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2 Stakeholders and Stakeholder Analysis
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Learning Objectives
After reading this chapter, you should be able to:
1. Explain the idea of corporate stakeholders.
2. Analyze social and stakeholder networks.
3. Apply a stakeholder analysis to a corporate environment and
apply the steps to initiate stakeholder
dialogue.
4. Describe the significance of deontological ethics and
utilitarian ethics corporate collaborations.
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Section 2.1Identifying Stakeholders
Pretest Questions
1. A shareholder and a stakeholder are the same thing. T/F
2. Social networks are static. T/F
3. Dialogue is a way to create new and useable information. T/F
4. “Seek the greatest good for the greatest number of people” is

a good way to sum up the
guiding philosophy behind deontological ethics. T/F
Answers can be found at the end of the chapter.
Introduction
Chapter 1 discussed the importance of building sustainable
corporations. Running a socially
responsible organization requires multiple people in the
organization to work toward this
goal. The word corps means a body of people engaged in a
collective action. But who consti-
tutes the “corps” in corporation? Achieving sustainability
involves understanding the “who”
of corporations—the human beings who work within them and
help determine their work
culture and behavior patterns.
Achieving corporate sustainability also requires identifying
opportunities and problems and
turning to corporate actors (and outsiders) to help address them.
Most corporate systems
are incredibly large and complex, and they involve a lot of
people. Reasonable boundaries
are needed to delineate the responsibilities of leaders,
managers, and employees. We need to
define who is closest to an issue and who is responsible for
generating solutions to problems.
In order to understand the corporate system and its
characteristics, one must first define the
system. Social network theory helps categorize people in and
around a corporate system (the
stakeholders of the firm) and how they relate to each other and
the organization.

This chapter discusses categories and types of stakeholders and
social network theory. In the
modern context, businesses use electronic media to create social
networks of people who are
connected in some way to the firm and its employees. This
chapter also explores how individ-
uals can map more personal social networks. Networks can help
people achieve goals, which
makes them powerful and gives those who direct and control
them power, too. With that
in mind, this chapter also explores the idea of power and the
difference between individual
and emergent power. Understanding social networks involves
understanding where power
and responsibility rest—as well as where socially responsible
actions can have the greatest
impact. The final section of the chapter examines how to run a
formal stakeholder analysis
and create mutually beneficial dialogue with stakeholders.
2.1 Identifying Stakeholders
This chapter builds on the earlier discussion of systems theory
and proposes taking a systems
view of stakeholders, or the people and firms that interact with
and are affected by corpo-
rate operations. One way corporations can act in a sustainable
and socially responsible way
involves considering and accounting for all entities who are

affected by their actions. This
means managers need to understand how to identify these
entities. One way to do so is to use
social networks and develop appropriate communication
strategies that allow corporations
to both reach and learn from all parties affected by corporate
behavior.
In any publicly traded corporation, the shareholders (or
stockholders) are those who have
paid money to own part of the company. An older view of
corporations suggests that stake-
holders and shareholders are the same group of people. From
such a vantage point, owners
are the primary ones who matter. People who hold this view
believe that only those who have
a financial interest in the company should provide input on the
company’s strategy. More
recently, stakeholder theory introduced the idea that
shareholders represent just one of
many people who have a legitimate and viable right to impact
corporate strategy.
A stakeholder, then, is a person or organization that has
something to gain or lose through the
outcomes of corporate planning, processes, or projects; or
because of the corporation’s ongo-
ing function. Prudent leaders know how to identify
stakeholders, inform them, solicit their
input, learn from them, and engage them in creating an
appropriate direction for the com-
pany. For example, leaders need the support of at least a
subgroup of stakeholders for every
leadership decision: Employees must enact new plans,
customers need to buy new designs
or services, regulators need to approve new construction or new

product launches, activists
need to approve or stop disapproving of corporate changes, and
so on. Thus, all organizations
need to have a clear understanding of who their stakeholders
are, which stakeholder inter-
ests matter, and how to involve stakeholders in creating a
common and profitable future. For
new and perhaps unusual or controversial social responsibility
and sustainability goals, lead-
ers need a very sharp understanding of which stakeholders
might agree with new ideas and
which ones may not. The next sections introduce categories of
stakeholders that are present
in the modern corporation, including their characteristics and
relationships to the corporate
social network.
Market and Nonmarket Stakeholders
Two broad categories of relationships exist between companies
and corporate stakeholders.
The first is between companies and market stakeholders, a term
that includes employees,
stockholders/shareholders, customers, suppliers, retail
wholesalers or dealers, and possibly
creditors. What market stakeholders have in common relates to
the role each stakeholder
plays in getting a product or service to the market or to
consumers. Each one has a particular
kind of interest (usually financial) in the corporation’s well-
being.
The second relationship exists between a company and
nonmarket stakeholders (some-
times called “secondary stakeholders”). A nonmarket
stakeholder has no direct financial
relationship to the corporation but has indirect social,

environmental, and possibly financial
relationships with it. This category includes communities,
nongovernmental organizations,
the media and media organizations, business support groups
such as trade associations, the
government, competitors, and even the general public.
An example of how an organizational issue can involve a
number of stakeholders comes from
the Hyundai Motor Company. Since 2014 Hyundai has recalled
millions of cars for various
reasons. Engines have failed in thousands of Hyundai cars,
resulting in class action lawsuits
and settlements. Other factory recalls include malfunctions with
braking, electrical, and sus-
pension systems, according to the documents posted to the
website of the National Highway
Traffic Safety Administration (2015).
Who are the stakeholders in this problem? The easy answer is
the owners of the company.
Yet the owners reside in Korea and for some period of time may
have been largely unaware of
the particular problems that affect what is in reality a small
percentage of Hyundai vehicles.
Customers certainly represent stakeholders because they invest
in the safety of a particular
vehicle. Hyundai customers’ behavior may impact Hyundai

employees’ behavior, since con-
sumer reactions relate to employee options (more customers
equal more work and employ-
ment, fewer customers might mean layoffs or reassignments).
Customer complaints regard-
ing problems could impact employees or lawyers on a daily
basis. The issue also impacts
the marketing efforts, as other employees are trying to continue
to sell Hyundai cars in the
United States. Furthermore, the issue impacts the media, which
chooses whether to report
the issue and what to report, and it also affects those within the
company who deal with the
problem’s public relations aspects. Of course, government
regulators also become involved,
as do people in the legal system who may be involved in the
lawsuits that evolve from the mat-
ter. Moving outward, other Korean manufacturers become
involved too, when they worry if
negative press surrounding Hyundai will hurt other Korean
brands. In total, there are several
thousand stakeholders in this issue that pertains to a select
number of cars. It thus becomes
very difficult for corporate leaders to identity all the competing
and conflicting stakeholder
interests and account for them in their corporate stewardship.
Stakeholder Interests
Market stakeholders primarily have financially motivated
interests in a corporation. Employ-
ees enter into a contract with the corporation to provide time
and talent in exchange for
money. They want a stable relationship with appropriate
compensation and a safe working
environment. Stockholders offer capital to the corporation and
expect an appropriate return

on their investment. Consumers hope for product satisfaction.
They want an appropriate ser-
vice or product in exchange for cash.
Suppliers typically see the corporation as a customer. They
supply certain products and ser-
vices to it in exchange for a fair profit or payment and possibly
for the opportunity to advance
a company or mission they admire. Suppliers hope for a stable
relationship with the corpora-
tion and expect fair and prompt payment for products or
services in this business-to-business
relationship. Similarly, retailers at the other end of the
corporate system want to buy products
or franchise services from the corporation and pass them along
to a smaller portion of the
marketplace. Finally, creditors in the form of banks expect
business loan repayment, which is
associated with collecting the loan through legal means.
Analysts find it more difficult to identify nonmarket
stakeholders, because such stakehold-
ers can be any person or entity that has an indirect relationship
with the corporation. These
stakeholders include communities in which the corporation may
have offices, plants, or other
properties. In the case of an extractive mining company, for
example, nonmarket stakehold-
ers include people local to the area, those downstream from any
waste or disposal sites, and
people who may breathe air or use water possibly polluted by
the mine. Nonmarket stake-
holders can even include future generations who can or cannot
continue to live at or near the

site. If such people choose not to or cannot speak for
themselves, or if activists in another part
of the world take an interest in that population, then activists in
distant locations also become
nonmarket stakeholders. Nonmarket stakeholders also include
the people who use the prod-
uct extracted from the mine or use products in which the mined
resource is an ingredient.
Think of the materials in most cell phones—everyone with a
particular cell phone constitutes
a market or nonmarket stakeholder in relation to any chemicals
or precious metals that are
common across the brand.
Nongovernmental organizations (NGOs) also have a stake in the
corporation’s well-being
because they monitor corporate actions and ensure they conform
to legal and ethical stan-
dards to protect public safety. In other words, NGOs want to
protect other stakeholder groups.
Regarding the previous example of a mining company, NGOs
interested in indigenous rights,
historical preservation, or environmental safety become
nonmarket stakeholders too. Simi-
larly, media, government organizations, and regulators might be
nonmarket stakeholders.
Competitors are also impacted by corporate decisions such as
changes in price or ingredients,
additional or removed features, or new service offerings, so
they too become stakeholders.

