Stakeholder Theory of the MNC

•

CSR covers social and environmental issues, in spite of the English term

corporate social responsibility;

•

CSR is not or should not be separate from business strategy and operations: it

is about integrating social and environmental concerns into business strategy

and operations;

•

CSR is a voluntary concept.

The social responsibility is presented as the consideration of the expectations of

the stakeholders and the fact, for the company, of “answering" to the consequences

of its decisions to these stakeholders. At the pragmatic level, this approach is often

summarized by the concept of “triple bottom line “(John Elkington) that is the

consideration in the management of economic, environmental and social objectives.  

Companies are dependent on stakeholders to obtain the necessary resources for

their survival and for their development. The legitimacy of the company to use these

resources depends on the correspondence of its behavior to rules and values

recognized by the society; it will obtain a “license to operate” on the condition of not

being considered as a predator of the natural and social environment. It is about a

utilitarian legitimacy.  

The employees, when they have the choice, will prefer to work in a socially

responsible company. The consumers tell, in inquiries, to prefer goods produced in

the respect for the fundamental rights of the work. Besides the financial

performances, the investors integrate, in their choices of portfolios, the risk of loss of

" reputation capital ", which can also be translated by a loss of financial capital.  

Substantial or symbolic, the strategies of correspondence answer different

constraints:  

•

The constraints imposed by the law and matched by penalties; we define the

exercise of the social responsibility as to go beyond the only respect for the

legal obligations. The motivation of certain companies to set up devices of

social responsibility is often connected to the anticipation of a hardening of the

legislation, especially in the environmental domain.

 

Stakeholder Theory of the MNC  

•

The professional environment generally promulgates the normative

constraints; their adoption can be made on a voluntary base which values the

commitment of the company.

•

The mimetic constraints are going to lead certain companies to imitate the

others, for example the " best practices " of some pro-actives leaders, and

this, especially if the environment is uncertain and ambiguous.

5.2. The three main current of the CSR

Within the literature in management, the contemporary debate on the

responsibility of companies took its origin in an article of Bowen1 supporting that

companies should revisit their strategies by integrating the social and environmental

dimensions to answer the various pressures of the society. Among the large number

of articles dedicated to the social responsibility of companies, notably in the United

States, it is possible to distinguish three currents: the ethical moralist current

"Business Ethics", the "Business and Society" current and the "Social Issue

Management".  

The theories of the "Business Ethics" current assert the existence of a moral

responsibility of companies towards the society and future generations and postulate

that the company has, by nature, a statue of moral agent, able to distinguish the

good and the evil, thus having the moral duty to act in a social responsible way. In

spite of its gaps, this approach generated an important movement around " the ethics

of the business" and a speech which often confuses " the good and the useful ", ant

that is why we can find a multiplication of “ethical” charters, of “ethical” investments

which are only taking advantage of the “ethics” in economic purposes.  

The "Business and Society" current consider that there is no waterproof

partition between the company and the society: Both are in interrelation and form

themselves mutually by means of their constant interactions. The company

maintains, with the society, relations which are not exclusively trade and it results  

 

Stakeholder Theory of the MNC  

from it a shape of social contract authorizing a social control by the society and the

possibility to “punish” a company "disobedient”. So, the authors of this current assert

that the contracts of cooperation, which establish the confidence between the firm

and its stakeholders, get a competitive advantage to the company.  

The "Social Issue Management" current proposes tools to the administrators to

improve the performance of their companies, by taking into account the expectations

expressed by various actors of the society; it restores the complexity of the

management by widening the field of the actors and by taking away the horizon of

the decisions; the expectations of the stakeholders are integrated into the strategic

methods.  

In fact, these currents are not set and even cross together. They share the idea

that what is good for the company is also good for the society. Archie B. Carroll, one

of the authors the most known for the “Business and Society “current, elaborated a

model which makes reference in the Anglo-Saxon world and which presents a four

level pyramid.  

 

Stakeholder Theory of the MNC  
 

Each of these levels depends on those which precedes it, the satisfaction of both

first one (Economic and legal responsibilities) is requested by the society, that of the

third one (ethical responsibility) is expected, that of the fourth one (philanthropic

responsibility) is wished. These levels, crossed with the various groups of

stakeholders, can serve as reference to define the various categories of social and

environmental performance that have to be estimated (D.J. Wood, 1991).  

5.3. The different CSR strategies

The integration of the stakeholders’ expectations in the strategies can take several

forms:  

•

Actions of patronage or sponsoring, creation of foundations: in that case, there

is a separation of the social and environmental actions and the economical

actions; they are used as communications strategies. However in some cases,

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Stakeholder Theory of the MNC  

the implication of the employees in these actions modifies the economic

functioning of the organization.  

•

Actions integrated into the strategy, which try to implement the social and

environmental dimension in the economic decisions: investments, conception

of products or process of production. This method, often linked to the quality

method, has for objective to decrease the risks and to improve the economic

medium-term performances.

In order to put into practice, to develop and to evaluate the actions of social

responsibility, the stakeholders (and the company itself) have means, which are the

“piloting devices”. Among them we can quote the external reporting and the internal

devices of performances measures.  

But, the media reports certain examples of paradoxes. A "paradox" occurs when

on a side, a company begins in an action of CSR, pledges for example concerning

the durable development while other side, accusing and detailed revelations about its

practices emergent at the great day. Certain ONG as Christian Aid clearly denounced

abuses on behalf of certain great multinationals in certain parts of the world.  

