The world that corporations face today is considerably more complex than they have ever been. Technological advances have rendered operation of corporations considerably more visible than they have ever been, resulting in increased demands for greater corporate transparency and accountability. One response to these shifts by corporations has been to collaborate with stakeholders who represent interests outside of traditional corporate interests. This paper will evaluate the efficacy of stakeholder engagement (SE) as it applies to global corporations. It proposes that potential of SE to maximize business integrity is undermined by elusiveness of the stakeholder concept and problems that flow from it.
II Confusion Surrounding Stakeholder Theorizing and Definitions A Defining Corporate Citizenship
Although many corporations use the corporate citizenship (CC) model to engage with stakeholders, this concept is not easily defined. While some define this concept interchangeably with corporate social responsibility (CSR), others define it in its own right.
Simply put, CSR represents the continuing commitment by organizations to promote economic development while improving the quality of life of society. CSR is therefore a way for corporations to increase long-term profits by linking financial goals and social expectations. In contrast, those who make the distinction define CC as a process of managing an organization’s wider influences on society for the benefit of the organization and society. CC is therefore a way for corporation to express its value vis-à-vis society.
This section argues that depending on which definition a corporation takes, stakeholders that it chooses to recognize may (not) conflict with the law, which may have implications on the SE process. Before embarking on this argument however, it is necessary to define stakeholder. B Identifying Relevant Stakeholders
Generally, stakeholders include anyone who can affect or be affected by an organization’s activities. However, this definition is very broad and consequently a maddening list of criteria for stakeholder has developed. This is a problem in itself, as the first step of any SE process is stakeholder identification.
To make sense of these criteria, stakeholders have commonly been split into two categories: internal and external. Internal stakeholders are those who have major time commitments to the organization and vie among themselves for power, such as shareholders and management. All other stakeholders are deemed external. C Legal Interpretation of Stakeholders
Australian law favors internal stakeholders over external shareholders. Section 180 and 181 of the Corporations Act 2001 (Cth) prescribes directors with duty to act in the best interests of the company. Sections 182 to 184 of the Act constantly put the corporation first by requiring directors to operate in good faith, care and diligence for proper purpose. Under these provisions, directors are prohibited from improperly gaining advantage or causing detriment to the corporation. Precedents also indicate that directors must put the interest of the corporation as a whole foremost. Even in extremely rare situations where shareholders may be owed a duty individually, it is still the economic position of shareholders that is of utmost priority. Section 124(1) of the Act provides corporations with the same legal capacity as an individual, including the power to make an agreement. Although corporations can exercise this power to make donations as an individual could, the law forbids corporations from being socially responsible – at least genuinely so. This is reinforced by the decision in the Adler case that directors are in breach of their duties if a corporation enters into any transaction that has no possibility of producing a benefit for the corporation. D Evaluation
If a corporation equates CC with CSR, it is essentially identifying relevant stakeholders as more...