The list of stakeholders seems extensive and can be
overwhelming.
As the web of stakeholders within and around a corporation
grows and becomes more com-
plex, the analysis expands from market stakeholders to
nonmarket stakeholders. Corporate
leaders cannot give all stakeholders the same weight. Thus,
good leaders need methods to
identify, weigh, engage, or disregard stakeholders. Some
options for doing so are outlined in
the following section.
Albrecht’s Eight Strategic Radar Screens
Karl Albrecht, Canadian futurist and coauthor of Service
America: Doing Business in the New
Economy, categorizes stakeholders in a more complicated
typology than market and nonmar-
ket. He places stakeholders into categories associated with
various issues. For example, cus-
tomers have particular issues with corporations that differ from
those they have with the gov-
ernment. Albrecht claims that leaders draw issues from eight
distinct strategic radar screens,
or categories. Thoughtful leaders, according to Albrecht, should
categorize issues, people, and
organizations using these dimensions (Albrecht, & Zemke,
2008). These eight areas include
consumer, competitor, economic, technological, social,
political, legal, and geophysical envi-
ronments (see Figure 2.1).
Consumer Environment
Specifically, the consumer environment includes consumers
with various demographics and
characteristics. Consumers vary by gender, age, marital status,

and income, among other fac-
tors, and these variations give them certain buying
characteristics. For example, social media
sites typically feature advertising that targets a younger
audience. In contrast, traditional
forms of media, such as newspapers and television, feature
advertising that targets older con-
sumers. These choices reflect the corporation’s understanding
that there are multiple con-
stituents in the consumer environment and that marketing
attempts try to match products
and messages with consumer type.
Figure 2.1: Types of market stakeholder relationships in the
corporate
environment
f02_01
Consumer Geophysical
LegalCompetitor
Economic Political
SocialTechnology
The Corporate
Environment/

Types of
Market
Stakeholders
Source: Adapted from Corporate Radar: Tracking Forces That
Are Shaping Your Forces That Are Shaping Your Business, by
K. Albrecht,
2000, New York: American Management Association.
Competitor Environment
The competitor environment includes organizational
competitors; analysis is required to
consider their strengths and weaknesses. Competitors help
determine how much market
share the corporation can attain and how much the firm can
expand in a particular market-
place. If a competitor is collaborative, firms can gain valuable
insight and technology from
common-ground collaborations or affiliations in trade
associations. There are many exam-
ples of competitors that define a particular corporation’s
strategic approach. For example,
small businesses competing in a small town may change their
strategy and become more
customer-service oriented or offer specialty products if a large
box retail competitor enters
the market and changes the competitive and business landscape.
Economic Environment
The economic environment includes information about cost,
international trade, and other
factors. The availability of investment capital, interest rates,
and the willingness of loan agen-
cies such as banks to provide capital all have a significant

impact on the ability of the corpo-
ration to do business. In previous generations, many businesses
assumed they were isolated
from global economic issues. But recent years illustrate that all
nations, economies, and the
corporations within them remain directly or indirectly
connected through an economic web.
For example, at the outset of 2016, global oil prices dropped to
a 16-year low (CNBC, 2016).
While many companies benefited from the resulting decrease in
transportation costs, others
closely related to energy laid off workers in anticipation of lost
business.
Technological Environment
The technological environment includes the development of new
technologies and software,
as well as the way information flows within corporations. For
example, new processes such as
cloud-based Internet services allow custom manufacturing
companies and service companies
to take orders, ship products, or deliver services in a
dramatically reduced time frame. This
speed allows some companies to be much more competitive.
Companies that fail to adopt
technologies that enable such customer responsiveness risk
losing market share. Technology
can also allow the consumer to share thoughts and reactions to

products, or even play a role
in customizing and producing a product.
Social Environment
The social environment represents a mixture of many different
voices and influences. This
category includes culture, values, beliefs, and social trends that
arise among employees and
the communities in which corporations reside. For example,
when the gaming industry wants
to open a hotel and casino on tribal land, social organizations
that oppose gambling move to
fight the project. When the tobacco industry develops a vapor
electronic cigarette, social orga-
nizations that advocate for health take public stands in
opposition to the product and propose
regulation. In both examples, there are also advocates for
gaming and for vapor products that
also organize. Almost all corporate activity has at least some
social implication, though not all
corporate activity creates organized social opposition.
Political Environment
The political environment remains a critical factor for firms to
consider, and political consider-
ations represent another type of stakeholder. Political
environmental considerations include
actions that can be taken by all levels of government to regulate
both the import and output
of a particular business. Corporations must often respond to
political issues and trends at the
local, state, provincial, national, and international level. There
are many examples of unsus-
pecting corporations being thrust into the international limelight
when a particular trend or
issue emerges. For example, when former US secretary of state

Hillary Clinton revealed in late
2015 that a small company in Colorado managed her e-mail
service when she served as sec-
retary of state, the small 24-person firm suddenly had to
respond to multiple media inquiries
about its relationship with the Clinton family.
Legal Environment
The legal environment describes the regulations and laws that a
corporation operates within.
Legal situations vary immensely from country to country,
providing an extremely complex
situation for companies that sell highly regulated products such
as pharmaceuticals in mul-
tiple countries. A drug that is not legally registered or regulated
in one country can require
years of formalized testing and approvals in another.
Section 2.2Social Network Theory
Geophysical Environment
Finally, the geophysical environment includes a relationship
with the physical environment in
which the corporation resides. This involves the corporation’s
physical location and may deal
with issues of waste, transportation, pollution, the extraction of
minerals, water, land, and
air. Environmental regulations initiated by governments through
the legal system exhibit the
interrelationship between these different kinds of issues. For
example, the Rhine River flows

through the heart of Europe and for years was a dumping place
for toxic waste that impacted
every country downstream. An eventual multination agreement
to clean up polluting prac-
tices also impacted all nations along the Rhine.
Section 2.2 introduces social network theory as another way to
consider and identify key
stakeholders. The method works well when distinct categories
or types are hard to identify. It
also helps clarify stakeholder identities and power.
2.2 Social Network Theory
Each of Albrecht’s strategic radar screens to categorize
stakeholders represents a point of
view, actual people, or proxies who advocate for a particular
perspective and behaviors from
the corporation. Each is also part of the web that we call a
social network. For example, when
considering the geophysical or legal environment, neither the
law nor the environment can
speak. People represent those categories and speak about those
issues. It is important to
understand that an organization’s social network includes these
direct and indirect voices.
The social network represents a social structure consisting of
interpersonal connections
between individuals. These connections involve people within
an organization who usually
communicate with other individuals, thus creating and
maintaining relationships with the
people who both give and take valuable information.
Characteristics of Social Networks
Social networks have certain characteristics. First, they are
emergent. This means that social

networks are organic and change in response to the need for
information or resources. Rela-
tionships also change over time and are thus dynamic and
emergent. Social networks have
patterns that are emergent. For example, suppose a celebrity is
seen on a YouTube video
wearing a certain pair of shoes. The video is shared virally on
the web, creating an emergent
demand for the shoes that was unforeseen. The purchasing
pattern of those who want to buy
this model of shoe is observable but not always predictable.
Over time, certain parts of social
networks are predictable because patterns repeat so
consistently. Finally, social networks
are nonlinear. People don’t always exchange information
equally. If you mapped information
exchanges, you would see they are more like three-dimensional
nets or webs that emerge
through the relationships that differ in the type and amount of
exchange of goods, services,
information, and goodwill.
Your friend group represents a social network. Your family
represents a social network. An
institution has a social network, if it consists of more than one
person. The corporation is pri-
marily a social network. All of the eight categories of people
and issues described by Albrecht

interrelate through different social networks. Once you
understand that everyone has a social
network around them, you can learn to map that network,
analyze it, attempt to enter into it,
or offer to exchange information with members.
An example of a social network that became a business is
Butcher’s Bunches, a small company
in the western United States started by the mother of a young
boy who could not eat sugar.
When she made sugar-free homemade jams for her son and
posted the idea on Facebook, her
friends and family began asking for samples. Before long, she
was making a batch every day
and selling enough to buy a commercial kitchen. Her Facebook
following grew until she had
regular orders, some from retail institutions. Today she has 10
employees but does almost no
marketing, because her social network, which is the modern-day
version of word of mouth,
brings more business than she can handle (Butcher’s Bunches,
2013).
Social networks have become particularly visible over the past
20 years because of the emer-
gence of media-based programs that facilitate social interaction
and social network mapping.
Facebook, Instagram, LinkedIn, and other such software
facilitate the visualization of a social
network.
Benefits of a Social Network
In order to understand social networks, attempt to build a map
of your own. Several online
tools can help you do this, but one of the better (and free)
software products is called E-Net.

