All businesses are about relationship-building. Butchers, say, depend on it. As in: “I’ve some nice sirloin today. A bone for the dog?” One pitch of modern PR is to say that we manage the relationships other people can’t reach – or don’t spot. And indeed we are right to stress that nowadays, reputational risk is everywhere: your suppliers can let you down as easily as your managers. So, yes, PR is about a clients’ 360-degree reputational risk. We have to look at our clients’ relationship risk and its way upstream, way downstream – and all around. To some extent, we can fix those relationships, or find people who can.

But I think we’re starting to go too far, as though PRs were uniquely suited to giving a sort of therapy, or a laying-on of hands. We are at risk of not spotting that messages and influencing behaviour remain our core business.

Here’s an example from a popular blog and thought leader of the muddle PRs are currently in:

“Communicating (communications departments typically engage in: talking) is not a particularly useful skill. Relating is. Maybe it’s time to reclaim the words “public relations” and, more importantly, the philosophical principles that underpin those words. (Paul Holmes’s blog here)

Of course, I accept that our trade is public relations. But I insist that the essence of that remains preparing and communicating messages. We improve people’s relationships by ensuring they understand the value of developing their messages carefully, getting them out, and living up to them.

That means we are like diplomats, journalists and yes (blimey) philosophers. And we do indeed go further: we remind our clients, over and over, that good messages produce their own weakness and risk; we remind them that they have to walk the talk. A stated aspiration is a hostage to fortune, a challenge to our critics (stakeholders, indeed!).

You can have all the relationships you like with the media, with one’s neighbours, with one’s customers, with the NGOs, and when you don’t deliver the reality you’ve told them to expect, they’ll still all pile in on you with gay abandon and crocodile tears.

So of course, we PRs build relationships. But relationships are no sort of insurance or guarantee. They may not even be the best sort of investment. What you need is good behaviour, solidly communicated.

I’m trying to get it across that winning friends is not the necessary or sufficient condition of influencing people. The relationship of trust (which PRs may well want between themselves and their clients and the rest of the world, that great Other) is not the same as or even like the relationship of, say, friendship or affection. Reputations are about more than relationships.

Perhaps I can put it this way: I often trust people or institutions I don’t know and don’t like. I don’t have a relationship with judges, the police, firefighters, the surgeons in my local hospital, the drivers of Shell’s road tankers. I don’t want one either. I just want to be able to trust them.

By the way, new media don’t change any of this much. The people who twitter and blog may believe they are a new social entity, and PRs may believe that this new sociology requires a new sort of relationship-building. Like Harold Burson here, I doubt it.

Much was made of the new relationship Obama had forged with the American people in the new ether. Yeah, well, maybe. Right now, he seems to have gone on to hack off the floating, middling, uncommitted American centre ground. Will he get the enthused kids back? Has he got an ongoing, er, relationship with them? We’ll see. It looks to me that in important measure, what he surfed was a wave of enthusiasm, and it may have broken on the shore in a trillion sparkling droplets. His vast virtual Rollodex may develop into a relationship, but we can’t know yet because a relationship is a thing which gets a history or it isn’t anything.

Moreover, we’ve always known that the best PR is heard and not seen. That means that PR has mostly an indirect relationship to its target audiences – through the media, through third-party opinion formers and other influencers (advocates) whether that’s online or off, through the media or by other means.

PR’s hand is even more remote when, as Edward Bernays showed us with his “Torches for Freedom”, it manufactures consent by engineering events that help create a new social consensus or climate of opinion.

So I come back to the importance of asking the question, relationships with whom? Of course, most institutions and firms want good relationships with clients, opinion-formers, hacks, enemies, politicians stakeholders, neighbours and everybody else.

But, actually, most of those audiences don’t have time to have a relationship with you. What most audiences require is the right message, at the right moment via the right channel. Most of the people who determine what reputation you acquire (reputations are conferred by others) will respond positively (or dangerously). They won’t do so because they’ve been nurtured directly by PRs.

For advocacy to work, of course, people need to be persuaded to think a certain thing. Hence, it makes sense for PRs to engineer a genuine invitation to accept and meet informed challenge by the target audience – but very often still without engaging directly as the PR team – for anything controversial or requiring consent or acceptance by various stakeholders (new runways, licences to operate etc.).

Of course there are exceptions. Those are strategic and tactical considerations (Ryanair doesn’t talk to PlaneStupid, but many firms talk to Greenpeace, but some won’t talk to either and some talk to both).

There’s no love in war, competition, public opinion and the media, so why bother to be loved or liked? Being understood and trusted should be enough. That means putting integrity, truthfulness, evidence and authenticity at the heart of communication.

Note: this was first posted in 2009.

No related pages.

Here’s what Mr Blatter had to say at a press conference yesterday to his critics who were calling for his re-election to be delayed:

“Football is not in a crisis, only some difficulties… If governments try to intervene then something is wrong. I think Fifa is strong enough that we can deal with our problems inside Fifa… If you see the final match of the Champions League you must applaud… We are not in a crisis. We are only in some difficulties and these will be solved inside our family.

“The executive committee of Fifa was very pleased to receive the report of the FA regarding the allegations made by Lord Triesman at the House of Commons… We were happy that we can confirm there are no elements in this report which would even prompt any proceedings.

“If somebody wants to change something in the election or in the congress of Wednesday, these are the members of Fifa… This cannot be done by the executive committee, it cannot be done by any authorities outside of Fifa – it’s only the congress itself that can do it. Congress will decide if I am a valid or non-valid candidate.”

Spoken like the bold realist and constitutionalist. Very good “stag-at-bay” stuff. I also thought Mr Blatter was brilliant to say that he wanted to sort out governance - especially on the pitch, and then in his committees. First things first, he implied.

I know: he clearly lost his rag at yesterday’s press conference. He’s an old-style Swiss apparatchik. He is sometimes prone to control-freakish outbursts when faced by a hostile crowd. His PR advisers need to drill in to him that he must keep hold of his statesman-like mask in such situations. But, overall,  it was a very good performance.

His down-to-earth frankness was admirably refreshing. He made it crystal clear that he is, at bottom, accountable to his members (call them his core stakeholders). They have procedures and methods, which he is following, for handling elections of FIFA officials. Only his members, not the media or British prime ministers or the English FA, can unseat him or set the agenda.

Mr Blatter was surely right to say that he dealt with the executive committee members the world’s countries sent him. It was, however, a politically risky remark for him to make. In an ideal world, it was a statement of truth that would have been better coming from someone else. But it wasn’t an ideal world for Mr Blatter yesterday, and I guess he couldn’t hold himself back.

The really good news is that for once the media have not re-set the main agenda; they have not been allowed to take control. Indeed, my beloved British media lacked grace and wisdom perhaps especially because they realized that they were going to lose this battle against him. They behaved liked spoiled rats robbed of a feast. I say they are in denial about the realities of the game. Anyway, it was nice, solid stuff, a glimpse behind the mask.

