogel, 1997). Obviously, it is not very easy to decide upon questions such as with whom to engage and with what intended effect. A qualitative stakeholder dialogue is therefore essential.
Philipps (2003) is the creator of the idea that firms are obliged to treat their stakeholders fairly. He alleges that if corporations are capable of bearing legal obligations, then, too, should they be able to undertake moral obligations (p. 157). Especially by accepting the above mentioned reciprocal relationships from which they receive benefits, they should also incur obligations. Since managers are the administrative representatives of a firm, they have to execute this kind of responsibility. They must, therefore, understand the stakeholders in the firm’s environment and their relationship to the firm (Phillips, 2003, p. 139).
Considering the wide circle of stakeholders of a firm and how they can be influenced by a corporation, leads to the recognition of the fact that the practices and actions of firms extend far beyond their business area (Shamir, 2002, p. 44). It is, though, a fact that business organizations are among the most powerful social entities on earth (Phillips, 2003, p. 1). But what has allowed corporate power to be on the rise? First of all, corporations have gained so much power because of their magnitude and the often huge number of people they employ, the influence they can impose on customers through pricing strategies, and the power they have when buying from suppliers and selling to customers and retailers respectively (Jamali & Keshishian, 2009, p. 277). Secondly, it is due to the deregulation and liberalization of the free market economy. People and therefore customers along the value chain as well as end consumers no longer want to live at the expense of others and start to adopt their purchasing behaviour in the according manner (Sachs, 2008, p. 46). If companies want to overcome the challenges emerging from these changing demands, they have to take over responsibility. Finally, the privatization of major public assets and globalization enables corporations to reallocate resources, which is one of the steps towards forming a global society as outlined above. Considering all this power and far reaching influence, it should be of no question that corporations must also take over some responsibility for society. To come full circle and to look again at the shareholder-maximization-theory, it is worth noticing that it is empirically demonstrated that a high level of corporate social performance tends to lead to an increase in the number of investments in shares (Graves & Waddock, 1994).
O’Riordan and Fairbrass (2008) have developed an interesting model representing a framework of CSR and stakeholder dialogue (pp. 750-754). Since approaching stakeholders in CSR affairs resembles to a large extend addressing them when it comes to social business and since until now there has been nothing written about stakeholders and social business, their model is also relevant for this paper. O’Riordan’s and Fairbrass’s assumption is that the environment of a firm is constituted of four interrelated but analytically distinct domains: context, events, stakeholders, and management (Figure 2). They continue by explaining that every element can be viewed from perspectives of different levels, ranging from the level of the individual organization up to an international context.
First of all, the domain context has to be analysed. It positions stakeholders and the firm (or business managers as representatives of the corporation) within the environment and the circumstances surrounding them. Traditional factors to be included involve politics, history, culture, and economics. Still, the context is also influenced by other external, contingent, and conditional factors including competitor activity, stakeholder pressure, media influence, and industry structure. The second group often takes action in cases of scandals or social failures. The media might uncover these and make them public while stakeholder activism might even punish firms for failings. (p. 753)
Secondly, the focus is turned onto stakeholders. After having identified and prioritized them, it is important to explore their expectations. Anticipations depend on corporate factors such as the size and success of the firm, the business culture and governance of a firm as well as their approach towards stakeholders and CSR. Obviously, it is also of significance in which business and industry the organizations operates, which in turn is linked to the domains event and context. (p. 753)
The domain event examines the possibility that circumstances might alter regardless of the general context and the players involved. This could include a product which was newly developed or excluded from the firm’s portfolio due to stakeholders’ approval or disapproval. Another possible event would be the detection and criticism of unethical behaviour. Considering the effects such events can have on public perception, it becomes obvious that it is important to include them into strategic management. In addition, the incorporation of such events allows companies to react better to a crisis. (p. 754)
By calling the last domain management response, O’Riordan and Fairbass refer to managers’ task of strategic planning rather than to their own role as stakeholders. The decision they have to make respond to issues such as responsibility and obligations; risk, image, goals, and opinions. They also have to resolve how to approach stakeholders and how to develop and incorporate a business culture. The process to be undergone by managers in the stakeholder dialogue process can be separated into two phases: strategy development and strategy implementation (Figure 3). Factors to be developed during the first phase are values, which shape the corporate culture and therefore drive the strategy, alternatives, and the strategy itself, which results from an evaluation of the values and alternatives. The second phase includes the implementation and control of the strategy and appraisal of the output in terms of whether it was a result-orientated beneficial approach. (p. 754)
Despite all approaches towards stakeholder theory, despite all models about how to identify stakeholders and how to implement a dialogue with them, it remains difficult to manage the relationship between a business and its stakeholders. Reasons for this difficulty are the divergent and often conflicting claims between stakeholders as well as contextual complexities emerging out of different regions and cultures. (p. 747)
The main weakness of stakeholder theory, which at the same time is one of its biggest strengths, is its conceptual breadth. The nearly limitless implications that are available by this breadth also allow using the theory as a basis for almost any position that someone wishes to prove or to criticize (Phillips, 2003, p. 6). This has already led to many misinterpretations regarding stakeholder theory in the literature. Among them are critical distortions such as using stakeholder theory as an excuse for managerial opportunism, alleging that the theory was primarily concerned with distribution of financial outputs, and proclaiming that all stakeholders were to be treated equally. On the other hand also more friendly misinterpretations exist. These range from the assumption that stakeholder theory requires changes to the current law, to the assertion that the theory is applicable to the entire society, to the proposition that it is a comprehensive moral doctrine (Phillips et al., 2003, p. 482).