A simpler but effective way to visually see and effectively map
your social networks involves
taking a piece of paper and writing your name in the middle of
it. Because people in your
social network exchange information and/or resources with you,
the next step is to identify
and list people who have recently given you an important piece
of information or resource.
Write those names down and for each one, draw a line between
your name and the names of
the other people. It is rare to have all your contacts equally
important and close to you. You
can group together the people who give you the most
information and resources. Next, to the
extent that you can, begin connecting people in your network
who know each other by draw-
ing lines between them. Connect those people until the web is a
fairly accurate representation
of how you get your information and resources.
Whether you draw your social network or create it on a website,
you should end up with
something that reveals its size and extent. As you think through
this, you may see that social
networks provide social support. This means that the network
empathizes with you, advises
you, and may physically support you in times of need. The
network, or certain people within
it, represents a place where you can complain, gain sympathy,
and receive emotional aid.
Social support also provides information. All of us need
important information about how
to get things done. Imagine your first day at work, for example.
How did you get information
about where to get supplies, park your car, or eat lunch?
Usually, using your social network

or adding new people to it helps you thrive in a new
environment. Additionally, social net-
works provide sense-making information, which helps you
interpret the world. The people
and organizations within the network help you see what is
important and where to go for
assistance. Finally, a social network provides access to
resources. It can help you get in touch
with people who have something that you need, whether it be a
loan, a tool for a task, or help
finding a job.
Quality of Social Networks
People often assume the strongest social networks consist of
people who are most like them.
But that is not always the case. People who are the same age,
sex, or race or who have the
same political views are not always as interesting to us as
people who are different. People
who are too similar to us cannot always provide new
information that can lead to a break-
through, an innovation, or access to a new set of resources. In
social network analysis, this
phenomenon maps to the idea of strong versus weak ties
(Granovetter, 1983).
Strong ties refer to our connections with the people who are
closest to us, who give us the
most information, and to whom we talk most frequently. Weak

ties refer to people and con-
nections who know little about us but whom we can access
because of someone else in our
network (the phrase “friend of a friend” typically refers to a
weak tie). Interestingly, research
shows that weak ties are particularly important to moving a
person or agenda forward. For
example, research by Granovetter (1983) indicates that weak
ties provide novel information,
such as job opportunities. Strong ties most often tell you
something you already know. Many
people make the mistake of building only strong ties, depriving
themselves of important
information and opportunities.
These concepts of social networks, network mapping, and types
of ties all directly relate to
sustainability and CSR because they enable you to know
yourself, your company, and your
competitors from a social network perspective. Once you map
your position and that of others,
you can then craft plans or make strategic choices to include the
right stakeholders who will
help you achieve your goals in your social network. More
importantly, you can take an issue or
idea and attempt to map out the network of possible supporters,
detractors, and bystanders.
Once you create such maps, you may also become strategic
about when and where you pro-
vide information, since you know with confidence how
information travels through various
networks. You can take this concept from the individual level to
the organizational level and
map connections between stakeholder groups as well. In order
to do so, you need to be able to
move past identifying networks and understand how much

power individuals, organizations,
and networks actually have. Next, we discuss how to
conceptualize and measure different
kinds of individual and organizational power.
Individual Power in Organizations
A common model of individual power comes from French and
Raven (1959), who described
five types of organizational power—legitimate, reward, expert,
referent, and coercive. These
types of power commonly exist in all organizations and provide
another lens by which to ana-
lyze a social network. After you collect the names of entities in
an issue network, for example,
you can then note what kind and how much power each entity
may have vis-à-vis the issue in
question. Social network mapping becomes much more than a
list of names and connections
once you can attach information about power that essentially
acts as a modifier or multiplier
for certain names and entities. Some people in your network
will have one kind of power and
not another. Others will have an abundance of several kinds of
power. The main job of any net-
work analyst is to identify and categorize the people and power
data in order to make better
strategic plans. Such mapping can help when leaders wish to
suggest a strategic change, but it
can also be useful when introducing new socially responsible or
sustainable ideas.

Section 2.3Stakeholder Analysis and Dialogue
Legitimate Power
The first source is legitimate power. This power comes from the
belief that a person within
an organization has the formal right to make decisions,
command others, and gain compliance
from them. This formal right can come from a job title or
organizational authority. Presidents
and CEOs often have legitimate power because of their title and
the formal decision-making
role their title signifies.
Reward Power
The second kind of power is reward power. This type of power
assumes the leader has the
ability to reward another person’s performance. When a
manager has this power, he or she
can gain long-term compliance by giving out short-term rewards
that might include praise,
money, status, promotions, or other benefits.
Expert Power
The third type of power is expert power. This power derives
from a person’s superior judg-
ment, skill, or knowledge. It tends to be earned over time and
accrue due to accomplishments.
For example, in a technology-based work environment, the
experts who purchase, install, and
maintain computer systems have exceptional power to control
and influence work flow.
Referent Power
The fourth kind of power is referent power. It comes from the
social connections a person
may have that can protect them from harm or provide them with

influence. If you know some-
one who is important, you have referent power. When people
“name-drop,” they are referring
to a powerful person and attempting to share in that person’s
referent power. You might not
know the president of the university, but suppose you know a
professor and that professor
knows the president. The professor’s access to a person with
legitimate power gives him or
her referent power.
Coercive Power
The fifth and final kind of power is coercive power, which
stems from the belief that a leader
or person could punish you if you don’t comply with what he or
she requests. The ability to
punish also creates resentment, so coercive power—which
involves threats—can rarely be
used repeatedly. For example, your manager likely has the
power to file disciplinary action if
you are late to work.
2.3 Stakeholder Analysis and Dialogue
All models of power assume that people and entities have
connections with others in a social
network. Power emerges in the social network circuits without
revealing its source. In order
to move ideas through the network, analysts need to know
which stakeholders in the system

to reach, communicate with, persuade, and gain information
from. This leads to the issue of
more specific stakeholder analysis.
Inexperienced managers commonly make the mistake of
thinking they can easily identify all
of the stakeholders around a particular issue. Just as with any
dynamic system, understand-
ing those who are influenced by the system is highly
problematic. It requires a systematic
thought process and includes an element of randomness. The
process of identifying the con-
nections, networks, and power of the connections between a
firm and its social network is
called stakeholder analysis.
Stakeholder analysis identifies those vested in a business issue.
It helps people understand
who is in the network of influence or power, as well as who is
in the network of interest. Any
network of influence is usually smaller than the network of
interest. There are generally more
people interested in an issue than people who can influence an
issue. Knowing who is in the
network of interest is extremely important because it allows us
to gauge the potential risks
and benefits of a particular action. When we add stakeholder
influence to a map of our social
network, we can identify people who should be informed and
involved in different phases of
a project.
Steps in Stakeholder Analysis
Conducting a stakeholder analysis involves the following steps:

1. Identify: This step starts with making a list of who the
stakeholders are. What are
their interests and commitments? What risks do each of them
pose?
2. Prioritize: This step attempts to label and quantify power, as
well as note that power
differs by issue. Who is most affected? Who has power and
influence? Who feels
urgency?
3. Map: This step involves considering the known relationships
between and among
actors by exploring the relationships between stakeholders.
Some elements of rela-
tionships are random or private, but it is good practice to
attempt to map all known
relationships.
4. Engage: Brainstorm how stakeholders can be engaged. What
media should we use?
This requires some research about different types of
stakeholders and their prefer-
ences and biases.
5. Monitor and review: Identify how the stakeholder
relationships are changing. How
can we continue to communicate? What new issues are
surfacing? This step requires
monitoring and remapping as issues move from launch phase to
execution or
closure.
Each of these steps will be discussed in more detail in the
following sections.

Identify and Map Stakeholders
The best stakeholder analysis processes are highly visual.
Analysis begins by developing a list
of members in the community of stakeholders. Once the list is
complete, assign characteris-
tics to each one of the stakeholders. For example, it is common
to assign data about how much
money, power, or influence any one person or group exhibits in
relation to a particular issue.
That type of weighting illuminates the high-priority
stakeholders—they may not be the peo-
ple or groups you expect. The list of potential stakeholders,
even on a small issue, becomes
very long. But analysts have to make priority-based decisions
regarding who to engage in
conversation.
To assist with stakeholder analysis, there are a number of online
mapping tools that allow
users to sort stakeholders into categories. Once the stakeholders
have been listed, building
a map of them is important for visualizing the network of
influence and power that will
facilitate moving forward with a particular issue. There are
numerous ways to visualize a
web of stakeholders for an issue. Visualization allows multiple
people to come to a common
understanding of different stakeholders’ relationships. Bourne
(2015) advocates a type of

visualization called Stakeholder Circle, in which some
stakeholders remain very close to
the center or central part of the issue. Others belong further
away. However, some who are
far away also have the power to end the project. Some
stakeholders who are very close to
the center have the power to influence the project but do not
control sufficient resources
to terminate it. Good managers understand these types of power
issues and consider
them when they make decisions regarding how to lead and
manage or otherwise engage
relevant people.
Prioritize Stakeholders
Once the list of stakeholders is made, it is important to rank
them in priority order. Consider
the following:
Impact: Who will be most impacted by the decision?
Power: Who has the power to influence the decision?
Need: Who needs or wants to be involved in the discussion?
Support: Who can offer the support required to be successful?
Figure 2.2 reflects a stakeholder categorization model proposed
by Mitchell, Agle, and Wood
(1997), who classify stakeholders based on their power to
influence the decision or issue and
on the interest and urgency of the stakeholder’s claim on the
issue or decision. This type of
analysis allows a manager who is operating with limited
resources to assess which types of
stakeholders to track and which types to potentially ignore or
pay less attention to. Also, since
this type of analysis includes advice on how to engage or
interact with different stakeholders,

this model helps move from the identification and mapping
steps toward the prioritizing and
engaging steps.
Figure 2.2: Stakeholder classification model
f02_02
Low
Interest
Power
High
High
Low
Keep
Satis�ed
Engage
Closely
and
In�uence
Actively