The truth is that football’s reputation (here I mean its popularity) does not depend on FIFA’s reputation (here I mean its squeaky-clean image) so much as on FIFA’s competence to manage big events and the game’s general affairs. The fact is that FIFA does a good job of managing both.

It is the product that’s FIFA delivers that is loved, not FIFA. And, yes, like the referee FIFA sometimes unavoidably becomes the center of attention and that’s tough.

But in the eyes of the fans, the owners of football clubs and the game’s administrators are a necessary evil. The UK has many club owners who could be considered dodgy, but their money and enthusiasm are more than welcome in the game. Anyway, our English FA hardly sets a shining example of competence that would give it any moral authority over FIFA – see here here and here.

As for sponsors such as Adidas and Coca-Cola, they are not dumb. Sponsors know all about football’s quirks. There have been no surprises. Their recent tut-tutting to journalists is humbug. It will come to nothing because the likes of Coca-Cola and Emirates need the game as much as it needs them.

Of course there may well be a case for reform. Like the EU, the UN, the Olympics and other international bodies, FIFA is a candidate for corruption and for pork barrel politics. Corruption and manoeuvres are always a risk with federal systems where the periphery sends representatives to the centre. Corruption also thrives in situations in which big money, power and reputations are at stake but where there is little scrutiny.

FIFA has a major hand in how a big pot of money is spent and where it is spent. Naturally, FIFA has many supplicants. And, yes, there’s been poor oversight by media and member countries over many years.

It is also true that the British media, which are now screaming loudest at Mr Blatter, are always more agressive than any other when they smell a story. They have a courageous history of tracking down malfeasance in their own abrupt, sometimes rude manner. They are rightly feared by plenty of international bodies which are used to a complacent press.

Still, and contrary to what the British and other media say, Mr Blatter may be exactly the man to put FIFA right, provided he understands how to get the Corporate Governance and scrutiny right in future. Of course, I’m presupposing that he is good at this job, but my gut says he is. He probably knows where the bodies are buried. Besides: one was hardly ecstatic about the main rival candidate, Qatar’s Mohamed Bin Hammam.

I don’t say he’ll make either FIFA or himself lovely or loved, but they may both survive and do pretty good work.

Here’s my parting message:

Are you listening CEOs and PR gurus in crisis-hit organisations? Mr Blatter has shown you all how to come out fighting and win by sticking up for reality and by repelling media freeloaders from taking control of his ship. He won’t be bullied no matter how big the headlines get decrying him and his organisation.

The lesson from this struggle is that firms and institutions don’t have to let the media take control of the agenda during a crisis…. all it takes to win is some PR nous and some balls.

No related pages.

When I launched this site in October 2009, my Big Idea was that PR was getting less honest as it got more goody-goody and bossy. I argued that it had fallen in love with the Corporate Social Responsibility model that it was selling to its customers. One big problem was that PRs started to pretend they could serve two masters, or even dozens. They could serve their client, and Society, and any “stakeholders” who came along.

A few years down the line, my book will explore the origins of PR in Classical Greece and elsewhere. I’m going to trace our trade from ancient to the modern times, when it became a pseudo-academic study like journalism. I’m going to thrash out whether PR is a trade or a profession, or both at different times. The kind of issue I’m interested in is this: are PRs like lawyers who are supposed to take any client but play by certain rules and are kept honest by adversaries? Or are we obliged to pick our clients carefully? If so, how dirty can we fight?

This site will trail some of my thinking as it emerges. As usual, I’m hoping that my readers will hold my feet to the fire and improve the way I think.

No related pages.

Sandbu, economics leader writer at the Financial Times, explains:

“…decisions that transform and create economic value affect people’s lives. That makes them morally significant in many ways, the most obvious being how they determine whom the business activities enrich and whether they make people worse off in the process.” Page 16

Sandbu says Kant’s relevance as a philosopher rests on the stress he places on the intuitive primacy to moral thinking of universality and autonomous rational (informed) decision making:

“Rational autonomy, then–the will freely directed by reason–is the fundamental moral value: It is what moral action is and it is what freedom is. Acting against morality is to act against reason and, therefore, to be unfree, in thrall to one’s [or somebody else's] inclinations [manipulation].” Page 149

What is most useful about Kant’s thinking and Just Business‘s contribution is that they provide methodologies for thinking through business ethics. They also provide useful insights into how to develop PR strategies.

In essence, Sandbu argues that firms should align their moral values in the Kantian Enlightenment tradition, which says that people and institutions:

“Act in such a way that you treat humanity, whether in your own person or in the person of any other, always at the same time as end and never merely a means.” Page 149, quoting Kant

In defence of the great philosopher’s real-world relevance, Sandbu clarifies that:

“We should emphasize the ‘merely’. Kant does not say you may never treat someone else as instrumental to your own goals; that would rule out most business and, indeed, a lot of other innocent non-business human interaction.” Page 151

What Sandbu is saying is that if business, or any institution, wants to obtain consent for its activities – which is the licence to operate PRs seek to ensure – then it needs to be able to morally justify how it behaves. The key to success lies in being able to demonstrate that any other rational person in a similar position would have made similar choices. The premise is that whenever somebody’s pursuit of self interest is being restricted it can be justified if it can be shown:

“…that he would himself accept the principle that requires the limitation, if he did not seek to make an exception for himself. Similarly, whenever the social contract theory permits someone to pursue his self-interest in ways that harm the interests of others, it justifies this to them by showing that they themselves would have endorsed the principle permitting the conduct in question had they thought they had an equal chance to be in a position to benefit from doing the same.” Pages 179/180

This draws on the famous position of the social contract theoretician John Rawls: one should act in a way which creates a situation one wouldn’t mind being parachuted into. It is also like the position adopted by many global enterprises: they should behave in the worst-regulated countries much as they would in the best-regulated:

“It also provides a systematic approach to partial compliance theory, which deals with the moral rules governing how to behave when others violate morality (as opposed to the ideal compliance theory, which deals with the right thing to do provided everyone complies with the rules.” Page 196

This approach acknowledges that everybody has pre-determined objectives of some sort. Its practical value is that it helps us work out what business, or indeed any client, ought to do when faced with moral dilemmas.

