Six Good Reasons to Include Competitors as Stakeholders
Note: This short paper was written as an assignment in a Doctoral seminar taught by Ed Freeman in the Spring of 2006. An important part of the assignment was the stipulation of no references other than the assigned text which was Redefining the Corporation: Stakeholder Management and Organizational Wealth by Post, Preston & Sachs – Stanford, 2002.
Geoffrey R. Archer, PhD Oregon State University 3800 SW Fairhaven Dr. Corvallis, OR 97333
[email protected]
Introduction In crafting their definition of a stakeholder1 , Post, Preston and Sachs (PPS) paraphrase what they call “Freeman’s loose statement” that a “stakeholder in an organization is (by definition) any group or individual who can affect or is affected by the achievement of the activities of an organization (p.18 PPS).” Mapping this definition of a stakeholder onto a quotation plucked from the OECD, PPS go on to characterize Freeman’s definition as “absurdity (p.19),” because it includes an organization’s competitors as stakeholders. PPS defend this “narrowing” of the definition of a stakeholder with the assertion that competitors interests are “directly opposed” to those of the focal corporation. Because I
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“The stakeholders in a corporation are the individuals and constituencies that contribute, either voluntarily or involuntarily, to its wealth-creating capacity and activities, and that are therefore its potential beneficiaries and/or risk bearers (P.19 PPS).
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agree that, “…stakeholder management is necessarily an ongoing process, flexible and situation specific (p.26 PPS)”, I take issue with the omission of competitors from stakeholder evaluation. In this short paper I will offer six good reasons why the competition should always be on the stakeholder map.
Seasons Change, People Change The very firms that are currently suppliers, customers or even investors may soon be one’s competition. This might occur as these other firms vertically integrate into one’s turf or execute on a new organizational tack. In the Cummins example, Komatsu was a valuable customer who, over time, became a formidable competitor. In some sense the executive holding a PPS-designed stakeholder map got lucky, as these entities were already on there. She mapped the stakeholders, omitting the competition. Time passed. Things changed. Now some of her present competition is shown by name as a stakeholder, de facto.
I advance that including the competition explicitly affords greater opportunity to be strategic and proactive. Back to the Cummins case, we see that the Ford-TennecoKubota investment solution, “demonstrates the great value of transforming one kind of stakeholder relationship into another (p.137 PPS).” This reader is left with the anxious notion that any of these current investors might soon pull a Komatsu déjà vu. For this reason I suggest including as stakeholders all those “who can affect” 2 the organization, both today’s competition and those with competitive potential.
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Excerpt from the Freeman quote
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Coopetition Abounds Some industries are very cooperative. The oil industry is a typical example. Often motivated by the dilution of downside risk in capital-intensive exploration or production activities, most “Big Oil” companies could easily be described as joint-venture-happy. In fact, the Brent Spar platform itself was a joint project of “Shell UK and Esso (p. 144 PPS).”
This long history of cooperation with one’s competition facilitates more
monopolistic combinations, such as the allied oil ‘pool’ in WWII (p.141 PPS).
The oil industry is an easy tool for my critique, but of course joint-venture (JV) activity and other, perhaps less formal, cooperation is not specific to the hydrocarbon business. In some firms, like Germany’s Siemens, the corporate culture and a path-dependent view of how they got to where they are today drive the proliferation of JVs that seem to spawn exponentially. In PPS’ chapter on China, arguably one of the most important business ‘nuts-to-crack’ on the planet, field interviewers found that, “managers repeatedly mentioned their need to turn JV and governmental partners created during negotiations into supportive collaborators in a common enterprise…(p.170 PPS).” In addition to embodying the very spirit of the stakeholder approach, this China example highlights the fact that the JV model is also very common in the international expansion of business, both in the nascent stages and beyond.
Looking under the hood of a 2005 Ford Escape Hybrid SUV would be an excellent way to illustrate my point. Faltering, old-school Ford Motor Company was caught with its pants down as robust competitors Honda and Toyota ran away with all of the ‘green’
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brownie points they could carry. Without the time for a full R&D cycle Ford simply licensed Toyota’s Hybrid “synergy drive 3 ”, and leapfrogged equally lethargic GM on the way to the socially responsible showroom. Most consumers have no idea that the hybrid drivetrain in the Ford Escape is the exact same system in the media-darling Toyota Prius. This example shows that for any firm that is cooperating with another similar firm, yesterday’s competitor can so quickly metamorphose into today’s partner.