Monitor
(minimum
effort)
Keep
Informed
Source: Figure by Lynda Bourne / CC BY
Leaders often manage issues under significant resource
constraints, as no firm has unlimited
financial and human resources. In addition, most businesses and
leaders face more issues
than a single person—or even a single team—can manage.
Therefore, leaders must choose
which issues to address. To help them prioritize, urgency or
issue importance comes into play.
General Dwight D. Eisenhower, the head of Allied forces in
World War II, used a particular
model known as the urgent versus important decision model to
sort issues. He continued to
use this tool as a decision-making and time-management model
when he became president
of the United States (see Figure 2.3).
The model suggests sorting issues around importance and
urgency. Important things that are
not urgent can be done later, or be scheduled and dealt with at
the appropriate time. Unim-
portant things that are not urgent can be delegated to someone
else or even ignored. Impor-
tant things that are urgent must take the first priority. The skill
lies in deciding what and who
is important or urgent—such decisions may require
collaboration within an organization and

good communication. Communicating within social networks
dominates the final portion of
this chapter.
http://creativecommons.org/licenses/by/3.0/
https://mosaicprojects.wordpress.com/2015/04/04/for-
stakeholders-2x2-is-not-enough/
Figure 2.3: Urgent versus Important Decision Model
f02_03
Low
Urgency
Importance
High
High
Low
Schedule
a time to
address
task

Task
is
top
priority
Do
task
later
Delegate
task
Source: Adapted from The Decision Book: 50 Models for
Strategic Thinking by Mikael Krogerus and Roman Tschäppeler,
2012.
Stakeholder Communication and Engagement
There are four common approaches for engaging with
stakeholders. The first is an inactive
approach, which means taking no action. In studying corporate
citizenship, Professor San-
dra Waddock (2006) researched various ways corporations
engage stakeholders. Surpris-
ingly, data indicates that most firms do not deal with
stakeholders in any systematic fashion.
Research suggests that most companies wrongly believe that
inaction will help the issue go
away. Or managers believe that giving an issue attention by
dealing with it openly serves
to worsen the problem (Waddock, 2006). In other words, while
an issue might be impor-
tant and urgent for one person or group, the same issue may be
unimportant and not urgent
to another. Usually these differences of perception lead to
internal difficulties and external

implications that only exacerbate stakeholder problems
(Waddock, 2006).
A second common approach to corporate issues involves
becoming reactive, or taking action
after an issue arises. News outlets often report stories of
companies that react to an orga-
nizational issue only after the fact by defending themselves in
court against liability or by
campaigning for public trust. Corporate actors caught in the
reactive paradigm tend to listen
to stakeholders only after being criticized in the media or some
other form of public crisis
triggers a belated reaction.
The third type of approach is to be proactive. Proactive
companies represent the opposite of
both prior reactions; such firms try to anticipate stakeholder
concerns and needs. These kinds
of firms use environmental scanning practices, databases, and
skilled public outreach to iden-
tify stakeholders’ concerns and engage them around a particular
issue. Such firms also engage
in the kind of stakeholder mapping discussed earlier, which
helps managers anticipate how
changes in current events, power dynamics, funding, and market
forces might impact the firm.
Monitor and Review Stakeholders

According to Waddock (2006), the best strategy for engagement
is the interactive approach.
This means that companies actively engage with stakeholders in
an ongoing relationship.
Ways to achieve this kind of relationship include hosting
stakeholders in corporate meetings,
appointing them to governing boards, creating industry
associations together, and otherwise
nurturing an ongoing relationship (Waddock, 2006). Good
communication within a firm is
not enough to make an organization more responsible and
sustainable; enacting good com-
munication practices outside of the firm is equally important. In
the next section, we describe
how to engage stakeholders using dialogue.
Promoting Dialogue
Deciding and enforcing the appropriate type and scope of
communication within a corpora-
tion remains an age-old problem. Almost every culture, society,
and corporation has its own
norms for dealing with complex problems involving
stakeholders. Different norms and cus-
toms related to dialogue (verbal and nonverbal) reveal how each
community or subculture
develops an agreed-upon, culturally endorsed, and near
communal way of facing problems,
knowing evidence, and determining the best course of action.
The power of dialogue involves more than sharing information
already known to individu-
als; it is also about combining that information and using it to
view problems and solutions
in a different way. It means using the information—and even
the act of convening people—to
develop new and creative approaches. Ideally, dialogue handled

and facilitated well leads to
new, more creative, and better approaches than what any one
person could develop alone
(Hammond & Sanders, 2003). Dialogue is thus one major tool
for solving complex problems,
especially problems bigger than one individual.
The following case study illustrates the power of dialogue in
stakeholder relationships and
shows how keeping stakeholders informed—even when there is
bad news—can have long-
term positive effects on a company.
CSR and Sustainability in Action: The Environmental Problem
of Nike Air
When Tom Hartge was product manager in the running shoe
division of Nike
Incorporated, he focused the bulk of his early career on
perfecting the Nike Air product—
the lightweight plastic air pocket embedded in the heel of a
running shoe. He learned
that a German environmental group was singling out all
companies that used an
environmentally harmful chemical called sulfur hexafluoride, or
SF6. This was a problem
for Hartge, because the air pocket in the Nike running shoes
contained air and SF6. The
German group targeted Nike for using SF6 and accused it of
contributing to pollution.
Trying a new stakeholder approach, Nike chose to work side by
side with all stakeholders
to find a solution.
(continued)

CSR and Sustainability in Action: The Environmental Problem
of Nike Air (continued)
It took Nike years and millions of dollars to overcome the SF6
problem. The delay came
from the fact that SF6 kept shoes high performing and
lightweight, so the design team
did not want to compromise shoe performance (or economic
benefits from shoes sales)
by changing components. However, Nike showed it was open to
dialogue and learning
from a variety of stakeholders, and the company sought out
activist groups for advice.
During the research and development period, the team of
stakeholders continued to work
together despite many potentially derailing disagreements. Nike
was able to maintain
good relations with the stakeholder groups, in part because it
kept dialogue open about
efforts, procedures, and reasons for the delays. The stakeholders
could see the effort, if not
the results. Because of the trust established during the process,
the stakeholders worked
together and did not create bad press for Nike when deadlines
passed; relations remained
strong during the multiyear process.
In the end, Nike was able to develop a new technology that uses
nitrogen instead of SF6.

The solution involved a new technique called thermoforming.
Thermoforming produced a
tighter seal than the previous technique, so Nike could make a
pocket that could hold up
across a shoe’s entire surface (and be good for the
environment). The result was a new
product, the Air Max 360, a light shoe with higher performance.
The new technology led to
increased sales and manufacturing savings.
This case study illustrates the power of stakeholders to drive a
sustainability and CSR
agenda that can be good for the environment, customers, and
companies. In addition to
supporting the value of stakeholder dialogue, it illustrates how
sustainability and CSR
pressures can drive performance increases and financial
benefits.
Source: From “Nike Goes for the Green,” by S. Holmes, 2006
(http://www.bloomberg.com/bw/stories/2006-09-24/
nike-goes-for-the-green).
Dialogue Process
Dialogue forces managers to choose to whom they will listen
and to whom they will not. When-
ever a dialogue occurs, some voices, parts of the social network,
or members of stakeholder
group are invited into the room, while others are excluded
(either intentionally or uninten-
tionally). Thus, in setting up a formal dialogue, the leader or
manager must make choices.
Earlier we described stakeholder relationships and argued that
the best corporations have
an interactive relationship with stakeholders. But all
relationships require resources, time,
energy, and commitment to resolving issues. Deciding which

issues to face and which to put
aside is a critical decision for all managers.
Stakeholder analysis is an external process of identifying who
should be involved in the dia-
logue process. When managers and leaders choose which
stakeholders to include in the dia-
logue, they make a series of difficult decisions. They have to
select which issues to address.
They must decide who will be involved in the dialogue related
to that issue. They must decide
who is to be included in the discussion, what information will
be brought to the table, and
who will be excluded. During the dialogue process, they must
decide whose voice (of those
present) will be given weight and whose voice might be ignored
or not heard. Once managers
reach the implementation phase, they have to decide who will
be responsible for executing
collective decision. This means assigning action steps to
different groups. Finally, leaders and
managers have to decide who will be given resources to
implement solutions, and how much
to ask for or allow. This is particularly critical, as the allocation
of resources often determines
which parts of a solution succeed and which will not.
The following list summarizes the types of questions leaders

typically ask when they attempt
to bring stakeholders together. As you consider using dialogue
to work toward a more sustain-
able or socially responsible future, you can ask these questions
(or suggest your colleagues
ask them):
• Issue identification: What issues and concerns do we
address?
• Inclusion: Who is included in the dialogue about the
organization’s direction? Who is
excluded?
• Weight: Whose voice is given weight in the dialogue, and
whose voice is not heard?
• Implementation: Who is responsible for executing the
final decisions? Who is
excluded?
• Resources: Who is given access to resources to implement
solutions or take action?
Who is not?
• Benefit: Who benefits, and who does not? Why? Is this
what we want, or is this hap-
pening as a side effect of another choice?
Dialogue Versus Dialectic
Dialogue is such an important tool that it is worth better
understanding when and why it
works, as well as when and why it may not. True dialogic
communication does not assume a
right or wrong answer (although it can be difficult to remember
this during conversations in
which you have strong opinions). Rather, it refers to a process