Kant’s methodology helps us speak honestly and directly about difficult issues such as corporate social responsibility or worker and workplace-based rights:

We can [using Kant's philosophical reasoning] assess the right content of any particular right-claim by asking whether the purported rights protects the claimant’s rational autonomy. A right to organize would seem straightforward to defend on this basis; a right to periodic holidays with pay, in contrast, much more dubiously so. We can similarly begin to determine the content of our imperfect duties by considering, in the situations we find ourselves, which action would not merely respect the autonomy of others but actively promote it. In this light, periodic holidays with pay start to look more plausible…” Page 151

Sandbu also uses Kant’s logic in a way that I believe helps PRs avoid setting their clients up to be accused of greenwash. Using Kant’s moral reasoning, he argues that CSR that’s positioned by PRs as being good for the bottom line lacks moral value. That’s because, as he says, it is not because we will receive rewards that we should save drowning people:

“Only if the motivation behind them [CSR initiative] is to do ‘the right thing’ – that is, only if businesses in question see CSR as a categorical imperative, something they should do whether it benefits them or not – only then, according to Kant’s reasoning, can their action be said to be of moral worth.” Page 144

So, according to Kant, Sandbu and me, Milton Friedman (see part-1) was right about that issue all along.

Universal values matter

The proposition that there are universally valid moral values in an increasingly globalised world is not to be sniffed at. The recent Arab uprisings have vividly reminded us that the virtues of freedom, democracy and individualism have universal appeal.

The rebellions in Bahrain, Egypt, Libya, Tunisia and Yemen also undermine the claims of those who say there are multiple valid versions of human rights and value systems based on, say, Asian or Arabic values. Similar cultural-relativist views have been popularised within our own societies in the form of multi-cuturalism. However, the version of it that said that everybody’s culture had a right to exist in its own separatist bubble has been abandoned because it was seen as divisive and as undermining the values of western society (by western I mean Enlightenment-based, which speaks to the universal validity of our values). Though, of course, respect for each other’s traditions remains as important as ever.

When it comes to understanding universal values, Amartya Sen has helped us see things clearly:

“[The] so-called Asian values that are invoked to justify authoritarianism are not especially Asian in any specific sense… The people whose rights are being disputed are Asians, and [the] case for liberty and political rights turns ultimately on their basic importance…[This] is as strong in Asia as it is elsewhere.” Page 129, origin Amartya Sen, Human Rights and Asian Values

Sandbu’s criticism also focuses on the logical inconsistencies and moral shortcomings of the cultural relativist’s beliefs. He says, and I agree, that just because a majority of people believe something is right in China or Iran or Saudi Arabia, does not make it right:

“For the notion of moral advancement and moral decay presuppose that some moral beliefs are better than others, precisely what relativism denies. But surely, attempts at social reform or resistance against it, while variably noble or contemptible, are not illogical. Of the many things one could say about Martin Luther King or Strom Thurmond, that they made no sense is not one.” Page 56

So Sandbu is a realist. He accepts, as I believe we all should, that there is something positive and pragmatically useful in social relativism’s thinking. Cultural differences are owed respect and we cannot simply impose our society’s ways and means without modification in countries that oppose them. Sandbu qualifies this point well:

“…the least experience with the diversity of the human experience suggests different rules may indeed apply, morally speaking, in different cultural contexts. Realizing this does not require us to accept any alleged moral equivalence of national cultures – not just because such moral equivalence does not follow from an admission that cultural practices matter (that is the logical mistake of cultural relativism), but because there is nothing special about national cultures.” Page 187

To reconcile this seeming contradictory position he draws on the useful work of Donalson and Dunfree. They say there’s a need in such communities for “moral free space” and for “micro-social” contracts to function based on their own established norms. We should, they say, acknowledge the existence, up to a point, of an indeterminate social contract that’s based on pragmatism. I agree (see my CSR: it’s not the same in Lagos as in London).

Dare to question

Martin Sandbu has written neither a manifesto nor a textbook. But while Just Business is clearly judgmental, its author attractively invites readers to subject his prejudices and preferences to the same critical analysis he applies to the theories he rejects. So the book makes no bold claims to having resolved all of the issues Sandbu examines:

“The social contract approach is not without problems of its own.” Page 195

What emerges from Just Business is that Sandbu is no dogmatist. He does not say that we should accept Kant’s views on rational morality – his categorical imperatives – as being absolutely right. He acknowledges, there’s worthy debate about that. He even rebukes Kant, using Kant’s own methodology, for being absurd for arguing that one must always tell the truth, even to a murderer who demands to know where his victim is hiding out.

Moreover, Martin Sandbu urges us not to throw the baby out with the bathwater. He says that we need to rescue the best insights from Milton Friedman and stakeholder doctrine, not to mention conventionalism, consequentialism and utilitarianism. I agree.

Just Business: Arguments in Business Ethics

Martin Sandbu, Wharton School, University of Pennsylvania
Pearson, 2011.
ISBN-10: 0205697755  ISBN-13:  9780205697755

Related posts:

1. Cant or Kant? PR-think gets heavy (part 1)

Yet how our clients juggle individual moral rights, social roles and social conventions cuts to the heart of what PRs communicate. As Martin Sandbu, economics leader writer at the FT, says in his new and accessible book, Just Business – Arguments in Business Ethics, philosophical thought can illuminate how these processes are managed.

Sandbu begins by ripping to pieces the two dominant, and conflicting, management mantras that guide business decision making today: Milton Friedman’s shareholder primacy theory and stakeholder doctrine. He then uses Kant’s methodology to put forward what I consider to have the makings of a superior alternative.

First, he interrogates Milton Friedman’s managing-for-shareholders mantra and finds inconsistencies inherent in the theory, which casts doubt on its usefulness as a guide to action:

“Friedman himself admits to qualifications on shareholder primacy. He says that mangers’ responsibility is to conduct the business in accordance with [shareholders'] desires, which generally will be to make as much money as possible while conforming to the basic rules of society, both those embodied in law and those embodied in ethical custom. But this is as unhelpful as it is eloquent. What is a manager to do if shareholders do not particularly care for ‘conforming to the basic rules of society’ – whether those of the law or those of ethical custom? …..

“…if by ethical custom we mean the morality conventionally believed by a majority in society, it could conceivably be the case that conventional moral beliefs require society to be ‘socially responsible’, even against the desires of shareholders. If so, conforming to ethical custom would bind managers to pursing ‘socially responsibility’ to the detriment of shareholder profit, which is surely the opposite of what was intended.” Page 20

I have to agree with Sandbu. There is a contradiction, though we both agree there’s also much to admire at the heart of Friedman’s position, not least when it comes to property and shareholder rights.

