In today’s complex societies, there are many individuals and organizations with different interests, expectations, and demands with respect to corporate and public governance. These individuals and organizations have come to be known as stakeholders. This chapter focuses on the stakeholder concept, both in its original formulation as a designation of all the groups in society that have a stake in decisions made by corporations and an alternative application of the model to all the groups in society that have a stake in the outcome of public policy decisions. As we shall see, when we analyze business government relations from the perspective of a business enterprise, the original, business-oriented model provides a useful analytical tool for commercial diplomats. When we turn the perspective around, and we want to analyze business government relations from the perspective of the government, the alternative public policy oriented model serves as the more appropriate analytical tool.
The stakeholder model was developed initially to identify the
various groups in society that were directly affected by business
decisions, and in turn could influence the success or failure of a
business enterprise. Some theorists concluded that a firm or enterprise
therefore in an economic and moral sense “belonged” not only to the
shareholders of the firm, but also to the other stakeholders who had an
economic link with the firm. The term “stakeholder” was even used by
a major political leader, Tony Blair, Prime Minister of Britain, when he
called for an economy characterized by “stakeholder capitalism”
rather than “stockholder capitalism” (1).
be specific, what is a stake? A stake is an interest or a share in an
undertaking. It is also a claim. A claim is more than an interest; it is
an assertion to a title, or to a right. The concept of a stake,
therefore, can range from a simple interest to the extreme of a legal
claim of ownership and all the value between. A stakeholder then is an
individual or organization that has one or more stakes in a business.
Stakeholders may affect a business or be affected by it. It has been
suggested that a good definition of a stakeholder is any individual or
group that can affect or is affected by the actions of decisions,
policies, practices, or goals of the organization.
these definitions in mind, who are stakeholders of the business firms?
The stakeholders that immediately come to mind are the investors—shareholders
and others whose claim denotes a share of financial ownership. Other
obvious stakeholders are managers and employees, suppliers, and
customers. The local community where the firm’s facilities are located
are also stakeholders. These are the ones that come to mind easily and a
where a direct link is apparent.
are other stakeholders, as well, and these include government and
regulators. They are affected by and affect the firm. Civic and
educational institutions, social pressure groups, the media, trade
bodies, and even competitors are stakeholders. How can competitors be
stakeholders in a firm? If a corporation is found to be taking great
risks in providing unsafe products to the market and these risks become
known to the public, the industry, and therefore all competitors, are
affected because the spotlight of scrutiny will fall on them also.
Social pressures groups such as human rights activists are also
stakeholders. See Figure 5.1 for a list of generic stakeholders.
The most important aspect of the stakeholder concept is that it identifies many more participants in the business policy and public policy process than does a sector approach. The variety, number, and importance of stakeholders is dependent on the issues that face a business. If the issue is one regarding international trade, then those governmental stakeholders that are involved with international trade are much more important than, say, the Department of the Interior’s park service. In practice, a generic list is only the beginning of the identification process.
There are three benefits to applying the stakeholder model in business relationships. First, it is a good description of the various actors involved. Secondly, it is a more useful view because it can be used to establish the active connections between the actors. Lastly, it identifies the stakeholder interest in the organization regardless of whether the business organization has any interest in them at all. The stakeholder model provides business management with a methodology for identifying all the groups affected by business decisions and their legitimate concerns, and for analyzing the means by which these groups in turn can affect the interests of the firm. It thus provides a broad basis for evaluating business decisions. It also provides every stakeholder with a broad view of all other stakeholders capable of influencing corporate decisions.
The manager of a firm is the central figure that must also manage the treatment of stakeholders, their influence with regard to the firm, and their interests. Management must be able to ask and answer a number of questions about the stakeholders that must be satisfied. These questions are given below, with further explanation for each one (3).