What has been left disregarded in literature is, firstly, the positioning in and managing of the social environment of the firm. In addition, literature reveals that it is discussed extensively what corporation should do but a review and analysis of what companies actually do in respect to CSR is missing. Thirdly, it has not been discussed how managers prioritise stakeholders and their demands. Lastly, to name but a few literature gaps, communication methods in stakeholder relationship are largely absent from CSR literature although it is a very important issue. (O'Riordan & Fairbrass, 2008, p. 749)
3 Inducement-Contribution Theory
Phillip’s (2003) proposition that “by accepting the benefits of a mutually beneficial scheme of corporations, organizations incur obligations to those who contribute” (p. 157) leads us to yet another theory; the inducement-contribution theory. This theory was first proposed by Barnard and further developed by Simon and March. The idea is that an organization only functions if individuals contribute to the overall goal of the company. At the same time, it is postulated that individuals only contribute if the organization, in return, offers satisfactory incentives or inducements (Barnard, 1968, p. 139).
Inducements are benefits to individuals provided by the organization. For employees, this might be their salary or bonuses, while clients receive their inducement through the allocation of goods and services. According to March and Simon (1993), these payments can be measured in objective units such as Dollars or working hours and which are, hence, independent from the utility allocated by the individual to the inducement. In the following, the term incentive will be used as a synonym for inducement.
Contributions, on the other hand, are the payments made by individuals to the organization. Thus, a worker provides his/her efforts and a customer pays a price or a fee for goods and services received, respectively. For any participant, a set of contributions can be identified, which again can be measured in terms of objective units.
3.2 Applying the Inducement-Contribution Theory
Cited in March and Simon (1993), the central postulates of the theory were developed by Simon, Smithburg, and Thompson (1950):
1 An organization is a system of interrelated social behaviors of a number of persons who we shall call the participants in the organization.
2 Each participant and each group of participants receives from the organization inducements in return for which he makes to the organization contributions.
3 Each participant will continue his participation in an organization only so long as the inducements offered him are as great or greater (measured in terms of his values and in terms of the alternatives open to him) than the contributions he is asked to make.
4 The contributions provided by the various groups of participants are the source from which the organization manufactures the inducements offered to participants.
5 Hence, an organization is “solvent” - and will continue in existence - only so long as the contributions are sufficient to provide inducements in large enough measure to draw forth these contributions (p. 103)
The crucial points, both researches, the one by Barnard (1968) as well as the one by March and Simon (1993), concentrate on, are postulates three and five. How can inducements and contributions be kept in balance so that the individual does not consider leaving the organization? March and Simon (1993) differ between the “zero point of the satisfaction scale” and the “zero point on the inducement-contribution utility scale” (p. 105). The former defines the switch point between satisfaction and dissatisfaction, while the latter describes the point at which an individual actually begins considering to leave the organization. These points are different because not all unsatisfied participants do leave the corporation. This, in turn, results from the feasibility of a move away from the organization due to the availability and the attractiveness of alternatives. The investigators, hence, specified two major variables in respect to the treatment of participation: the perceived desirability of movement and the perceived ease of movement (March & Simon, 1993, p. 126). These again depend on four further components: (a) the satisfaction with the existing alternative, (b) the propensity to search for alternatives, (c) the visibility of alternatives, and (d) the availability of acceptable alternatives to leaving the organization (March & Simon, 1993, p. 127).
Barnard (1968), on the other hand, approaches the balance of inducements and contributions from another perspective. He argues that individuals contribute to organizations with the goal of self-satisfaction (p. 139). It is, therefore, the duty of the firm to nourish the motives that drive this involvement and which lead to satisfaction of the participant. In case the organization misses to offer adequate incentives, cooperation between the individual and the firm will also fail. Barnard (1968) argues that the participation in a cooperation consists of advantages (in case of employees, wages and bonuses) and disadvantages (for example, long working hours). The organization must, as a consequence, either offer more or better positive incentives or, alternatively, reduce negative inducements (p. 140). While March and Simon (1993) merely focus on material incentives, Barnard (1968) includes non-material inducements, too (p. 145).