However, while Sandbu is tough on Friedman, he reserves most of his wrath for the incoherencies inherent in stakeholder theory. He observes:

“The imperialist nature of the stakeholder concept – its tendency to include an ever wider range of groups within the orbit of ‘managing for stakeholders’ – is part of what is wrong with stakeholder theory. For the more groups count as stakeholders, the less plausible it becomes to claim that managers either can or should run their business in the interest of all of them. Even if we set aside the difficulty of identifying who is and who is not a stakeholder, without which the admonition to ‘manage for stakeholders’ is rather unhelpful, there remains the problem of what exactly it means to manage in their interest. For, obviously, different groups have different interests, and sometimes those interests conflict. If we think of stakeholder theory as saying that managers should maximize the benefits of stakeholder groups – much as shareholding primacy says they should maximize the return for shareholders – we are hampered by the inconvenient mathematical truth that it is impossible to maximize two or more objectives simultaneously. If, alternatively, we think of the theory as saying that managers are the agents of stakeholders – much as shareholder primacy make managers the agents of the shareholders – we shall quickly find managers stymied by duties that conflict with one another. Shareholder primacy does not suffer from those problems. Even though it is mistaken in claiming managers’ duty is to maximize profit, there is at least no incoherence in what that duty, if it is actually applied, would consist of.” Pages 25/26

The real problem with stakeholder theory, according to Sandbu, is that it lacks a coherent (logical) normative core that answers the question for whom business should be managed. Stakeholder doctrine cannot identify those stakeholders with an intrinsic moral importance (shareholders) from those with an instrumental moral value. Moreover, as R Edward Freeman, the guru of stakeholder theory, puts it, there are a number of stakeholder theories each with their very own normative cores. Sandbu remarks:

“If there is no one definitive stakeholder theory that specifies the moral status of stakeholder groups and the duties of management, all that stakeholder approach per se does is to underline that such a specification is necessary.” Page 28

Amusingly, Sandbu concludes that stakeholder theory is not a theory at all but merely an acknowledgement that business is a moralized activity:

“Since that is something we already knew, we do best by simply leaving the term ‘stakeholder theory’ behind.” Page 28

So, having shown how the existing “philosophical” and theoretical frameworks are deficient, let’s look at Martin Sandbu’s proposed alternative. He suggests, and I tend to concur, that a social contract approach, which draws heavily but not uncritically on the work of John Rawls, provides a more durable framework for corporate image-building. Here, in Martin Sandbu’s words, is why the social contract approach to business and reputation management is so compelling:

“Once we acknowledge that business behavior must be morally justified and that mere social convention about norms cannot provide that justification, we recognize the need for principles, external to socially defined norms, that can adjudicate the truth and falsity of the claims those norms imply about what business ought to do. The metaphor of contract, the archetypal form of human intercourse in the economic realm, should be particularly congenial to those seeking an appeal of offering a general method for thinking about specific problems by focusing on what rational persons in an appropriate contracting situation would endorse. This is also its moral appeal: Unlike utilitarianism, social contract theory formalizes the need to justify morality’s commands to all affected individuals.” Page 179

So, how realistic would it be to adopt a social contract approach based on Kantian morality? Sandbu says:

“…the reasoning must be done in the face of the concrete challenges one may face. The true test of the social contract approach, or any other theory of business ethics, is whether it can help business people move from denial or confusion that recognitions of moral dilemmas often trigger, toward a more stable reflective equilibrium.” Page 195

To give us a guide into how Kantian logic could be applied to real-life corporate dilemmas, he uses it forensically to examine some classic PR case studies. He pores over Texaco’s oil spills in Ecuador, Enron’s fraud, Guidant keeping quiet about its faulty defibrillators, Google’s support for state censorship in China, LeviStrauss’s child labour scandal, executive pay and remuneration, and sub-prime mortgages, to name a few among many.

Turning to the practicalities of his approach, he says that the normative conventions of corporate cultures of, say, Microsoft and Google, might well require different moral codes of behaviours for their internal and external communication (variety will remain powerful differentiators).

Indeed, it strikes me that my Ryanair case study – perhaps not as Sandbu might like – highlights a robust and social contract-type approach to a firm’s staff, customers and suppliers. Arguably, Ryanair has re-educated a whole industry in a whole new set of normative conventions, ones that have become accepted as the price of low-cost flights and commercial success. It also strikes me that the banks are in dire need right now of a social contract, though perhaps one that is nothing like Ryanair’s (though don’t get me wrong, I’m a big fan of the airline).

But Sandbu reminds us – as perhaps Michael O’Leary never would – that profit is not everything:

“…there are a host of management theories that say that it is good for business to respect workers as rationally autonomous beings. In contrast, Kantian ethical theory argues that respecting autonomy is morally required, whether or not it helps the bottom line.” Page 153

Martin Sandbu is on to something. What he writes about is very much a PR’s concern; it addresses what PRs do and what value they add to business and modern institutions.

His work suggests (at any rate I infer from it) that firms (and our clients in general) need to apply quite tough and honest rules to the contract they are seeking to strike with the outside world. When the contract is more self-interested than obviously aspirational, the underpinning of their case can be both moral and pragmatic. PRs should be skilled in helping clients develop that contract, with its curious blend of the selfish and the virtuous. PRs, of course, need to become especially skilled at framing narratives that are not full of the flaws that Sandbu exposes.

At the very least, I hope that corporate ethics, conflict resolution and reputation management will increasingly be influenced by the ideas Martin Sandbu explores in Just Business.

Just Business: Arguments in Business Ethics
Martin Sandbu, Wharton School, University of Pennsylvania
Pearson, 2011.
ISBN-10: 0205697755  ISBN-13:  9780205697755

No related pages.

Here’s the essence of Professor Karnani’s case:

“Companies that simply do everything they can to boost profits will end up increasing social welfare. In circumstances in which profits and social welfare are in direct opposition, an appeal to corporate social responsibility will almost always be ineffective, because executives are unlikely to act voluntarily in the public interest and against shareholder interests.”

Here’s the essence of Mr. Edelman’s reply:

“[Edelman's case studies] demonstrate that contrary to Karnani’s assertion, the decision isn’t whether to run an effective, “smart” business or a socially responsible, engaged one. Performance with purpose (a term used by PepsiCo CEO Indra Nooyi) is not an either/or proposition.”

Now, as it happens, Richard Edelman makes a good point. But he also misses it completely. The core social purpose of a corporation is to provide whatever goods or services it is in business to deliver – be that street cleaning, cigarettes, incubators, medicines, machine guns or bubble gum. Mr Edelman, in contrast, believes that a smart business is an engaged one with a purpose. Engaged in what else other than what it does, I ask.

Mr. Edelman tries to explain it with three examples drawn from his client base:

“Unilever’s Omo Detergent adopted the “Dirt is Good” campaign – aligning with the brand’s business proposition by asserting that “every child has the right” to be a child and get dirty. After fielding new academic research highlighting the importance of outside play for the physical and social development of children and engaging parents, governments and NGOs to take action, the campaign triggered real social change – Vietnamese schools agree to assess national provisions for school recess while the brand commits to build 100 playgrounds over three years.”

He’s shooting himself in the foot. Unilever’s campaign has self-interest at its core. The aim here is to produce more dirty children that will require the use of more of its product to clean up the mess. Moreover, from my experience as a parent, kids don’t need much encouragement to get their clothes dirty or to play outside (try stopping them).