Who are the stakeholders of the firm?
far, only generic stakeholders have been presented, however, in
practice, specific stakeholders must be identified. That is, which class
of employee, or size of customer, or important suppliers, and so on
should be considered? The details can be extensive, but without a clear
identification of who the stakeholders are, the organization cannot
begin to provide a strategy. For example, although the government is a
stakeholder, which agencies and departments are truly involved with the
firm in specific issues? In an issue involving international trade and
investment, the departments or ministries responsible for trade,
domestic commerce and foreign affairs might be the key government
stakeholders. Departments or ministries responsible for Interior Affairs
or Human Health Services may have no relationship to the issue being
B. What are the stakeholder’s
it must be asked, what are the stakeholder’s interest, concerns, and
perceptions of rights, expectations, or even ownership? As examples,
consider two sets of stakeholders—the government and
government’s interest in a firm can be as regulators, tax collectors,
customer of defense products, trade balance manager, and many others
related to the public good. The environmentalist’s interests are in
the surrounding ecology, the public’s right to be free of exposure to
long-term ill effects, the effect of global warming, the elimination of
species, and other interests. In all of these cases, it is important to
determine the legitimacy, urgency, and power of each group with regard
to each interest.
What challenges does the stakeholder present to the organization?
challenges normally take the form of demands of or responses by the
firm. Challenges also arise when crises occur that appear to be the
responsibility of business. Some examples are an oil spill by an oil
tanker, where the company
can face heavy fines, social pressures, criminal and civil suits, while
the captain can face termination, damages, and criminal charges. Another
example is an anti-trust case, where the firm accused of an anti-trust
violation can face new challenges from government, customers,
competitors, the media, the financial community, as well as others. Each
interest, of course, is of different degrees of importance.
D. What responsibilities does
the firm have to the stakeholders?
chapter 3 on Business we identified four generic business objectives:
economic, legal, ethical, and philanthropic. An examination of each of
these objectives as they relate to each stakeholder can generate useful
insights for both business managers and commercial diplomats. Some of
the economic objectives relate most directly to the interests of
stockholders, legal objectives to the interests of governments, ethical
ones to the interests of non-governmental organizations, and
philanthropic ones to the interests of the community.
E. What strategies
should management take?
management has determined the responsibilities and stakeholders
involved, a highly important question is, “What strategies should
at this point may take an approach that looks at each stakeholder and
decide whether the stakeholder has a high or a low potential for
cooperation with the firm, and whether the stakeholder has a high or
low potential for threat to the firm. In this way, four types of
stakeholders can be examined. The case of computer chips dumped by
foreign firms into the country can provide an illustration of how a
four-type system could be applied. Stakeholder Type 1 is one with a high
potential for cooperation and low potential for threat to the
organization. The strategy here is for management to have these
stakeholders highly involved. In the case of the dumping,
business management would want trade officials, legislators from the
district where factories are located, employees whose jobs are
threatened, domestic suppliers whose business would be negatively
impacted, and others having a high potential for cooperation and a low
potential threat. These groups will be supportive of the firm.
Type 2 is one with a low potential for cooperation and a low potential
for threat. The appropriate management strategy here would be to have
the stakeholder closely monitored for change in attitude. These
stakeholders include consumer interest groups, local universities,
environmental groups, and public affairs groups. A public affairs group
may be concerned with the country’s independent foreign sources of
supply and may take a position, but the specific dumping case may not be
of sufficient interest. Monitoring the situation would be
Type 3 is one with a high potential for threat and a low potential for
cooperation. The nonsupporting groups could include academic economists,
“free trade” public affairs groups, other industries trading heavily
with the offending foreign firms, and others. The appropriate action is
for the organization to actively defend its position.
Type 4 is one with a high potential for threat and a high potential for
cooperation. This is a mixed-blessing type of stakeholder. Management’s
handling of this type can make the firm either a success or a failure.
Such a stakeholder in this case would be the computer chip maker’s
customers and defense officials. If either of the above believe that the
level of higher quality produced by foreign firms and their very low
prices are sufficient incentive to not press any dumping case then the
anti-dumping action may not succeed. The strategy here is to collaborate.