PPS
summarize Shell’s five categories of stakeholders as “shareholders, customers, employees, those with whom Shell does business 4 , and ‘society’.” I say “those with whom Shell does business” is going to include competitors in more industries than not. Though stakeholder maps surely ought to evolve over time, I fear that waiting for official evidence of cooperation (e.g. the ink on paper of a formal JV agreement) will provide a business’s navigator with a star chart that’s more akin to still photos of a fireworks show.
We All Go Down Together Hollywood productions like The Insider or even the lesser known Tucker depict the prototypical David versus Goliath narrative that those of us concerned with business ethics are so apt to hold dear. Maybe the little guy is a whistle-blower. Maybe he has invented a better, safer mousetrap. Either way, it’s a banner day for all of us if the protagonist lives to retirement age, much less prospers. Dragging our feet out of the theater we lament that it is probably all too unlikely.
3 4
I could not fabricate a more emphatically ironic product name than reality affords. Emphasis added by author.
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Tobacco and vehicle safety are but a few of our ‘hot button’ industries. I have isolated them here so that we might see that part of what is so very dangerous about the firms that make dangerous things is that they are so darn good at working together. They are great at working the system, lobbying either to set or avoid the promulgation of standards – whatever is in their collective best interest. They do this, because they recognize that if this information leaks out or that safety innovation comes to market, they will all go down together.
The trick here is that this collective best interest is not likely going to be documented anywhere for us to plug into our stakeholder analyses. As consultants we must also realize that, though the ‘bad’ firms seem to be really good at this sort of industry-wide collusion, nearly any Fortune 500 firm participates in this kind of activity to some degree. If the firm around which you are drawing a stakeholder map has a lobbyist, an office in the Capitol or is a member of any industry-wide trade association – however innocuous it may seem- that firm is already working together with the competition, and therefore you need to include the competition as a stakeholder.
Your Shin Bone’s Connected to Your Ankle Bone It is needlessly myopic to truncate a firm’s vision through the exclusion of competitors, who very likely share and are strongly linked to a firm’s very own stakeholders. “All of the linkages (on the stakeholder map) may be operational at once; hence, contact with the firm creates indirect linkages or networks among the various stakeholders themselves – who may also, of course, be linked in other ways (p.22 PPS).” A recent development in
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Formula One racing should underscore my point. Honda owns a racetrack called Suzuka, which has hosted the lucrative and prestigious Formula One Japan event since 1987 5 . Toyota has recently renovated their track in the shadow of Mt.Fuji. If PPS had divined Honda’s stakeholder map without mention of the competition, they too might feel obligated to bow in shame as the race and the eyes of the world move to Toyota’s track in 2007.
Given the elaborate and pervasive interconnectivity of today’s business
environment (not limited to the Japanese keiretsu), “…all stakeholders have connections and interactions with others in the corporation’s stakeholder set (p.239).” If Honda had conceived of Toyota as a stakeholder, instead of, say, seeing the FIA (Formula One’s sanctioning body) as the complete connection, their position might have been strengthened.
Meet Your New Best Friend In the summer of 1998 I interned at Mobil Oil Corporation. As a potential recruit from a top MBA program I was part of a cohort called “strategic hires”, who were afforded direct access to venerable corporate officers. During a breakfast with the head of the “Major Transactions Group” (an elite team that proposed and evaluated all M&A for the company) one of us asked the speaker to, “describe your dream transaction.” The reply was prescient to say the least, and it was, “those of us with lots of stock options would really love it if Exxon would just buy us.” Four months later I was changing trains in Rome, and the cover of the European edition of USA today proclaimed “ExxonMobil!”
