5 min
"We need to go back to the drawing table", Rabobank's Berry Marttin said earlier on the IFAMA platform. Niels Dijkman, consultant in Food and Agri, responds. He feels connecting stakeholderism and the kissing awake both intellectual and practical intelligence nested in the IFAMA network, could make an actual design table work for society and business.
Marttin's line of thinking echoes elements from Dick Veerman’s introduction video, in which he said: “[…] to embrace a new paradigm. A vision of the future should be able to encompass all the stakeholders.” Foreseeing a distinct role for IFAMA: “The next generation of IFAMA conferences is addressing the question how to align change throughout the entire food chain.” Back to the drawing table for this ‘new normal’ will be clearly a challenge for companies and a mutual challenge for all actors in and related to food value chains. Conserving and restoring nature necessarily plays a prominent role in the new designs.
Stakeholder orientation
A broad array of research calls for or promotes a more inclusive, stakeholder-oriented approach to businesses, most importantly in Freeman’s landmark work on stakeholder theory (e.g. 1984). Other examples are the ‘Triple Bottom Line’ (Elkington 1994), ‘Reimaging Capitalism’ (Henderson 2020), and ‘Pieconomics’ (Edmans 2020). Some research also includes calls for a new system approach (Pentland 2020), a new future of the corporation (British Academy 2019) or for stakeholder oriented corporate governance (Winter et al 2020). In some cases, research particularly addresses the actors active in the Food & Agriculture sector (FAO 2018, WBCSD 2020, and SAPEA 2020). In total, Sustainable Development Goal (SDG) 17 ‘Partnerships for the Goal’ implicates that involving all actors in the value chain – like farmers, processors, retailers, employees, NGOs, academia, financiers, government, and nature – is important for this paradigm shift.
Skepticism
On the opposite site, the concept of stakeholder thinking, ‘stakeholderism’ for corporations encounters skepticism and other barriers. Skepticism is explained from an academic perspective as follows: “Our analysis concludes that acceptance of stakeholderism should not be expected to make stakeholders better off. Furthermore, we show that embracing stakeholderism could well impose substantial costs on shareholders, stakeholders, and society at large. Stakeholderism would increase the insulation of corporate leaders from shareholders, reduce their accountability, and hurt economic performance” (The illusory promise of stakeholder governance, Bebchuk & Tallarita, 2020). “The reality is that there is no public consensus on many social and environmental issues. Since there is such disagreement regarding what public policy should be, this issue is not likely to be resolved any time soon. In the meantime, is it appropriate for company executives, who have been neither elected nor empowered to make social decisions, to decide that the prices set in the economy are not appropriate indicators for making corporate decisions because the government has failed to enact the proper policies to accountant for externalities?” (Valuing ESG: Doing Good or Sounding Good? - Cornell & Damodaran, 2020)
Barriers
Next to skepticism corporations encounter other barriers in daily practice. Sufficient examples show that horizontal or vertical collaboration and involvement of stakeholders is a far-fetched reality for various reasons: different interests, different perspectives on timing and urgency, prohibitive laws, and lack of leadership. See for example the recent farmers’ protest in the EU or the immigrant workers’ misery in slaughterhouses, particularly visible during the COVID19 pandemic.
Responsible business and the interests of others
Even though there is a great appeal and logic to applying a wider stakeholder orientation at company level, it triggers opposed considerations. In my opinion, the end goal for a corporation – and society – is well formulated in the article ‘Stakeholder Theory at the Crossroads’ (Barney & Harrison, 2018): “a responsible corporation is a corporation that provides an excellent and safe product at a fair price, pays its suppliers fairly and on time, treats its employees well, is respectful to the local communities in which it operates, pays its financiers as promised, provides a reasonable return to its shareholders, obeys applicable laws, and exhibits trustworthy behavior in its interactions with all its stakeholders.” Finding pathways to realize in a structured, objective manner a responsible business with a truly stakeholder-oriented and stakeholder-‘based upon’ corporate strategy, will be the big challenge.
Zooming in on this challenge with the perspective of corporate strategy, questions that can be asked are: how to structurally engage with (material?) stakeholders? How to truly design and execute this stakeholder-based corporate strategy? How to balance, trade off, value, and manage the different perspectives of stakeholders on activities and impacts? And, how to end up in a clear direction given by C-suite managers, despite their cognitive limitations?
As these questions are often difficult to answer, the quest for answers may benefit from applying strategic management theory insights. Strategic management theories about value creation and value distribution among stakeholders, and stakeholder theory are increasingly becoming intertwined, academically and in the mindset of managers. Marttin mentioned this also indirectly, referring to Davos.