He tells us how the Clorox Brita’s FilterForGood campaign:

“…inspires consumers – and communities – to take a personal pledge and even engage in (planet) healthy competition with others to reduce their bottled-water use, as well as informs them about other environmentally-friendly decisions that each can personally make.”

In essence, he’s positioning his client’s “healthy product” against the bottled water industry’s and mains suppliers’ supposedly environmentally unfriendly or unhealthy alternatives. That is, for as long as Brita remains a client and come the day Edelman represents, say, San Pellegrino, or has to convince us that a utility produces a product fit to drink straight from the tap. This should warn us that the “public interest” Mr. Edelman favours is often just the selfish interests of his clients.

Then, if those two weak cases weren’t enough, he adds:

“The Pepsi Refresh Project, partnering with NGOs and experts, is directly crowd sourcing ideas from consumers to foster innovation in social good – awarding more than $20 million this year to fund local community initiatives and ideas that refresh the world.”

Regardless of the trendy crowd sourcing, that’s just a classic – old-style – brand marketing and awareness-raising campaign. It is, actually, a very low budget one for a company with $9.4 billion in revenues.

One wonders why Mr. Edelman didn’t mention another esteemed client: Ryan Air. It is one which is likely to accuse Professor Karnani of being soft rather than harsh in his defence of profit. Ryan Air states unambiguously that shareholder value comes before its staff, customers, partners and suppliers. Ryan Air has little time for stakeholder PR or for CSR, except as the butt of jokes. Here’s the brief that Edelman pitched for:

“Wanted: PR firm who is able to LOL at the advertising gags, and doesn’t mind poking fun at expensive airports, rivals, prime ministers … and even popes! No precious, sensitive, politically correct or clock-watching publicists need apply. Long hours, stamina and patience of St. Christopher, the patron saint of travel, are all prequisites.”

Now, don’t get me wrong. I’m not against corporations acting responsibly or managing their risks properly. I accept Ryan Air is an outlier; though it is one which has moved an entire industry’s behaviour in its direction. It is just that most CSR is shallow dishonest nonsense that sails close to propaganda, as BP’s Beyond Petroleum clearly did.

It is precisely such transparent charades and double-speak that generates the disabling cynicism that undermines public confidence in modern institutions. So there’s something refreshing about Professor Karnani’s bluntness and Ryan Air’s Michael O’Leary’s loud mouth.

Of course, in one sense there’s a bit of voodoo coming from both Mr. Edelman and Professor Karnani. The problem with deciding between profit-first or profit-with-purpose is that they are difficult to separate. Firms live within society and have all kinds of unavoidable obligations to fulfill as they produce profit.

One has to ask some tough questions about Mr. Edelman’s motivation, however. His main concern seems not to be the public good as much as helping firms restore their credibility and by so doing avoid state interference in their affairs. He says:

“We are at a very important moment in the relationship between business and society. The catastrophic economic events of September 2008 undermined the confidence in the private sector’s ability to self-regulate. Bankruptcies of centerpiece companies in the global economy, such as GM, plus reputation issues for leaders in finance (Goldman Sachs), energy (BP) and transport (Toyota) have called into question the values of corporate leaders. In the race for public credibility, it is fortunate for business that its prime regulator, government, is not seen as a worthy replacement as the leader in the dance.”

My beef is not with what Mr. Edelman wants to achieve; a free and mostly self-regulated market place. It is with how he believes that he can win public acceptance for it. I rebel, as do most people who are moderately sceptical of corporate humbug, to his pandering to the more infantile elements of this discussion; you know, the audience who cannot (supposedly) be told the truth because it would destroy their illusions.

So, I’d like to leave you with what I think is an effective demolition of Mr. Edelman’s style of PR, by quoting Professor Karnani’s robust expose of it:

“Executives are hired to maximize profits; that is their responsibility to their company’s shareholders. Even if executives wanted to forgo some profit to benefit society, they could expect to lose their jobs if they tried—and be replaced by managers who would restore profit as the top priority. The movement for corporate social responsibility is in direct opposition, in such cases, to the movement for better corporate governance, which demands that managers fulfill their fiduciary duty to act in the shareholders’ interest or be relieved of their responsibilities. That’s one reason so many companies talk a great deal about social responsibility but do nothing—a tactic known as greenwashing.”

Exactly!

No related pages.

I’m not qualified to know whether Mr Thiam was more right than wrong in seeking to buy AIA. What I do know is that too many CEOs believe that they are laws unto themselves or that today all stakeholders are equals.

So the assertion by Pru shareholders of their power to stop the bid for AIA is a timely reminder of where the priorities and corporate lines of accountability lie. The deal’s collapse makes it clear to CEOs everywhere that they must listen to their shareholders more.

I’ve been predicting that in the future shareholders will, and need to, assert their power more and more. That’s because – contrary to popular mythology – one of the lessons from the last boom and today’s bust is that shareholder-value was not over-valued so much as marginalised in the pursuit of short-term interests. Real long-term shareholder value was denigrated by management teams which ran companies more or less for their own benefit whilst covering themselves in the rhetoric of wider stakeholder interests.

My bottom line (and the firms’)? Shareholders may be quite good custodians of long-term value after all. Perhaps even better ones than the “stakeholders” who bang on about sustainability.

I’m not saying that always applies or is even what’s applying in this case. I’m saying that it’s wrong to assume that modern shareholders always fit the short-termist stereotype that’s foisted on them.

What’s more, it may be that Mr Thiam has understood where the long term prospects of the Pru really lie (it may be that his spate with shareholders was mostly about the price of AIA rather than his strategy).

The challenge now is for the Pru to repair its broken relationship with its shareholders, particularly with Prudential Action Group, which planned to oppose the deal at a shareholder vote due to be held on 7 June.

Personally, I hope that the impressive Mr Thiam survives. I believe he should be given room to learn from this setback. But if the price is his head, so be it, because it will provide a much-needed reality check throughout the corporate and PR worlds.

No related pages.

Yesterday “Shell” (go to hoax press release) said it was going to clean up the Niger Delta, compensate local communities for past injuries, and institute a local stakeholders’ program that will help lift the region out of poverty. That sounds like good news. But what if the real victim is the truth?

There was something very panicky about what Shell called its visionary remediation plan for Nigeria. The press release partly explained the company’s motivation thus:

“The expected hurricane of regulation and policy change across industry, resulting from the negligent practices [in the Gulf of Mexico] by one pair of companies especially, means that all of us need to try to push harder in the interests of long-term survival. Shell will therefore distinguish ourselves by being the first oil company in history to cease taking risks with important delta ecosystems.”

