Measuring the Business Value of Stakeholder Relationships Toronto, Vancouver, Calgary June, 2001

Topics Overview of Research Project Definitions and Assumptions Key Benefits Proposed Stakeholder Model

Research Partners Canadian Institute of Chartered Accountants Haub Program in Business and Sustainability, York University Centre for Innovation in Management, Simon Fraser University

Research Program Phase One - review existing research, develop model and measures Phase Two - case study research with 6 Canadian companies Completion by March 2002

Research 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 Stakeholders Individuals or groups who can affect, or who are affected by, a firm’s actions Primary stakeholders - shareholders, employees, customers, suppliers, communities

Defining 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? “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 Capital 1. Network (structural dimension) 2. Trust, norms and reciprocity (relational dimension) 3. Shared language and mutual understanding (cognitive dimension) Nahapiet and Ghoshal, 1998

Network

Trust, 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 Understanding Shared language, mental models/ paradigms For collaboration, extends to shared goals and aligned values

Benefits 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 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 “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.) 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 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 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 Value Ability to establish strong emotional connection with customers Customers, suppliers, investors, opinion leaders Positive widespread mention, word of mouth, commentary

Social 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 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 Model