where parties attempt to iden-
tify the best answer for the time and context with the
information available.
What is the difference between having dialogue and being
dialectic? Dialectic communication
is used for persuasion. It is used by professors in lectures,
politicians in debates, market-
ers in their appeal to purchase, and lawyers in courts or public
meetings. It is mandated in
some civic meetings where participants use formal and
mandated rules for speaking, voting,
and recording minutes. Dialectic communication processes
assume that two people arguing
opposing points will create truth somewhere in the middle. A
prosecutor and a defense or an
advocate and a detractor are dialectic roles that pit conservative
against liberal, left against
right, or one party against another. In dialectic communication,
there are winners and losers.
But in dialogic communication, participants are creative. They
find common ground and then
work to discover a solution that is mutually beneficial.
Dialogue that is undertaken in a formal and nondialectic way is
often called a peace-making,
innovation, strategic-planning, or community-engagement
process. All of these labels repre-
sent forms of dialogue that engage stakeholders in communal
knowledge and action.
Research suggests that successful dialogue must have the
following preconditions. First, the
group must be diverse along multiple dimensions so that
information reflects the complex-
ity of the problem and different views are considered. Diversity

drives dialogue because it
requires groups to find common ground before demanding
resources or imposing solutions.
Diversity must be cultivated and can include cultural,
organizational, social, and educational
dimensions. Ideally, the group must include people who
represent every subculture of key
stakeholders, as a microcosm of the organization. The group
must also include voices from
each of the organization’s strategic perspectives and levels, so
all parts of the organization
are represented. Administration, accounting, human resources,
line workers, sales, and so on
must all come to the table. In addition, to be successful, the
dialogue must include individuals
who are willing to be reflective and let go of strong cultural
identities in order to form group
cohesion. The group must also have a significant content issue
on which to work, one that is
compelling and engaging enough to be worth the time and effort
it takes to gather and work.
Finally, all parties in the dialogue need sufficient time to form a
new group identity, so that
the solution can stem from the new relationships rather than
from previous and less diverse
thinking (Hammond, Cissna, & Anderson, 2003).
Many people seek to avoid this kind of complex and intimate

problem solving, choosing a
more hierarchical and dialectic method instead. To promote
dialogue, avoid the following
behaviors:
• Equivocal language: Using jargon and language others do
not understand
• Information control/withholding: Keeping secrets
• Excessive self-disclosure: Flooding the room with
emotional needs and unnecessary
information
• Inadequate self-disclosure: Shocking people with details
or remaining cryptic
• Process imposition: Requiring others to unnecessarily
follow your communication
practices
• Process equivocation: Failing to clarify the dialogue
process
• Recontextualizing: Changing subjects so it is impossible
to focus on the key issue
The National Park Service uses a particular form of dialogue to
plan all park updates and
changes, and it is worth studying.
CSR and Sustainability in Action: Dialogue at the National
Park Service
In 1994 the National Park Service (NPS) conducted an
intentional dialogue for parties
to focus on reducing the amount of time it takes to plan national
parks. The first step
involved creating a data file of the stakeholders, who were
identified using a stakeholder

analysis tool. The dialogue included previous park organizers
and park superintendents.
Those not directly affected by the park-planning process were
also included so the NPS
could consider a diversity of voices and viewpoints. These
additional and more indirect
stakeholders included public officials and citizens from nearby
communities. It also
included several people who are passionate visitors to national
parks.
(continued)
CSR and Sustainability in Action: Dialogue at the National
Park Service (continued)
Once relevant stakeholders were identified, the group came
together and built a common
account of history. The group examined how parks had been
planned in the past, what
worked, and what did not. Each group member had a voice, and
the inclusive process
ensured that all parties contributed. Secondly, group members
created a list of issues
within the NPS, the U.S. Department of Agriculture, and the
federal government. In this
part of the dialogue, they expanded the problem and
perspective, and they examined
the regulatory environment facing the national parks. The team

also considered the
relationship between the parks and the federal government.
In the next section of the dialogue, group members looked at
which social groups used
the parks and which provided political and economic support.
Finally, they considered
what would be an ideal future park-planning process. The group
set standards for what
it wanted to accomplish through park planning and listed steps
toward the ideal future.
Some steps had not existed in the park-planning process before
the group formed.
The NPS example shows how parties in conversation can
discover things as a collective that
no individual could discover on his or her own. Indeed, the
ultimate objective of dialogue is
transcendence or innovation. Transcendence refers to the ability
to find new ways of doing
things. You may come to a conversation with your way in mind,
and another person may come
to the same conversation with his or her way; but dialogue,
when managed properly, provides
an opportunity for parties to find a third way.
Apply Your Knowledge: Stakeholder Analysis and
Dialogue Planning
Issue identification: Identify a key issue facing an organization.
It might be an issue
of environmental or social impact. Describe the issue from a
social and organizational
perspective.
Stakeholder analysis: List the market and nonmarket

stakeholders in the organization.
Create a stakeholder analysis using the stakeholder method
proposed in this chapter.
Design a dialogue: Create an invitation list for a dialogue. Who
should be involved in an
ongoing discussion about the issue? Who should be excluded,
and why?
Section 2.4Stakeholder Engagement and Ethics
2.4 Stakeholder Engagement and Ethics
Previous discussions reveal that when leaders and stakeholders
gather to solve problems
using dialogue, the first key issue revolves around who should
be part of the discussion. How-
ever, once the group is assembled and key questions and
assumptions are made using the
dialogue process, there remains one area to address: Leaders
need to be aware of their ethi-
cal orientation, problem-solving, and dialogic preferences. They
also need to be transparent
with others about these facts. With that in mind, this section
will discuss the role of ethics in
promoting CSR.
Business Ethics and CSR
Most professional standards or codes of conduct in business
stem from what are called nor-
mative ethics. These describe a standard of behavior that is
immovable and promotes a cer-

tain standard, without deviation. For example, speed limit signs
provide a specific number
that defines the boundary between legal speeds and illegal
speeds. Once passed into law, a
speed limit represents a normative statement—an immovable
standard about safe driving
speeds. Similarly, normative ethics dominate business
accounting practices, risk manage-
ment, operations, human resources, and many other aspects of
corporate organizational life.
Government regulations often set normative standards for
environmental impacts or tax
regulations. Such regulations essentially attempt to define and
prescribe the boundaries of
“normal” behavior.
For many years, business students studied ethics from a
normative perspective. They memo-
rized codes of conduct and regulations. What was legal was
considered ethical. Students were
not required to think about going beyond “normal” to proactive
ethical positions. With the
emergence of corporate social responsibility, however, came the
concomitant idea that not all
ethical issues can be anticipated. For example, once managers
consider more than sharehold-
ers who typically want high returns, they begin to consider less
predictable voices—such as
villagers who resist local development or families who demand
improved services. Leaders,
managers, and employees should be empowered to take
proactive anticipatory positions on
ethical matters. This fact often puts corporate citizens in a bind
because they have a duty to a
corporate community, a social community, and an
environmental community. The approach

to sustainability and CSR advocated here suggests that leaders
must find ways to comply with
norms to fulfill their duties and create the greatest good for the
greatest number of people.
Essentially, two major ethical traditions dominate the options
for any individual: deontologi-
cal and utilitarian.
Deontological Ethics
Leaders who operate under deontological ethics tend to focus on
roles and responsibilities.
A deontological ethic refers to a position that evaluates morality
based on the action’s adher-
ence to a rule. Such leaders want to follow the “right way” and
care deeply about what norms
are already in place. They ask who has responsibility to the
corporation, broader society, the
political system, and the environment. It is also likely that any
duty a corporate officer has
to these entities will at some point conflict with duties he or she
may feel to other entities.
The situation becomes more complicated when the demands of
various stakeholders come
into play.
In addition to a focus on duties, the deontological approach
prescribes a normative (or single)
approach to communicating between stakeholders, one that is
dialectic. It is conceivable, and
perhaps even common, for a deontological mind-set to result in

a strong centralized approach
that keeps corporate decisions within a particular group and
communicates dialectically to
other stakeholders about duties and responsibilities. At its
extreme, this kind of organization
resembles an old-style military hierarchy, wherein information
is rationed on a need-to-know
basis and resources are guarded.
Deontology can also be expressed in the opposite manner,
wherein a leader shares openly
with a variety of stakeholders. He or she will listen to their
input and make democratic deci-
sions using a dialogic process. In this kind of organization, a
deontologically minded leader
generally privileges ongoing work processes over outcomes or
deliverables and supports
stakeholders’ extensive involvement.
While the deontological mind-set offers one option for driving
engagement with stakehold-
ers, the other option is a utilitarian mind-set.
Utilitarian Ethics
When a mind-set of utilitarian ethics dominates, the focus
moves from duty and toward cre-
ating the best outcome for the most people. A utilitarian ethic
essentially evaluates the right-
ness or wrongness of an action by considering its consequences.
Utilitarian ethics suggest
that the ultimate goal should be to enable the greatest good for
the greatest number of people.
If the greatest number of people dwells inside the stakeholder
network, then satisfying those
needs is the most ethical course of action.