But Shell has no more idea what caused the accident in the Gulf of Mexico than does BP. There’s been some discussion as to likely causes at a Senate hearing (dubbed the blame game by President Obama) but there’s been no conclusive evidence revealed that negligence sparked the accident. It is highly indecent, opportunistic and disrespectful of a rival for Shell to say or suggest otherwise right now.

Let’s get back to Nigeria. There is a blinding omission in Shell’s picture of its work in the Niger Delta. It has completely ignored the truth of the damage it is supposed to have done. Instead, it has scapegoated itself. It has seemed to accept responsibility for stuff it didn’t do. Maybe the “truth and reconciliation” work it is funding will start to reveal the rights and wrongs of all the parties in Nigeria, but I frankly doubt it. This is a pity. Nigerians have the right to know the truth about their country’s workings.

Poverty won’t be dented much

Shell proposes to spend $8 billion over the next two years followed by $1 billion per year over the following ten years to clean up the Niger Delta. That’s a region in which more than 30 million people live. So there’s no way that an investment of $2.50 per person per week for two years, followed by $0.62 for ten is going to lift the region out of poverty.

Such an expenditure might help clean up the Niger Delta. Equally (perhaps more than likely) it might not. Shell promises to use locally-sourced suppliers and staff in a region in which it was and remains responsible for just a small proportion of the overall oil pollution, and in which it has little power to tackle the problem of leaks at source. Moreover, the Niger Delta is the most corrupt region in one of the world’s most corrupt countries (the world’s 130th most corrupt state, and falling) as I recently explained in my personal account, CSR: it’s not the same in Lagos as in London.

Shell also said yesterday that it proposes to establish a $4 billion fund earmarked for compensation for perceived injustices in the Niger Delta caused by its operations since 1958. In describing its intentions, Shell borrowed emotive language from post-apartheid South Africa. It talked about creating a $45 million ”truth and reconciliation process” fund, which will assess and award reparations. That’s likely to create a feeding frenzy centred on locals involved in the fund in which those that win bank in Zurich, and those that lose reach for their guns and head back to the Niger Delta’s creeks.

To glimpse the trouble Shell might encounter, we need only examine how hard it has been for Pfizer to handover around $30 million worth of compensation to 100 or so so-called victims of its meningitis-related drugs trial in the north of Nigeria. Unlike Pfizer, however, Shell possesses no DNA data-bank of the people affected by its activities (regardless of the evidence, Pfizer has been unable to convince the other side of who is entitled to compensation and who is not).

China seeks to replace Shell

But there was also some more weird stuff wrapped up in yesterday’s press release from Shell. I say weird because it strikes me as unreal, and therefore as untrustworthy. Shell promised to:

“…cap oil production at current levels until 2015, and then to gradually reduce production to 10 percent of current levels by 2050, while compensating for this reduction through the development of renewable energy sources.”

Yet Nigeria has just concluded a deal with the Chinese to construct three oil refineries at a cost of $23 billion. It is clear from this that Nigeria is dreaming of an oil-filled future, not one based on renewables. But this deal might explain Shell’s warped CSR strategy, as the WSJ says:

“For the Nigeria government, the deal represents a victory of sorts over U.S. and European oil companies, which have long turned a deaf ear to Nigerian government calls to operate refineries in the country because of the poor financial returns.”

The real prize for China is getting its hands on Nigeria oil reserves. To do so it needs to displace the Western companies already established there with their rights to exploit the resource. So that perhaps explains why Shell took the bold step yesterday to cease:

“…deepwater drilling off the coast of Nigeria until the conclusion of a full independent safety review by our local government partners with international oversight.”

This will, as Shell explained in its release, ensure that it has a secure long-term licence to operate in the region (assuming it jumps this self-made hurdle). This pro-active move might well strengthen Shell’s grip on the Nigerian market in the face of stiff competition. It might well explain Shell’s CSR flannel. But yesterday’s announcement is not so easily dismissed. Hidden away, low down in the release was this very significant global commitment to create:

“…local stakeholder program [s] that gives decision-making and veto capacity over new and ongoing projects to communities affected by Shell and SPDC projects worldwide, pending more formal control at the level of local government.”

Exactly how this will be implemented is not explained. Whether Shell would really give, say, the spokespeople of 500 000 local Ogoni tribes people in the Niger Delta region the right of veto, when it has the support of the Nigerian government representing 150 million citizens, remains to be seen.

Lending Goodluck a hand?

There’s a new President in Nigeria. Goodluck Jonathan’s chances of remaining President come the next Presidential election depend in large part upon whether or not he can secure peace in the conflict-ridden Niger Delta region from where he hails. So one suspects Shell has a two-pronged approach. Its latest strategy looks like a ruse to see off Chinese competition and to curry favour with the new President. As I see it, Shell simply decided that its survival in Nigeria depended upon it helping to fund the peace process through its CSR initiative.

Much of yesterday’s announcement came wrapped in today’s obligatory language of sustainability:

“The unique geology underlying these deltas have sustained our shareholders very well, but we must not let that kind of sustainability come at the the expense of the biodiversity, carbon absorption and O2 production that are their true worth.”

But Nigeria’s economic future and sustainability depends upon oil revenue. The sustainability of Western economies also in large part depends upon continued oil supply. China’s future economic growth depends upon cheap energy much of which it hopes to obtain from Africa.

Some home truths

Sure, nobody can doubt that the Niger Delta needs cleaning up and that Shell should have stopped gas flaring years ago, which it announced it was ceasing immediately. Sure, it is also welcome news that Shell now proposes to exploit the surplus gas instead to provide free energy to local people. Sure, nobody can argue with a commitment to protect the region’s biodiversity. Actually, though, Shell has wanted to reduce gas flaring for many years and for several years (I cannot speak for the very recent history) its investment was bedevilled by the failure of its Nigerian government partners to cough up their share.

The issue I’m exploring right now, however, is what’s really driving Shell’s new strategy.

We immediately meet the oldest problem in discussing CSR. When a firm claims to be interested in environment and society, does it matter if these are cloaks for its own self-interest? Is it morally and strategically sort of OK for firms to claim an interest in being virtuous when, after all, it happens that the wider human and planetary good happens to flow alongside their own advantage?

I would not want you to think I am too much of a purist. Hypocrisy and humbug are often valuable. We need lots of sleeping dogs to have their peace.

But when a firm announces a CSR programme, half-way sensible people start digging (it’s better than running straight for the doors). Maybe we’ll never know what Shell’s motives really are. One casualty of the CSR process is honesty: outsiders will never now know what Shell is really thinking. We have to speculate.

Using Nigeria as a poster child

My main guess is this: Shell has decided that it will turn the Niger Delta into a poster child. It will do a very great deal to buy itself a good global reputation by its work there.

I believe that Shell’s imprudent comments on the Gulf of Mexico disaster reveals boardroom-level angst about the likely consequences of the spill for the entire petroleum industry. That will have tempted the company to over-hype the virtue of its CSR spend in Nigeria and throw into the mix some loose global commitments to listen more to stakeholders.