By collaborating, the stakeholder will remain actively cooperative and
the firm will be able to influence the final position of the
each type of stakeholder, the management strategy can be specified to
some degree. For example, a stakeholder of Type 1, a supportive
stakeholder, one with a high potential for cooperation and a low
potential for threat, should elicit a management strategy to involve
these stakeholders in the issue. Employees may be this type of
stakeholder. The figure below presents the suggested management
strategies for each stakeholder type.
stakeholder model is a tool that can be applied as effectively to public
policy decisions as to business decisions. Under this alternative
application of the model, the decision-maker who is the focus of the
model is the public policy manager, and in the case of commercial
diplomacy, the senior manger in the government who is charged with
making decisions on policies and actions that affect international trade
and investment. A stakeholder in this application of the model is any
individual or organization that has a stake or interest in a public
policy decision that affects international commerce, and the ability in
turn to affect the outcome of such a decision.
in the case of the business variant of the model, stakeholders may
affect a public policy decision or be affected by it. The definition of
a stakeholder under this public policy model remains the same as under
the business model, namely it is any individual or group that can affect
or is affected by the actions, decisions, policies, practices, or goals
of the organization, which in this case is the government rather than a
these definitions in mind, who are stakeholders in a public policy
decision? The stakeholders that immediately come to mind are the
individuals and enterprises whose economic interests are affected by the
decision, and the interest groups that espouse public policy goals
affected by trade and investment policy decisions. This can include
interest groups that espouse environment, labor, public health, human
rights, and similar goals. Other obvious stakeholders are the various
government ministries, departments and agencies responsible for policies
that are directly or indirectly affected by the decision This list can
include officials responsible for commerce, agriculture, labor, finance,
foreign affairs, health, safety, environment, justice, competition
policy, among others. The local communities affected by the public
policy decision are also stakeholders, are the voters and the
legislators who represent them, the press and the policy research
the case of public policy decisions within the ambit of commercial
diplomacy, the list of stakeholders includes all the affected groups in
other countries as well as in the home country. In fact, the advantage
of the stakeholder model in commercial diplomacy decisions is its
capacity to analyze the relationship between the interests and actions
of affected individuals and organizations in different countries. It
gives decision makers involved in public policy decisions that affect
international trade and investment a useful framework for analyzing the
interests of all the individuals and groups capable of influencing the
analysis of stakeholder interests under the public policy/commercial
diplomacy variant of the stakeholder model, the analysis revolves around
the organizational objectives of stakeholder groups as well as the
personal objectives of individual managers. An analysis of these
objectives and interests follows the same pattern as described above for
the business-oriented stakeholder model. The major difference between
the public policy model and the business model is likely to be a
difference in the relative weight assigned to social goals and
bureaucratic turf issues as against purely economic goals. Public policy
decisions are all about social goals, and it should therefore be
expected that social goals are likely to have a greater weight in an
application of the public policy variant of the stakeholder model.
Likewise, competition among government units is often not only about
differences in policy goals but also about issues of bureaucratic turf,
and we can therefore expect such issues to arise more often in an
application of the public policy model.
We saw that in the case of the business model, the interests of stakeholders could be mapped to the economic, legal, ethical and philanthropic objectives of business. In the case of the public policy model, the interests of stakeholders can be mapped to the commercial, economic, political, legal, social, ethical, foreign policy and security objectives of government.
Treating the stakeholder’s interests and obtaining conciliation and support requires an understanding of stakeholder theory and the activities of stakeholders in pursuing their interests. The identification, evaluation, and selection of strategies by stakeholders, and their implementation are central to an understanding how a decision making organization is able to resolve all issues, and ultimately meet the objectives and performance criteria of the business or public policy organization.
The objectives of each stakeholder vary with their interest or claim. The stockholder requires a total return of dividends, plus stock appreciation that is satisfactory. Government, depending on department, requires implementation of a public policy goal. The interest groups representing environmentalists expect a better record of ecological responsibility, and so on. Those that expect them can measure these diverse objectives, and the performance considered to be adequate or not. The rewards, of course, vary as well, and are closely tied to the identity of the stakeholder. It is the capacity of the stakeholder concept to portray the integration of highly diversified objectives pursued by different groups in today’s complex society that makes it such a practical tool for commercial diplomacy.
1. The stakeholder model of reality is better than a sector model in terms of defining all of the actors and institutions involved in public policy.
2. The list of stakeholders is very long, but a necessary one to consider for the practical resolution of issues.
3. All stakeholders are not alike in interests or strategic treatment. Each type of stakeholder has an appropriate treatment to be considered.
1. “Stakeholder Capitalism,” The Economist (February 10, 1996), 23-25.
2. James E. Post, et al. (1999). Business and Society: Corporate Strategy, Public Policy, Ethics. New York: McGraw-Hill, pp. 10-11.