For example in the United States, McDonald illustrates a CSR with double face.

Emblematic company, which always wished to affirm its economic and social (even

environmental) engagements, this company was criticized for non-ethical practices of

businesses. At the time of the treatment of the McLibel case by British justice, this

one confirmed certain complaints for ill treatment of the workers, abusive publicity

and cruel treatment of the animals. February 15, 2005, the European Court of the

Humans Right sliced in favor of Helen Steel and Dave Morris, (two ecologists

militants) in their fight with McDonald' S in the McLibel case. The lawyer of the duet

declared: " the European Court of the Humans right considered that violations of the

humans right had been made in their opposition - that there had been a procedural

inequity in the business and that the adopted procedures were not equitable"  

 

Stakeholder Theory of the MNC  

In the same way, a European company as Shell largely took part as a proactive

pioneer of the CSR but while missing however in 2004 to report to its

shareholders a reliable evaluation of its oil stocks which melted its book value.  

The engagement of the company in CSR obliges it to be more transparent in

the social contract than it with the other actors. It creates its own Damocles sword;

other authors mentioned a "mortal risk" by the mediatization of its actions (J-Y

Trochon, 2003). Failing to honor this engagement, the company takes a media risk of

reputation even of confidence by a "boomerang" effect. This risk will come in the

event of abuse early or late to remember with force to the good memory of all those

which would wish to handle the other stakeholders and the shareholders initially. The

risk result in a legal sanction, or even, in a faster and frightening stock exchange

sanction and destroy in fine the dearly and patiently acquired reputation (media

sanction). Enron and Parmalat are two emblematic examples, which show in the only

sector of the corporate governance, on the two sides of the Atlantic, the fatal

outcome of attempts of manipulation.  

5.4. The Limits of the theory and its application

Milton Friedman wrote "The Social Responsibility of Business is to Increase Profits".

Friedman explains that corporations do not exist in physical reality, that only people

can have responsibilities, and that businesses have no responsibilities as such. He

maintains that there is one and only one social responsibility of business – to use its

resources and engage in activities designed to increase its profits so long as it stays

within the rules of the game. To earn profit is the purpose of the corporation that

should engage in open and free competition without deception or fraud (Edward W.

Younkins, 2006). In this view, it seems that the question of a Corporate Social

Responsibility has no sense.  

Furthermore, The Freeman stakeholder definition seems to be too large and

therefore its implementation is impossible. Indeed the managers have time-limited  

 

Stakeholder Theory of the MNC  

resources and have to select the stakeholders which are going to hold attention. The

factors that explain this choice are the power, the legitimacy and the urgency (as

seen in section 4.3.3):  

•

The power is held by groups of actors who have the capacity to influence the

current or future decisions of the firm (cf. Jeffrey Pfeffer, Gerald Salancik,

1978).

•

The legitimacy of a group corresponds to its recognition by the society by

virtue of a contract, of a moral right or of a supported risk because of the

activity of the company. Certain groups are legitimate but have no power

(minority shareholders, the local residents of a polluting site not organized in

defense association).

•

The urgency characterizes the stakeholders that are asking for an immediate

attention. This urgency is a function of the time sensibility and defines the

delay of reaction of the manager acceptable or not by the stakeholders. It

corresponds to a critic situation in general, notably in case of exposition at the

risk.

The rationality of the leaders is necessarily limited by the urgency of the

problems, by the pressures and by the information systems that they have. It seems

therefore an illusion to envisage an exhaustive consideration of all the potential

stakeholders. The influence of the stakeholders thus depends on the perception of

the leaders and the hierarchy that they establish between the various expectations,

notably when these are contradictory. They are thus going to choose and to “enact”

the actors who will count for the definition of their strategy.  

The stakeholders’ theory remains ambiguous concerning its foundations and

presents certain number of limits. On one hand, it joins in a relational representation

of the organization based on complete contracts, which suppose that the conflicts of

interests can be solved by insuring a maximization of each group interests.  

 

Stakeholder Theory of the MNC  

On the other hand, the stakeholders’ theory builds a reduced representation of the

social and environmental responsibility of the company. What about the “dumb”

stakeholders (fauna, flora), about the third absentees (future generations, potential

victims)? What about the values or interests of the too weak parties for being

represented? Can we reduce the general interest to the sum of each group of

stakeholder interests?  

Companies are trading organizations and the leaders are in front of dilemmas

that can only be solved according to their more or less long-term profitability

objectives. The issues depend then strongly on the dynamics relations between the

firm and its stakeholder, and of the level of the expectations and the pressures of the

various actors. In the calculation of the advantages and the underlying costs in the

"win-win" strategies, the anticipation of the behavior and the power of the

stakeholders and the authorities of regulation is determining for the adoption of a

socially responsible strategy. The actual consideration of social and environmental

objectives in the strategies of companies depends largely on the representations

which have the actors of the society of their direct or indirect power on companies.

The economic logic thus remains the main axis, structuring the decisions of

companies. The expectations of the stakeholders, their pressures, are the constraints

which are integrated into the strategic management according to the representation

of the power of these stakeholders.  

As argue Jean-Luc Migue, the practice of the social responsibility leads to a

paradox: the social responsibility implies the replacement of a managerial decision to

that of the shareholders owners. As everywhere where the rights of property are

eased, for example in the public sector, the individual irresponsibility follows. The

practice of the social responsibility can lead to an individual irresponsibility.  

On the economic level, the generalization of this practice would lead to the

end of the long-term economic growth and would make thus impossible the