There must also be a very big Nigerian dimension. It takes very little cynicism to speculate that locally, regionally and nationally in Nigeria, these new CSR schemes have been designed to do some quite shabby or at any rate covert and unseen work whilst flying the CSR banner.

So I can’t help feeling that Shell’s response is a self-interested and cynical abuse of CSR and all that it should stand for.

Peter Voser puts his foot in it

There is something comic in hearing CEO Peter Voser say:

“At long last the words ‘stakeholder’ and ‘sustainable’ will actually mean something. CSR-ND means planning not just for short-term profits, but for what actually matters, including the viability of the planet itself.”

It’s as though he’s admitting that CSR has been hogwash so far, and this time it isn’t, honest injun. But maybe his successor, and his successor’s successor, will be making similar declarations that CSR is at last the real clean, saintly, truthful thing.

Shell’s stunt may work on most levels. The Niger Delta may be a slightly nicer and happier place. Shell may secure its place in Nigeria’s tortuous political economy. The firm may acquire a global bloom at tolerable cost. It may be able to feel better about itself.

I still think it matters to say that corporate culture is polluted when the necessary, expedient and self-interested are dressed-up as outward looking, transformative and virtuous. I don’t know how much narrow self-interest and canny show-boating lies behind this new strategy of Shell’s, but my guess is that there’s a fair bit of it. Anyone interested in the well-being of Shell, but especially of Nigeria, ought to keep watching and inquiring.

Maybe we should be asking Shell to archive its discussions on this CSR programme, and promise to publish them in 30 years. In the interests of intellectual and moral sustainability, you understand.

No related pages.

This manifesto might seem a lost cause. Speaking at the RSA/Sky Sustainable Business Lecture Series in London, Richard Lambert, director-general of the CBI, the British employers’ group, said “what you might call Jack Welch [1980s] capitalism” was drawing to a close – a reference to the former General Electric chief executive’s championing of shareholder value. Last year Welch dubbed his old mantra “the dumbest idea in the world”. He added: “Shareholder value is a result, not a strategy . . . Your main constituencies are your employees, your customers and your products.”

Richard Lambert advocates that doing good is good business and that:

“The risk now is that the public and political response to what’s happened will itself have troubling consequences. If you don’t trust an institution to behave well, you impose regulations – perhaps to a point that undermines the dynamic workings of a market economy, and in turn holds back the forces of job creation and sustainable economic development”

He’s not alone in thinking that shareholders are now just one of many competing interest groups CEOs work for. In a recent FT interview, Paul Polman, Unilever chief executive, said:

“I do not work for the shareholder, to be honest; I work for the consumer, the customer. I discovered a long time ago that if I focus on . . .  the long term to improve the lives of consumers and customers all over the world, the business results will come.”

I think these intelligent people are setting up a false dichotomy. Shareholder value is not necessarily at odds with social value. Customers and employees are not necessarily at odds with shareholders. Sure, running a socially respectable, customer-facing business may well be the ticket for shareholder value.

So I prefer the more robust approach of Lord Haskins, the former chairman of Northern Foods, who has questioned Mr Polman’s assertion that he does not work for Unilever shareholders, saying:

“Isn’t it the shareholder who appoints him, provides him with the funds to run his business, and awards him with his substantial pay package?”

Moreover, many firms, such as Swiss Re and DuPont, to name but two, still put creating shareholder value at the top of their stated objectives: see here and here.

To echo Michael Skapinker writing in the FT, before we consign the shareholder value movement to the dustbin, it is worth remembering why it arose: to prevent chief executives from running businesses in their own interests rather than those of the companies’ owners.

So here are my manifesto’s key points:

The problems:

• The emergence of a generation of CEOs who ran companies for their own benefit;
• A generalised passion for short-term stock value.

The solution:

• CEOs (agents) should be more accountable to the owners (principals) of their businesses;
• They should agree and assert the kind of firm they are running (long or short term value, for instance);
• They should communicate and sell these propositions.

Some principles:

• As a fan of Theodore Levitt, I’ve no doubt that Welch and Polman are right that great products, services and customer focus are the key ingredients of a successful company;
• No firm can function without a licence to operate;
• Key stakeholders need to be kept onside – employees, customers, suppliers and the like;
• If the longer term is what counts most, CEOs need to do more than they currently do to invest in innovation and in R&D (here’s a useful manifesto addressing this issue).
• Longterm profits matter a great deal to some firms, but that requires great flexibility and constant change.

PR challenge

PRs would do a much better job for their employers and clients if they spoke plainly and honestly about the realities of business. The current recession is caused by a crisis of profitability and negative growth. It is experienced as a crisis of confidence and trust. But it is not helpful to the cause of restoring growth and boosting reputations in society when PRs communicate that profit and growing shareholder value no longer matter most.

Today, the reality is that millions of people are losing their jobs, accepting pay freezes, going part-time, and feeling insecure about their futures, precisely because there’s not enough profit or a strong enough expectation of long-term shareholder value growth in the system. We’d all do better with our PR if we faced the truth rather than evaded it.

No related pages.

Here’s a muse on how the stakeholder doctrine failed both politics and business and how it may not survive the challenge from the BRIC countries where there’s a bit more realism about life.

Let’s start in the present with UK politics. Then we’ll turn to how stakeholder doctrine originated in the trendy 1960s in the business sphere. Finally, I’ll make the case for saving the term “stakeholder”.

What a difference thirteen years makes. Tony Blair’s mission, he said, was to use the stakeholder concept to redefine rights and obligations and to extend accountability in society. Under Mr Blair there was a flurry of government-NGO-private business partnership arrangements. The “Third Sector” swam into view. This was the stuff which Geoff Mulgan and the think tank Demos were promulgating. I suppose the point was that Thatcher gave us popular capitalism and Blair’s mission was to widen the remit to a new participatory, networking society. Trying to move things on, and find a new Tory mission, Mr Cameron castigated Mr Blair’s “bureaucratic accountability” (all that tick-boxing, all those targets which Blair actually inherited from John Major), which he claims he’s going to smash. Mr Cameron has his own “power to the people” agenda, and we’ll see if it happens.

As the New Labour project makes way for David Cameron’s Tories (or something less new than New Labour), we should remind ourselves that the slogan was a fiction. The new active politics was top-down, not bottom-up. This really did mark a significant shift from past practice: Tony Blair’s infamous decision-making “sofa government” was the most unaccountable clique to rule the UK in modern times. It was perhaps even more closed than aristocratic rule once had been. The involvement of stakeholders turned into the manipulation of stakeholders and the sidelining of a democratically elected parliament.