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http://www.autoweek.com/apps/pbcs.dll/article?AID=/20050321/FREE/503210709&SearchID=73241773 897534
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M&A marries two former competitors, and Wall Street instantly expects to see cost savings from omnipotent synergy. If the point of taking a stakeholder view is to preserve or create wealth or value, that view should certainly not be constructed in such a way that it is blind to the far-reaching effects of potential (not to mention fairly predictable) M&A. Mobil Oil should have considered Exxon as a stakeholder. Maybe they did. In fact, it wouldn’t be a bad idea for any firm to figuratively step outside of their own cubicles, and do a stakeholder analysis for each of their competitors 6 . Taking this ‘walk in another firm’s shoes’ one step further it is easy to imagine that the fruits of such creative analyses could feed very well into the business unit that plans a firm’s M&A in the first place. I cannot yet say whether the stakeholder map of an attractive M&A target or partner (spouse) is complementary in the sense that it is overlapping or in that it is nearly the inverse of the focal firm’s. But, once again, I can say that the very real probability of being affected by M&A tomorrow tells us to include competitors as stakeholders today.
Do The Right Thing Street maps aren’t expected to depict quicksand, fault-lines, sinkholes or running lava from active volcanoes – dangerous, but predictable conditions that might very well exist in some of the world’s most beautiful national parks. That doesn’t mean that the street map’s cartographer or the land surveyor are absolved of the responsibility to think about, and hopefully choose to depict such roadside hazards: The potential consequences are just too dire. Similarly, it would be unethical for stakeholder consultants to omit the competition from their stylized illustration of the business landscape. In my five previous
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Advocated by Freeman, Harrison and Wicks in their forthcoming book Managing for Stakeholders: Business in the 21st Century.
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examples I have described situations that, if anything, would be jarring to the operations of a business. Taken individually, customers-turned-competitors, JVs or M&A might, at minimum, disrupt the strategy of a regional office or trigger a minor restructuring. But, as a combined force in the harsh reality of the marketplace they might well bring a Fortune 500 corporation to its knees. Not only are the checks for your consulting work going to bounce, but there are obvious and massive implications for society, both locally and globally. To narrow one’s definition of a stakeholder to exclude the competition might be partially responsible for these dire effects hitting management (and the surrounding community) as a surprise, potentially compounding the damage. It seems like the right thing to do would be to provide as much foresight and transparency as possible, thereby maximizing the time between the storm warning and landfall.
Conclusion: All Aboard Though I have perhaps stolen some of my own thunder in the previous paragraph, I hope that my six good reasons have impressed upon you the necessity of including a firm’s competitors as stakeholders. If I were issuing laminated wallet-sized cards for this paper, they would look like Figure 1.
Figure 1 Six Good Reasons to Include Competitors as Stakeholders 1. 2. 3. 4.
Today’s customer, supplier or investor could be tomorrow’s competitor. Yesterday’s competitor can so quickly metamorphose into today’s partner. Most firms already work with the competition via lobbies or trade associations. Stakeholder relationships are not purely bilateral: Many of your stakeholders are already connected to each other and, quite likely, your competition. 5. M&A marries formidable foes with startling regularity. 6. Omitting competitors is unrealistic and bordering on unethical, because it affords reasons 1-5 the powerful element of surprise.
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“Proactive behavior is better than reactive behavior, enabling the firm to anticipate (and perhaps avoid) problems before they develop and preserving managerial discretion. As the experience of Shell clearly shows, a reactive stance leaves management at the mercy of events. Proactive behavior includes ongoing concern and involvement with stakeholder interests. This also provides a basis for rapid and collaborative response to crises, when speed and flexibility are required (p.245 PPS).”
The spirit of nearly anybody’s take on the stakeholder approach is proactive. In the Cummins case, the founding Miller family chose to exercise “preventive philanthropy (p.235 PPS)” in their hometown. Inaction is rarely the prescription, and if so, it is actively monitored, not ignored. A stakeholder map, a stakeholder theory, engagement or analysis aims to help a company see what bad things might happen if they were to continue to be oblivious to the needs or deeds of the various parties that surround it. This ‘lens’ enlightens a firm’s strategy, culture, and structure (p.239 PPS) like an ‘early warning system.’ In so many ways a firm’s competition is now or has the potential to soon be wreaking havoc on business-as–usual.
That, of course, portends myriad
deleterious impacts on our client’s employees, the surrounding communities and beyond. Let us not close our eyes to concept of the competition as stakeholder, lest we find ourselves explaining how we didn’t see that coming.
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