Measuring theBusiness Value of

Stakeholder Relationships

Toronto, Vancouver, CalgaryJune, 2001

Topics Topics

• Overview of Research Project

• Definitions and Assumptions

• Key Benefits

• Proposed Stakeholder Model

Research PartnersResearch Partners

• Canadian Institute of Chartered Accountants

• Haub Program in Business and Sustainability, York University

• Centre for Innovation in Management, Simon Fraser University

Research ProgramResearch Program

• Phase One - review existing research, develop model and measures

• Phase Two - case study research with 6 Canadian companies

• Completion by March 2002

Research QuestionsResearch Questions

• How do stakeholder relationships create business value?

• What organizational attributes help to create positive stakeholder relationships?

• What measures are most useful in assessing the quality of stakeholder relationships?

Defining StakeholdersDefining Stakeholders

• Individuals or groups who can affect, or who are affected by, a firm’s actions

• Primary stakeholders - shareholders, employees, customers, suppliers, communities

Defining RelationshipsDefining Relationships

• Relationships are mutually defined and negotiated

• strong relationships add to the stability, adaptability and coherence of the larger unit

• strong relationships provide access to information and resources

• strong relationships have high levels of social capital

What is Social Capital?What is Social Capital?

“the stock of active connections among people: the trust, mutual

understanding and shared values and behaviors that bind the members of

human networks and communities and make cooperative action possible.”

Cohen and Prusak, 2000

Dimensions of Social CapitalDimensions of Social Capital

1. Network (structural dimension)

2. Trust, norms and reciprocity (relational dimension)

3. Shared language and mutual understanding (cognitive dimension)

Nahapiet and Ghoshal, 1998

NetworkNetwork

Trust, Norms & ReciprocityTrust, Norms & Reciprocity

• Individuals and organizations draw on their social capital with others in their network who they trust

• Trust = integrity, competence and benevolence

• Shared norms and reciprocity builds trust

Mutual UnderstandingMutual Understanding

• Shared language, mental models/ paradigms

• For collaboration, extends to shared goals and aligned values

BenefitsBenefits

• Shareholder risk reduction

• Innovation

• Employee recruitment and retention

• New markets and opportunities

• Enhanced reputation and brand value

• Social license to operate

• Sustained business partnerships

Shareholder RiskShareholder Risk

• Lower costs (time and money) of monitoring internal practises and contracts

• Lower advertising spending

• Avoidance of excessive compensation claims

• Avoidance of physical damage to property

Innovation Innovation

“It doesn’t matter how good the market research is, how bright the

management team is, it is the quality of relationships among all people

in the organization that has an enormous bearing on the quality of

decisions and their execution.”

Jeff Mooney, Chairman and CEO,A &W Food Services

Innovation (cont.)Innovation (cont.)

• Ability to access to new ideas and information; ability of employees to work collaboratively to create value

• Supply chain, partners, universities, associations

• Access to technical info, new ideas, competitive intelligence

Recruitment and RetentionRecruitment and Retention

• Ability to recruit and retain high quality employees

• Low turnover rates, reduced severance costs, hiring and training expenses, retention of valuable organizational knowledge

New Market OpportunitiesNew Market Opportunities

• Ability to identify and take advantage of new markets

• Supply chain partners in distant locations, cross boundary networks with non-traditional groups

• Access to global market intelligence, referrals to local contractors and resources

Reputation and Brand ValueReputation and Brand Value

• Ability to establish strong emotional connection with customers

• Customers, suppliers, investors, opinion leaders

• Positive widespread mention, word of mouth, commentary

Social License to OperateSocial License to Operate

• Ability to manage social risk and make valuable contribution to community

• Local government, community leaders, NGOs, regulators

• Faster permitting, grace period during crisis, favorable interpretation of regulation

Partnerships and AlliancesPartnerships and Alliances

• Ability to understand and respond quickly to changing partner requirements

• Supplies and services obtained at lower cost and more quickly

• Crises handled more effectively

Stakeholder ModelStakeholder Model