3. The discussion of pages 5-9 in this chapter is greatly dependent on Archie Carroll and Susan Buckholz, Ibid.
to Political Strategies
now want to turn to the management of business government relations from a
business perspective. For purposes of this discussion, we will use the
original, business-oriented version of the stakeholder model as an
analytical tool. When we later turn to the management of business
government relations from a government perspective, we will use the public
policy oriented variant of he stakeholder model as the appropriate
we learned in the previous chapter, stakeholder interests and expectations
can be related to their degree of support for the organization. When
stakeholders learn that their expectations cannot be met regardless of the
amount of influence and pressure they bring to bear, they find that their
best answer is to turn to government. Here, they implement political
strategies that are of the utmost importance in the scheme of government
relations. The strategies to be covered here in Part 2 are: lobbying,
grassroots campaigns, coalition building, testimony, political
entrepreneurship, electoral strategies, communications and public affairs,
judicial, advisory panels, and governmental rapid response. Most of these
will be covered in this chapter, except for those requiring more extensive
treatment. Lobbying, coalition building, communications and public
affairs, governmental rapid response, are all discussed at length in
separate chapters of Part 2.
Grassroots campaign. An
important strategy is the use of a grassroots
campaign. Grassroots campaigns are based on the connection between
constituents and their elected representatives. Many interest groups
engage in grassroots political activity in order to show the breadth and
strength of their interests in the subject targeted. Grassroots campaigns
are run often enough that the number of political consultants who
specialize in this approach has increased in recent years. However, with
their increased use, legislative leaders may have also become more astute
in assessing the degree of impact of these campaigns.
grassroots campaigns, there are a number of key elements necessary for
their success. The first important element is that grassroots campaigns
target individuals. They may be
members of interest groups or other organizations; however, individuals
are the objects of attention. The individuals are, however, parts of types
of stakeholders having an
interest in the issue and therefore have better knowledge of it than the
public in general. Once the grassroots base of individuals is established,
generally numbered in the thousands, the program can then be put into
first step is planning and budgeting and this is more important here than
in most political approaches. The reason is that to reach thousands of
people, the cost of staff and expenses, communication including telephone,
email, and computers, training, conferences, recognition programs and
awards, all amount to a large amount per individual responding. The second
step is the campaigner’s ability for recruitment and motivation of
volunteers for the campaign’s network. Motivation is obviously tied to
the individual’s beliefs and their intensity. The identification of the
individuals in great detail including personal identification, address,
local political contacts and activity, legislative district, particular
sensitivities to issues, and more, is an important part in motivating the
the planning and individual identification, the next step is to train and
provide orientation for the individuals in the network. This step requires
the generation of training materials on the issues, the campaign, how to
participate, the goals to be attained, and more. Then, the materials are
all communicated to the individuals with an appeal for action.
appeal for action should be specific: who in government is to be
contacted, how, where, when, and the position to be expressed. Talking
points, various examples of letters, a call for personal experiences to be
conveyed, all are part of the final action.
after the campaign is over, the individual participant must be thanked,
informed as to the result, and appealed to for inclusion in the next
campaign. The campaign manager must be prepared to maintain the individual
as part of a pool of resources for future efforts. Eight essential
principles for grassroots campaigns have been provided in Figure 6.1.
fourth on the introductory list of political strategies, is a common means
of influencing political outcomes. Executives testify before legislative
committees, regulatory agencies, administrative agencies, and courts.
Testimony is important because not only does the information affect the
decision, but also because it creates a record that serves several
purposes. The testimony can provide new information to members of the
legislature or other bodies who have not been lobbied, it can be the basis
of a position statement to be built upon in future communications, it can
be used to support the committee chair, or even be the news story for the
morning TV news program. In fact, testimony can be part of a drama that
has been totally orchestrated to effect support or opportunities for a
is the active role by a high-profile individual who may be an organization’s
CEO or key executive to take a key issue to the nation’s capital. The
field of trade and investment has been ripe for political entrepreneurs.