The dialogical approach to building a sustainable corporation is
most common among those
who support utilitarian ethics because in order to do the greatest
good for the greatest
number of people, one needs to understand the needs of others.
Utilitarian leaders tend
to argue that “being heard” is critical to good decision making.
At the core of the utilitar-
ian dialogic approach is inclusion, as more voices have more
potential to identify the solu-
tion that will serve the most people. As you might imagine, this
inclusion requires strong
meeting- management skills, as dialogue tends to become more
complex as the number of
participants rises.
Put in simple terms, in the deontological tradition of ethical
decision making, one would ask,
“Where is the highest duty?” In the utilitarian system, one
would ask, “Who receives the great-
est good?” As you consider how to lead stakeholder discussions,
you will need to consider
where you stand along the deontological–utilitarian continuum.
Or you need to find where
your leader stands, and you may want to speak up for a different
viewpoint to ensure that
diverse opinions emerge. Understanding the mind-set and
ethical bias of different stakehold-
ers allows people to run better meetings and find more ideal
solutions.
A basic discussion of ethical traditions introduces the value of
understanding what point of
view and mind-set a stakeholder has adopted. Understanding
how an ethical position informs
action helps leaders conduct a more inclusive and deliberate

dialogue. In addition, many peo-
ple justify and motivate CSR actions and sustainability choices
on ethical grounds; others
justify and motivate them using economic arguments. No leader
can engage in discussions
about CSR options without considering how his or her own
ethics and the ethical mind-sets of
Chapter Summary
every stakeholder do or do not overlap. Thus, the discussion of
ethical traditions is designed
to help you think through your own mind-set and provide
questions you can ask others—par-
ticularly when discussing CSR and sustainability.
Chapter Summary
This chapter began by defining corporate stakeholders and
looked at the many complicated
levels of power and influence various stakeholders have in and
around an organization. The
chapter described the difference between a shareholder and a
stakeholder and examined
market and nonmarket stakeholders. It also examined the
stakeholder networks as a form of
social networks and proposed dialogue as a communication
practice for managing many of
the complex problems that arise in a corporation. The final
section examined normative eth-
ics, duty-based or deontological ethics, and utilitarian ethics
and argued that future business

leaders who want to be socially responsible must anticipate
ethical issues if they are to build
a sustainable corporation.
Posttest
1. Innovation and the way information flows in a corporation is
known as the
environment.
a. consumer
b. competitor
c. technological
d. geophysical
2. A stakeholder analysis can provide .
a. a list of good contacts
b. an overview of critical issues
c. a clear view of power relationships
d. a starting point for helpful dialogue
3. The deontological approach to ethics suggests there are .
a. many right ways
b. one right way
c. a set of professional standards
d. reasons to make it up as you go
4. The relationship between the corporation and the community
is called the
environment.
a. consumer
b. social
c. legal
d. geophysical

Chapter Summary
5. Dialogue is a form of communication best suited to solve
which of the following
problems?
a. simple problems with many stakeholders
b. simple problems with few stakeholders
c. complex problems with many stakeholders
d. complex problems with no stakeholders
6. A person who understands all of the technical aspects of a
product and has unique
knowledge is a person with power.
a. referent
b. reward
c. expert
d. legitimate
7. A person who can punish team members when they do not do
their part has what
kind of power?
a. coercive
b. referent
c. reward
d. expert
8. The ethics of duty is .
a. utilitarian
b. deontological
c. dialogic
d. Kantian
Answers: 1(c); 2(c); 3(b); 4(b); 5(c); 6(c); 7(a); 8(b)

Critical-Thinking Questions
1. Make a list of all the market and nonmarket stakeholders in a
particular business or
educational institution. What types of power does each
stakeholder have? How can a
stakeholder’s power be used to influence the organization’s
decisions?
2. Draw a picture of your current social network then discuss
how it changes and
evolves. What forces cause your network to expand and
contract? Who are your
strong and weak ties? How can a strong tie become weak and a
weak tie become
strong?
3. What kind of power do you hold as a student? What kind of
power does the instructor
hold? What kind of power does a company’s information
technology director hold? Or
its CEO?
4. Identify times when duty-based ethics (or deontology)
conflicts with utilitarian ethics
(or the greatest good for the greatest number of people). With
which ethical view do
you most agree? Why?
Chapter Summary

5. Discuss whether dialogue is more difficult than dialectic
communication. What are
the advantages of dialogue in complex systems?
Additional Resources
Social network mapping software includes:
Hashkat, aka “#[email protected]”: http://hashkat.org/
AllegroGraph:
http://allegrograph.com/allegrograph/?gclid=Cj0KEQjwj7q6BR
DcxfG-
4pNTQ2NoBEiQAzUpuWxT9eT7D06Tlmi8_5HaDTWIMke-
DDxIWjRRKf6deyrYaApr-8P8
HAQ
Automap: http://www.casos.cs.cmu.edu/projects/automap/
EgoNet: https://sourceforge.net/projects/egonet/
NetMiner 4.2.2: http://www.netminer.com/main/main-read.do
NetworkX: https://networkx.github.io/
Social Network Visualizer: http://socnetv.sourceforge.net/
Learn more about utilitarianism:
http://www.utilitarianism.com/utilitarianism.html
Learn more about deontological ethics:
http://www.philosophybasics.com/branch_
deontology.html
Answers and Rejoinders to Chapter Pretest
1. False. There are many kinds of stakeholders. A shareholder is

just one kind of
stakeholder.
2. False. Social networks are dynamic, ever changing, and self-
organizing.
3. True. Dialectic is a two-sided argument, while dialogue is a
common exploration.
4. False. This particular phrase represents the guiding
philosophy behind utilitarian
ethics, not deontological ethics.
Rejoinders to Posttest
1. The technological environment is defined by information
flow and the need for and
the role of innovation.
2. The stakeholder analysis is an essential way to see power
relationships.
3. The deontological ethic is normative and suggests one right
way.
4. The social environment includes the cultural and social
trends present in the com-
munities in which the corporation does business, and it connects
the corporation
with the community.
5. Dialogue is best suited to address complex problems that
require creativity and have
many stakeholders.

Chapter Summary
6. Expert power is defined as specialized knowledge that is
uniquely held.
7. Coercive power is the power to punish or threaten.
8. Deontology is the ethics of duty.
Key Terms
coercive power Power that comes from
the ability to create fear, punish, or remove
resources.
deontological ethics The ethics of duty
usually associated with professional norms.
expert power Power that comes with a per-
son’s superior judgment, skill, or knowledge.
legitimate power Formal authority granted
to people in organizations based on their
position or role.
market stakeholders Those who have a
direct financial interest in the corporation,
such as a shareholder or an employee.
nonmarket stakeholders Those who lack
a direct financial interest in the corporation
but who might be impacted by corporate
actions.
normative ethics A standard of behavior
that is immovable and promotes a certain
ideal without deviation.

referent power Power that comes from
having people with influence in one’s social
network.
reward power Power that comes from the
ability to give resources.
social network The web of social con-
nections between individuals and between
individuals and the corporation.
shareholders (or stockholders) Those
who have paid money to have partial owner-
ship of a company.
stakeholder analysis A process that identi-
fies the vested interests in a given business
issue.
stakeholders People and firms with a
vested interest in a corporation.
stakeholder theory The operational
concept that there are many types of people
who are vested in the corporation, and in
many ways.
utilitarian ethics A code that stresses the
importance of doing the greatest good for
the greatest number of people.

1 Social Responsibility and Sustainability: Similarities and
Differences
Joyt/iStock Editorial/Thinkstock
Learning Objectives
After reading this chapter, you should be able to:
1. Define corporate social responsibility and sustainable
business and describe how these relate to the
triple bottom line.
2. Analyze systems theory and complexity theory and discuss
how both relate to sustainability.
3. Describe how continuous improvement can promote
sustainability.
4. Evaluate the types of waste that reduce financial viability or
increase social and economic impact.
5. Summarize the elements of sustainable business practices.
Section 1.1Corporate Social Responsibility and Sustainability
Pretest Questions
1. The financial bottom line is the only element that determines

a business’s
sustainability. T/F
2. Inputs, throughputs, and outputs represent the three elements
of a system. T/F
3. Continuous improvement applies to individual performance
only. T/F
4. Waste, in its many forms, damages the bottom line but does
not impact a business’s
sustainability. T/F
5. Sustainable businesses have a higher capacity for change. T/F
Answers can be found at the end of the chapter.
Introduction
This book advocates a better way to do business, build
organizations, and benefit society.
We argue for a holistic and sustainable approach to business
because we believe business is
not, nor can it be, disconnected from society, communities, the
environment, government, or
individuals. This chapter lays the foundation for this
perspective by introducing the idea of
socially responsible and sustainable firms and by describing a
leadership mind-set for both.
The sustainability mind-set described here moves leaders from a
reactive stance to a proac-
tive one. When they adopt such a mind-set, leaders move away
from reacting to consum-
ers, trends, and activists and toward being proactive and
strategic about the opportunities
and interconnections in business. The sustainability mind-set
also helps guide leaders and
managers regarding when, why, and how to enact socially
responsible behaviors. We intro-

duce foundational theories that support a social responsibility
and sustainability perspec-
tive. General theories such as complexity theory and systems
theory, among others, provide
the background for lean management and continuous
improvement, practices that reduce
waste and open opportunities for innovation. Thus, this book
alternates between (a) sharing
the theoretical and historical underpinnings of key
sustainability ideas and (b) sharing best
practices and examples from a wide range of industries. The
first task, however, requires us
to further define and characterize the ideals of corporate social
responsibility and corporate
sustainability.
1.1 Corporate Social Responsibility and Sustainability
Defining the relationship between the means of production
(business) and society (employ-
ees, customers, suppliers) has a long history, one that has
usually featured discussions about
the purpose of business. Historical musings about modern
capitalism usually included
attempts to understand the proper role of business in society and
thus formed the foundation
for modern discussions of corporate citizenship, which is a
loose term used to describe the
relationship between a corporation and its society (Barkemeyer,
Holt, Figge, & Napolitano,
2009). The following section defines these concepts and covers
the evolution of key terms.