Of course the idea that politics is everybody’s business – that we are all stakeholders in it – is the very core of modern democracy. The term may have gone out fashion in politics, but the political class is obsessing on how to engage people, which is much the same as trying to make more people feel like stakeholders. Indeed, the tragedy is that so many people don’t feel and act like social stakeholders. They’ve volunteered themselves to be on the sidelines, not least by not voting. It’s tempting, too, to think of anti-social people as being the reverse of stakeholders. It’s enough to make one nostalgic for the idea that people are stakeholders in the degree to which they pay taxes and don’t sponge, but that’s another story.

But whilst the idea of everyone being a social or political stakeholder – at least in principle and as an ideal – is valid, and whilst the phrase was borrowed by politicians from business, I don’t think it make sense in a business context.

So now let’s go back a bit and look at how stakeholder doctrine worked its way into business.

The 1960s origins of stakeholder doctrine

The word stakeholder has been around most likely since the 1930s, perhaps before. But its modern persona began to take shape in the 1960s. According R Edward Freeman’s history of the term:

“The actual word “stakeholder” first appeared in management literature in an internal memorandum at Stanford Research Institute (now SRI International, Inc) in 1963. The term was meant to generalize the notion of stockholders as the only group to whom management need be responsive. Thus, the stakeholder concept was originally defined as  “those groups without whose support the organization would cease to exist.”

The groups defined as stakeholders back then consisted of little more than shareowners. So it was tightly defined and designed to help organisations understand and achieve their corporate objectives. But over time, as Freeman describes it, the meaning of stakeholder theory changed dramatically. It began to include people whose personal interests were closely related to those of a firm (employees and so on).  As the doctrine evolved it eventually came to be defined, as Freeman put it, “any group or individual who can affect or is affected by the achievement of the organization’s objectives.” It later evolved to mean the whole of society. This radical development in stakeholder theory dates from around 1975 with the introduction of the “stakeholder audit”. The aim of this was to measure the social costs and benefits of business to all its stakeholders and to give them equal importance to financial results. So what was a deliberately narrowing term transmogrified into its reverse: something as wide as possible.

Freeman identified “stake” as an “interest” or a “share” (in an undertaking) and he considered three groups of stakes: Equity stakes (held by shareholders); economic or market stakes (employees or customers); influencer stakes (interest or activist groups).

Of course, stakeholders like publics are often found in more than one role. Employees can be shareholders, customers can be activists, suppliers might be creditors etc. Their interests might be contradictory in the different roles they occupy. Moreover, the stakeholder’s perception of his or her own interest might not be measurable clearly either by consultation and or research (that’s an issue I’ve looked at on my PR blog in relation to Edelman’s trust survey results here here here).

Reasons to cutback on stakeholder hype

Here are my concerns about the stakeholder doctrine in business:

• Firms were no longer run for the benefit of their owners who risked their capital in them.
• The objective of business with stakeholder theory became the balancing of stakeholder interests (this precluded favouring one group over another) rather than maximising shareholder value by achieving specific corporate objectives as defined by the owners.
• The foundation stones of capitalism are the concepts of private property, the rights of its owners to exploit it, and the first duty of its agents being owed to principals. Those foundations have not been overthrown in a social revolution. Rather they remain legally binding but weakened by populist nonsense in the public domain. The suspicion has to be that stakeholder theorists are crude propagandists trying to effect change by the back door, or that they are self-deluded.
• Stakeholder theory created ambiguities for corporate governance – exactly to whom and for what is management accountable?
• If management is effectively accountable to everybody, then it is not accountable to anybody.
• If “active publics” define stakeholders, as Jim Grunig seems to suggest, then perhaps that gives them power over the silent majority that they don’t deserve? For sure, laws and democracy were long-ago designed to limit activist power in the interest of the greater good.
• The specificity of the terms stakeholder, public and “activist public” as useful categories is rendered meaningless if one accepts Freeman’s definition of what constitutes a stakeholder, which includes the unborn, the environment and much more.
• At its most absurd stakeholder theory identifies irreconcilable forces as each other’s stakeholders. Hence Greenpeace becomes a stakeholder in the nuclear industry.
• Stakeholder theory does little to tackle the real problem business faces today; which is that managers have become unaccountable to their owners for their poor results. Today’s recession is partly caused by irresponsible bankers destroying shareholder value because they pursued short-term interests. The recession is about falling profits, failing businesses and their social consequences, not a shortage of CSR (BTW: corporate governance is not primarily about the relationship of corporations to society).
• Right now, business has to make brutal decisions. Consensus will matter but so will speed and agility. Stakeholder management techniques, if taken seriously, are slow. They lack the robustness to be tough and to set priorities which produce clear winners and losers.
• The insight that stakeholder theorists claim as theirs that relationships, networks and consent are crucial to business success has been known since trading in goods and services began.

How some of this works in politics

• Politicians who big-up stakeholder politics on the basis that it’s participatory can be taken with a pinch of salt. New Labour went in for the Big Conversation and masses of consultation, but it often turned out to be a sham.
• In the modern perverse definition, stakeholders are self-defining. Victims – or anyone who says they feel strongly – have to be listened to as though they were experts.
• Representative democracy empowers people who go to the trouble of getting elected: stakeholder politics risks undermining that process.

Whose side are PRs on?

One of the startling logical implications of stakeholder theory for PRs is that we no longer remain representatives of our employers. Rather we become brokers of different interest groups, listeners, facilitators and managers of the many stakeholder relationships an organisation has. In this brave new world PRs are more likely to want appear on the side of activists or competitors than on their employer’s side. This fiction needs a reality check in the interest of transparency.

What then was the great attraction of stakeholder theory? In my view it was the opportunity to have power without accountability or risk. This compelling doctrine is a hippy hangover from the post-World-War-II boom. It promised all the benefits of business and political life without the responsibility and disciplines of them; no wonder it became popular among freeloaders.

How to rescue the term stakeholder

Stakeholder theory therefore requires a radical overhaul because the challenges ahead call for risky and accountable leadership. So it will either reform, get real, or be blown away by necessity as the democratic West reorganizes to compete with the BRIC countries.

We should begin with this proposition. It’s a nice compromise, I think. Stakeholders are people with a stake in a firm’s – or any entity’s – well-being. So yes, it can be much wider than shareholders or voters alone. What’s more, legitimate stakeholders may differ very strongly about what a firm’s or country’s aims should be, just as shareholders and voters can. Plenty of people who are not strictly speaking stakeholders may have very interesting and useful views to contribute. Having skin in the game is not the measure of a person’s value to a firm or to the rest of us. But the more skin you have in the game, the more of a stakeholder you can legitimately claim to be. If we are to rehabilitate the stakeholder category usefully, we must first cut the crap.

Note: I owe a debt to Elaine Sternberg’s “Stakeholding: Betraying The Corporation’s Objectives“, SAU, 1998, for insight on this challenging topic.

No related pages.