In semiconductors, the late Robert Noyce, co-inventor of the integrated
circuit and a founder of Intel, became one by spending virtually all of
his time in the 1980s in Washington, primarily for the political solution
to trade issues facing the semiconductor industry. The CEOs of MCI, Boeing
Beach, American Express, and others during the late 1990s spent an
enormous amount of time as political entrepreneurs in Washington pursuing
their companies’ cases. In fact, during this same time, the presence of
corporate executives to act as “Lobbyists” for the industry became
more common, a situation of which Congressional members generally
political entrepreneurs need not be businessmen. They can be any strong
leader who is making the cause his own. Probably the best well-known
political enterprise in the United States today is Ralph Nader, primarily
in the field of consumer public interest. Others have included John
Gardner of Common Cause, Ross Perot (new political party), and Jesse
Jackson (civil rights).
involve providing important electoral resources to candidates for
office. Among these resources are endorsements, volunteer workers, and
campaign contributions. There are a number of basic reasons for providing
campaign contributions. These include an attempt to influence legislative
voting, obtaining access to officeholders, present or future, and finally
to help the legislator get elected that the contributors want to
influence. It appears that if the contributor can expect any return for
his/her contribution it is likely to be in terms of obtaining access
rather than any certain influence or votes. Also, it is not necessarily
important to be ideologically aligned with the legislator being financed.
It is more important to understand how important the legislator is to the
issues that contributors want to influence. For example, the chair of a
key committee, regardless of party, would be contributed to sooner than a
legislator who may be ideologically aligned but is not on a key committee
and further has no interest in the contributor’s issues.
laws and practices related to campaign contributions vary significantly
across countries, and aer one of the most debated aspects of any
democracy. Under the existing legal framework in the United States, such
contributions are channeled through Political Action Committees (PACs).
The most controversial aspect of campaign financing involves the source
and amount of funds and whether the money is “soft” money for broad
party purposes or “hard” money for a specific individual’s campaign.
This area is under such intense legislative debate at this time that the
reader of this manual should receive a current update at all times. PACs
will be discussed more fully in a later chapter.
Judicial strategies are
those that use legal action to enforce rights, enjoin competitive actions,
obtain damages, stop predatory business practices, and even more simply to
have a forum to present “Amicus briefs” to generally support a
position. Judicial action generally involves a long period of time and is
very costly. Dumping cases in international trade that were handled
through the courts in the United States in the 1970s often took ten years
or more to settle. This is hardly an expedient means of resolving issues
in industries whose products have total life cycles of three years or
less. However, the courts are still often used for cases involving
intellectual property, that is, patents, copyrights, and trademarks.
Advisory panels and committees, of which there are over 1000 in he United States, are well entrenched in government activities. Advisory panels and committees provide benefits to both the government side, as well as the private side of the table of members. For the business firm, participation on a panel provides information about possible decisions an agency is about to make and therefore can also provide a way to put an issue on the agenda of an agency if it isn’t there already. Furthermore, it raises the public awareness and reputation of the firms involved on the panel. From the standpoint of government agencies, the panel provides the government with expertise, which can clarify the consequences of alternative proposal policies. From the government agency’s viewpoint, it also provides a way of building support for its policy objectives. This last raises the reputation of the agency relative to the legislators and agencies in other government departments. The advisory panel, if utilized properly by the commercial diplomat, can be a strong tool toward shaping the eventual legislative policy.
The CD professional must be aware of the political strategies that
will advance the organization and stakeholder interests.
This chapter has outlined ten types of strategies, with five of
them to be expanded upon in the chapters to follow.
3. The overview of all the possible strategies clearly provides the Commercial Diplomat with a number of choices from which to make a selection to advance his client’s interest.
1. Charles Mack (1997), “Essential Principals,” Politics and the Practice of Government Relations. Westport, CT: Acorn Books, p. 207. Permission requested.
is the personal provision of information to government officials including
members of the legislature, commissions, staffs, and even the President or
other head of government. Lobbying is the process of influencing public
policy in much the same way as persuasion and requests or other forms of
communication are intended to influence others for whatever reason.
Lobbying takes place in all forms of organizations, although the term has
primarily been used to describe the private sector’s efforts to
influence government. However, government agencies and bodies also lobby
each other. For example, the executive branch of the government may lobby
the legislature and vice versa. Compared to other forms of influencing
government, such as testimony and advisory panels, lobbying is informal
and behind the scenes.