Defining Corporate Social Responsibility and Sustainability
Corporate social responsibility (CSR) refers to voluntary
actions taken by firms that are
designed to improve social or environmental conditions
(Mackey, Mackey, & Barney, 2007;
McWilliams & Siegel, 2001). More specifically, CSR refers to
the “continuing commitment by
business to contribute to economic development while
improving the quality of life of the
workforce and their families, as well as of the community and
society at large” (as quoted
in World Business Council on Sustainable Development, 2015).
Originally, the CSR para-
digm simply reflected the fact that some corporations were
aware of their immediate busi-
ness context and generous only to the people within that context
(primarily employees and
customers).
Most heavily discussed by business leaders and consumers in
the 1970s, early CSR efforts
primarily focused on compliance with legal commitments to
shareholders or appeasing and
supporting local communities—the earliest efforts and
discussion of CSR largely focused on
corporate philanthropy and workers’ rights. Early CSR by the
Dow Chemical Company, for
example, included donations to the local museum and
sponsoring flower gardens along the
main streets in the headquarter’s town of Midland, Michigan.
CSR at Dow today is a much
more comprehensive practice that includes innovation and
decisions that pertain to new

product development.
Since the 1970s CSR has expanded to focus less on compliance,
philanthropy, and donations
and has become a more strategic, inclusive, and global concept.
Accordingly, the topic has
moved from being discussed primarily in ethical terms to both
ethical and strategic ones;
the word sustainability now also accompanies or replaces the
term CSR in some discus-
sions (Jones Christensen, Peirce, Hartman, Hoffman, & Carrier,
2007). Business sustain-
ability refers to how an enterprise manages the triple bottom
line—a process by which
companies manage financial, social, and environmental risks,
obligations, and opportuni-
ties (often referred to as profits, people, and planet)
(“Definition,” 2015). This definition of
sustainability is partially rooted in the environmental movement
and implies that in order
to increase sustainability, a corporation must reduce its negative
environmental and social
impacts and increase its stewardship of resources. Thus, for
some, sustainability includes
CSR behaviors while also extending and building on historically
CSR activities. This book
advocates the idea that corporate sustainability includes typical
CSR activities and adds
more strategic environmental and social elements to the
concept. Authors writing for the
Harvard Business Review suggest that sustainable business
practices can be the norm in the
future. Chouinard and colleagues (2011) say, “Instead of asking
either ‘how can we turn a
profit?’ or ‘how can we minimize impact?’ managers [of the
future] will see those as two

sides of the same coin. Sustainability will simply be how
business is done” (para. 6). This
book attempts to capture both what it means to be socially
responsible and sustainable and
how to achieve such results.
The choices made by Merck & Co.’s management—from
philanthropy to drug development
and then in-kind donations for low-income communities—
provide an example of a firm that
has run a solid and effective CSR and sustainability campaign.
CSR and Sustainability in Action: Merck & Co.
In 1668 Jacob Friedrich Merck purchased a drugstore in
Darmstadt, Germany, and his
family operated it for several generations. In 1891, when
George Merck immigrated to the
United States, he established Merck & Co. (now Merck & Co.,
Inc.) in New Jersey. Today
Merck is one of the world’s seven largest pharmaceutical
companies. It is also a generous
one. The Merck Foundation, which is funded by the corporation,
gives away as much as
$500 million in products, services, and cash every year.
Merck’s research and development has led the U.S. Food and
Drug Administration to
approve more of its drugs than any other company (Merck &

Co., 2015). These include
groundbreaking drugs that help treat diabetes, high cholesterol,
autoimmune disorders
such as arthritis, and cancer. Merck scientist Maurice Hilleman
developed the first
vaccines for mumps, rubella, and chicken pox. Merck scientists
also developed the first
statin class drug and the first effective treatment for
tuberculosis.
In 1987 Merck & Co. partnered with the United Nations (UN) to
develop a drug to donate to
those who suffered from river blindness in Africa. Estimates
suggest that at that time, the
cost of developing such a drug averaged 12 years and $200
million (Hanson, & Weiss, 1991).
The decision to support drug development when the firm might
never recoup the costs was
a major one that Merck executives ultimately supported. There
are now regions in which
river blindness has been eradicated, in large part because of the
financial and social support
from Merck. Merck’s actions continue to be widely known and
publicly commended.
The reputational benefits and free marketing Merck has received
from its charitable actions
has helped it in social and financial ways equal to or beyond
what it could have gained by
taking a for-profit approach. This book addresses how to
identify, evaluate, and intelligently
lead firms to make such choices. More importantly, it is about
how to think beyond narrow
philanthropy-only versions of social responsibility and toward
the wider and strategic goal of
corporate sustainability. This first chapter sets the stage for this

goal, while the final chapter
(Chapter 10) expands on a series of challenges that future
leaders face in building sustain-
able and socially responsible corporations. By the time readers
reach Chapter 10, such goals
should seem both understandable and attainable.
Sustainability: Long-Term Accountability
The definition of sustainability has its roots in environmental
science and has since been inte-
grated into economics and business. In the language of business,
a sustainable corporation miti-
gates harm and increases social and environmental good over
the long term while remaining
profitable and providing valued products and jobs. At a
minimum such a corporation does not
harm the social or ecological environment, nor does it deplete
national or human resources. All
of these activities explicitly support long-term viability
(McWilliams & Siegel, 2001).
One of the most widely applied definitions of sustainable
development in business comes from
a 1987 document that grew out of the UN-mandated World
Commission on Environment and
Development, which set up a diverse group to define sustainable
development. Headed by the
former prime minister of Norway, Gro Harlem Brundtland, the
results took years to achieve

and were published in a report called Our Common Future. This
document came to be called
the “Brundtland Report” or the “Brundtland definition” (even
though the entire commission
worked to achieve it) and included the following key text:
The environment is where we live; and development is what we
do in attempt-
ing to improve our lot within that abode. The two are
inseparable. Sustain-
able development meets the needs of the present without
compromising the
ability of future generations to meet their own needs. (World
Commission on
Environment and Development, 1987, Part I)
The establishment of this definition became a landmark event
for sustainable development.
It was notable because it took a long-term view in its mention
of future generations. It also
stood out at a time when the majority of the business
community was operating under a very
short-term and isolationist or nationalist mind-set. With its
focus on long-term accountabil-
ity to future generations, it gave policy makers, businesspeople,
and governments a starting
point from which to evaluate actions and choices. Over time,
the definition was honored for
these accomplishments but also criticized for mentioning
“needs,” as needs are hard to define
and harder still to agree upon for large numbers of people.
Despite that issue, this definition
of sustainability continues to dominate the literature and
popular press on the topic.

Interface Carpet represents an early example of how a business
used sustainability principles
to become innovative and profitable while attempting to restore
society and the environment.
Ray Anderson, the company’s founder, admits that for the
company’s first 30 years of opera-
tion he focused solely on profits. He did not consider his own
consumption of raw materials
as impacting the environment or future generations. As
Anderson learned more about the
relationship between ecology and commerce, he pushed the firm
to take responsibility for its
products, from the extraction of raw materials to the disposal of
used product.
CSR and Sustainability in Action: Interface Carpet, Part 1
In 1973 Ray Anderson founded Interface Carpet to provide
modular floor coverings
to corporate and institutional clients. He ultimately built a
billion-dollar company, but
in 1994 Anderson realized the company lacked an
environmental policy. As Anderson
worked to create one, he was inspired by Paul Hawken’s book,
The Ecology of Commerce.
It discusses many principles, but especially how to reframe
business toward a goal of zero
waste (Anderson, 1998).
Anderson was distressed to learn that it took 800 million pounds
of nonrenewable
material extracted from the earth to generate $802 million of
product (Anderson, 1998).
Inspired by Hawken, he felt that business and industry were the
only institutions large
and powerful enough to lead society out of the environmental

problems that industry had
helped cause. Anderson decided to immediately change how he
ran his business.
Interface Carpet maintained or improved market strength while
also investing in
renewable energy, recycling aggressively, and empowering all
employees to drive
change and create products that are safe for them to handle and
for consumers to use.
Interface Carpet now benefits its local community, broader
society, the environment, and
shareholders as a normal part of running its business.
Given sustainability’s high potential value to firms and society,
how can it be developed, mea-
sured, and turned into a business goal? What trade-offs must be
considered to keep it from
being unattainable in the short term? The next section attempts
to answer these questions
by describing a form of accountability and a classification of
measurements (the triple bot-
tom line) that allows users to describe and discuss how an
organization progresses toward
sustainability.
More Than One Bottom Line
A simple way to identify a sustainable business is to determine
whether it formally accounts

for (or even considers) a “double or triple bottom line.” This
phrase builds on the concept of
the single bottom line—the term for financial profit. The idea of
a triple bottom line refer-
ences an analysis or accounting tool that evaluates
environmental costs (or liabilities) and
benefits (or assets) along with the costs and benefits of social
and financial decisions.. If a
firm considers two of the three categories, it uses double bottom
line thinking; when a firm
considers all three categories, it serves and measures the triple
bottom line. Some groups
refer to these categories as the Three Ps: profit, people, and
planet.
The Economic Bottom Line: Profit
A basic economic truth about business implies that without
some form of outside subsidy
or similar intervention, companies need a steady financial profit
or they ultimately cease to
exist. When the cost of running the business exceeds the firm’s
financial profit, it must seek a
subsidy or stop operating. Financial profits pay salaries; support
research and development;
fund investments in property, supplies, and equipment;
contribute to the tax base; and other-
wise drive operations. In standard accounting practice, financial
results enable comparisons
to be made between firms, which offer investors and other
stakeholders clear signals about
viability and value. For many, the financial bottom line
represents the most basic type of sus-
tainability—the kind where the company is “sustained” to
operate and thus able to provide
employees and communities with jobs and products. Without
profits, there is no business.

The argument for additional types of bottom lines stems from
the belief that money is just
one type of resource needed to run a firm; however, firms may
operate better, last longer,
and innovate more if management also considers and calculates
human and environmental
resources.
The Social Bottom Line: People
Organizations differ widely in how they treat employees,
customers, suppliers, and even com-
petitors. The term human resources typically describes an
organizational department that
handles employee-related issues such as hiring, firing,
promotion, health and wellness, ben-
efits, and legal rights. The very term for describing the
department implies that people are
a resource, just like money. Organizational managers with
advanced human resource prac-
tices signal to workers and future employees—as well as the
community—that the company
invests in the very people who sustain the business.
Organizations where management pur-
posefully supports, nurtures, and protects employees often do so
as an expression of CSR. The
underlying logic and motivation can run from ethics (valuing
people is the right thing to do)
to finances. When employees are happy, secure, and healthy,

there is less turnover, higher pro-
ductivity, and fewer training and replacement costs (Weber,
2008). Whatever the motivation
behind pro-people behaviors, the outcomes remain similar:
higher retention rates, higher
satisfaction rates, fewer errors, lower health care costs, and
other related savings and bene-
fits. Cutting-edge CSR and sustainability practices go beyond
employees to include suppliers,
community members, government, and others (Weber, 2008).
A sustainable firm may also take a long-term approach to
developing people inside and out-
side the company. Managers in such a company may give
employees growth and promotion
opportunities, focus on diversity and inclusion, or take an
expansive view of work–life bal-
ance. Such managers also tend to create an environment where
innovation is rewarded, as
innovation by definition moves everyone forward. Part of
supporting innovation relates to
remaining loyal to people when they experiment; it also means
giving people the resources
and freedom to develop ideas, build prototypes, and test the
final product. Merck & Co. offers
one example of how investing in employees by providing
resources and support for innova-
tion can result in social benefits (more health) and corporate
benefits (more profits) (“Key
facts,” 2015).
Investments in people are often called social investments, which
can take the form of money
spent on training, fair or above-market wages, motivational
programs, benefits packages, and
more. Social investments not only acknowledge that employees

make a valuable contribution,
they also highlight the value of the lives of people outside the
company. An excellent example
of this is the mission statement (purposefully called a “credo”)
of Johnson & Johnson, a drug
and consumer products company similar to Merck in some
product categories. Johnson &
Johnson’s credo highlights its priorities. The first line reads:
“We believe our first responsibil-
ity is to the doctors, nurses and patients, to the mothers and
fathers, and all others who use our
products and services” (Johnson & Johnson, 2016).
This important statement guides corporate leaders and
employees in their daily decision
making because it tells them to put the user of the product first,
not the owner of the com-
pany or its shareholders. Such a clear sense of focus can help
decision making and priority
setting, and it likely plays a large role in Johnson & Johnson’s
success since the 1860s. That
said, Johnson & Johnson’s credo does not ignore the business
aspects of the pharmaceutical
enterprise. Its credo says later in the first paragraph: “Our
suppliers and distributors must
have an opportunity to make a fair profit.” The second
paragraph states that the employees
must have a “sense of security in their jobs” (Johnson &
Johnson, 2016).
This last point is evident in Johnson & Johnson’s on-site career
center. There employees who
leave the company can take advantage of the career center’s
resources. Johnson & Johnson
employees have a right to access the career center for the rest of
their professional lives.

While commitment to employees is a common CSR practice, a
lifelong commitment is more
unusual and sets an example for others to model and adapt.
Benefits from such practices
include employee loyalty, improved rankings as preferred places
of employment, reputational
benefits that enhance recruiting opportunities (Weber, 2008),
and other benefits discussed
in future chapters.
Section 1.2Theories Related to Sustainability
The Environmental Bottom Line: Planet
The final bottom line involves measuring the costs and benefits
of environmental elements
used by the firm. At its most basic, this metric simply means
calculating and understanding
the cost of physical waste or the cost and extent of pollution. At
its most complex, such a
metric means attempting to account for the cost of clean/dirty
air, clean/dirty water, sourc-
ing materials, and the waste that occurs because of a product.
Regarding the most basic level,
most companies do not want to be viewed as polluters. Most
don’t want to pollute, but some
industries inherently operate with more blatant pollution and
environmental disruption. For
example, mining companies by definition dig and disrupt the
earth. The work results in waste
streams that may have some level of toxicity. Pulp and paper
firms and those in the lumber

industry must harvest trees and alter the natural landscape (even
on company property).
Firms in the extractive industry have long received public
attention because mining is danger-
ous and results in obvious pollution. However, there remain
many other and less obvious ways
to consider the environmental impacts of operating a business.
The Environmental Defense
Fund (EDF) reports that 1 in 3 Fortune 500 companies uses
interns and advisors from the
EDF to help reduce their corporate carbon footprint (EDF,
2015). Such support results in sim-
ple initiatives such as carpooling or allowing “work from home
days” to reduce air pollution
generated by employees, as well as more complex initiatives
related to changing packaging
material, altering chemical composition of products, relocating
factories, and so on.
Companies that adopt a CSR and sustainability mind-set no
longer see themselves as iso-
lated in the market or society, or outside of environmental
concerns. They see themselves as
part of the larger system. This mind-set may stem from the
increased global connectivity that
has developed over the past 20 years, as well as from an
increased appreciation for systems
theory concepts, which have been refined and expanded over the
past 60 years. The following
sections introduce systems theory and complexity theory and
examine the impacts of both on
the CSR and sustainability movement.
1.2 Theories Related to Sustainability
The newer approach to CSR takes a systems theory perspective,
which means that respon-

sibility is related to interconnectedness and includes a wide
range of actors. By discussing
theories that underpin CSR and sustainability, this book moves
from describing the goals of
CSR to describing tactics for achieving them.
Before detailing the benefits of building a sustainable business
or organization, or how sus-
tainability feeds and motivates CSR, we discuss the roots of
some CSR and sustainability ideas.
Most great ideas emerge dependently, with roots in other
disciplines. Similarly, many believe
that corporate sustainability stems from a mind-set called
systems theory.
Systems Theory: A Foundation for CSR and Sustainability
Systems theory or general systems theory operates on the
fundamental idea that all
phenomena exist as a network of relationships among elements
in a system. Also, all sys-
tems, whether social or biological, have common patterns.
These theories therefore involve
Section 1.2Theories Related to Sustainability
identifying and considering connections between different
groups, such as ecological sys-
tems, social systems, and biological systems. Elements of
systems theory relate to classical
philosophy. Today biologist Ludwig von Bertalanffy is probably
the best and most noted sys-

tems theorist. He published Perspectives on General Systems
Theory in 1975. In it, he argues
that all systems share certain characteristics. Common elements
include inputs (such as raw
material), throughputs (such as shaping the raw material), and
outputs (a final product ready
to be sold). A system can be defined by what it takes in, what it
changes, and what it puts out.
For example, a lumber company takes in rough-cut trees (input);
then employees dry, saw,
and plane the wood (process); after these processes, the firm
offers a final product in the form
of lumber (output). For a less tangible example, consider a
communication system. There are
inputs (words and signals); throughputs (listening to or
recording the words and signals);
and outputs (additional words and signals that are ideally
related to and link with the inputs).
As mentioned, systems theory operates on the fundamental idea
that all phenomena have a
network of relationships with common patterns. The notion of
patterns leads us to the sec-
ond set of ideas in the family of systems theory that we call
complexity theory. While the
ideas seem closely related to biology and life sciences, business
advisors such as Peter Senge
(1990) and Margaret Wheatley (1992) have written a great deal
about the importance of sys-
tems theory in business thinking and planning. To understand
the relationship, we first need
to describe complexity theory.
Complexity Theory: Another Precursor to Sustainability
Complexity theory refers to a general theory of systems that
describes how corporations,

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