There are many reasons for lobbying, but at the core of them is the attempt by individuals and organizations to obtain either benefits or relief from government. For instance, the private sector cannot by itself change trade policy. It must depend on government. Those organizations most desirous of change will lobby for the changes they seek. Therefore, a reason here is there is no other recourse. Another reason is to gain an economic advantage or to nullify a sector opponent’s gain. Unions will therefore lobby to place duties on imports in order to maintain jobs. Another reason for lobbying is to single out a branch of government that will support a private sector goal that a different branch of government opposes. For example, an environmentalist interest group may seek national government control because local government control is inadequate. A different reason is to create new and different programs. All of these reasons and more can be attributed to the use of lobbying. Although other strategies could also be used, these serve as those, which would justify significant lobbying campaigns.
apply their efforts in a number of ways. Three specific applications would
include the following. First, the lobbyist will attempt to influence
specific legislation. By influence, of course, is meant in the direction
of his/her favor, whether it is to have it passed or failed. The lobbyist
most often will attempt to use it to modify legislation if a
straightforward pass or fail action is not possible.
Another direction that lobbyists often pursue is to affect regulatory activity. The lobbyist may seek to strengthen or weaken a specific regulation or regulatory ruling that is pending. It may be virtually impossible to change a regulatory finding but it may be possible to modify the instrument used to enforce the regulation to make it less intrusive. Another target for lobbying activity is to shape executive branch policies, programs, and budgets. In changing policies, a whole new broad vista of outcomes is now available to the lobbyist and his/her clients. By changing policy, legislation, regulation, and other activities can be affected systematically. Finally, the lobbyist will also attempt to affect specific decisions regarding governmental appointments, contracts, grants, and other decisions that may have an effect but not as broad as the ones already mentioned. These then are the ways for the lobbyist to satisfy his/her needs to lobby: influencing and affecting legislation, regulation, policies, and personnel and fiscal decisions.
is done both by professionals who specialize in advancing the interests of
their clients and by individuals and organizations that are affected by
government decisions. The following list of lobbying scenarios provides an
insight into the range of activities that could be treated as lobbying.
2. Management of organizations including business firms and interest groups
3. Legal counsel acting as lobbyists
4. Former government officials who have left office and now serve as lobbyists
5. Dedicated lobby firms and public affairs firms with lobbying skills
6. Government relations managers of organizations, such as business firms, and interest groups
Recent periodical articles on lobbying often list lobbying firms and interest groups as the most influential or active in Washington, D.C.. Some of these are given in Figure 7.1.
Fortune, Dec. 7, 1998
As indicated earlier, lobbying is a face-to-face activity that involves personal persuasion. The personal traits and character of the lobbyist are therefore paramount in the qualities of a successful lobbyist. Among the many traits are personal integrity, strong communication and persuasive skills, the ability to listen, possess an intimate grasp of formal and informal procedures, political sophistication, intellectual capacity, and strategic skills. A second combination of abilities is as exhaustive yet different. This list is shown in Figure 7.2
The most skillful
lobbyists and those with the best training do not commit the serious
blunders of many neophytes and newcomers who attempt to lobby. A few
admonitions are important here to keep in mind.
1. As a lobbyist for business interests, do not use “profits” as a motive for seeking help. Profits are not easily understood and are among the least acceptable reasons for public policy change. Only a few industries have used profits as an element of argument and only because it was related to research and development expenditures. Pharmaceutical companies have used profits and here where it is possibly justified the arguments have not always worked very successfully.
2. The lobbyist should always ask for what is desired at the end of a lobbying visit. He/she never leaves the petitioned in doubt as to what is needed and the lobbyists should, to the best of their ability, obtain a definite response as to whether the request will be granted.
3. Do not ignore precedence. Precedence often controls process, so attempt to allude to precedence if it will assist the cause.
4. Never fail to tell the truth. This is the basic criterion of integrity and an untruth, once discovered, will affect all future statements and relationships.
5. Do not ignore staff. Do the opposite. Spend as much time as necessary to prepare the staff of a committee or a congressman with the material required to obtain the desired results.
6. Do not spring surprises, especially when there is only one source and it cannot be supported. Do not overextend the information in order to shock the party into action.
7. Do not discuss policy and political campaigns at the same meeting. Lobbying for an expected outcome related to a policy affecting a client is not the time to discuss the congressman’s reelection campaign, funding, or related subjects.
|Continue to Next Page|