The dynamic capability view defines dynamic capabilities (DC) as the capability of an organization to purposefully adapt an organization's resource base. Teece, Pisano, Shuen (1997) define DC as "the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments". The main assumption of this DC-framework is that an organization's basic competencies should be used to create short-term competitive positions that can be developed into longer-term competitive advantage. The DC view focuses on competitive survival in response to rapidly changing contemporary business conditions.
Thus, a company must develop skills on how to apply a DC perspective on their stakeholder approach. Dentoni, Bitzer and Pascucci (IFAMA ‘veterans’) argue in their 2015 article ‘Cross sector Partnerships and the co-creation for Dynamic Capabilities for Stakeholder Orientation’ that co-creation of these DC is crucial for Cross Sector Partnerships (CSP) to have an impact on society, since stakeholder oriented organizations are more suited to deal with wicked problems. We know that almost all sustainability problems are wicked.
Four dimensions of Dynamic Capabilities are distinct: 1. sensing, 2a. interacting with, 2b. learning, and 3. changing based on multiple stakeholders. Four business cases (Unilever, Friesland Campina, Sara Lee, and Heinz) follow these dimensions. These Multinational Corporations (MNCs) apply these dimensions and they interact in these CSP with heterogenous stakeholders. They do this from orientating, via designing a strategy, till execution, and the interaction with stakeholders.
The level of experience in dealing with the CSP increases in time but the development of the dimensions increases only until a certain point, where after it decreases (inversed U form) except for the dimension 2a. interacting with – this is an increasing line over time. Thus, after riding a learning curve for a certain period, corporations lose some of their ability, eagerness, interest, or necessity to adjust their strategy based on stakeholders although they keep on learning how to interact.
IFAMA as global network organization transferring academic and practical insights
“How to organize to get organized”, is a justified final question in the interview. I agree with Marttin’s view that private companies, in dialogue with other institutions, will have to lead the way. Academia in the IFAMA network are able to collect broad empirical insights, the ability to filter out the local context, and case specific elements, and reveal underlying mechanisms. IFAMA is a global network organization, wherein academia meet practitioners, different roles in the value chain are represented. It offers a tremendous platform to highlight collective learnings. IFAMA may function as a catalyst, sharpening this discussion and distributing learnings. In my view this is a very rewarding role which needs to be highlighted on this platform.
It is worthwhile to explore what the IFAMA network can bring along when we go back to the drawing table.
Stakeholder orientation
A broad array of research calls for or promotes a more inclusive, stakeholder-oriented approach to businesses, most importantly in Freeman’s landmark work on stakeholder theory (e.g. 1984). Other examples are the ‘Triple Bottom Line’ (Elkington 1994), ‘Reimaging Capitalism’ (Henderson 2020), and ‘Pieconomics’ (Edmans 2020). Some research also includes calls for a new system approach (Pentland 2020), a new future of the corporation (British Academy 2019) or for stakeholder oriented corporate governance (Winter et al 2020). In some cases, research particularly addresses the actors active in the Food & Agriculture sector (FAO 2018, WBCSD 2020, and SAPEA 2020). In total, Sustainable Development Goal (SDG) 17 ‘Partnerships for the Goal’ implicates that involving all actors in the value chain – like farmers, processors, retailers, employees, NGOs, academia, financiers, government, and nature – is important for this paradigm shift.
Skepticism
On the opposite site, the concept of stakeholder thinking, ‘stakeholderism’ for corporations encounters skepticism and other barriers. Skepticism is explained from an academic perspective as follows: “Our analysis concludes that acceptance of stakeholderism should not be expected to make stakeholders better off. Furthermore, we show that embracing stakeholderism could well impose substantial costs on shareholders, stakeholders, and society at large. Stakeholderism would increase the insulation of corporate leaders from shareholders, reduce their accountability, and hurt economic performance” (The illusory promise of stakeholder governance, Bebchuk & Tallarita, 2020). “The reality is that there is no public consensus on many social and environmental issues. Since there is such disagreement regarding what public policy should be, this issue is not likely to be resolved any time soon. In the meantime, is it appropriate for company executives, who have been neither elected nor empowered to make social decisions, to decide that the prices set in the economy are not appropriate indicators for making corporate decisions because the government has failed to enact the proper policies to accountant for externalities?” (Valuing ESG: Doing Good or Sounding Good? - Cornell & Damodaran, 2020)
Barriers
Next to skepticism corporations encounter other barriers in daily practice. Sufficient examples show that horizontal or vertical collaboration and involvement of stakeholders is a far-fetched reality for various reasons: different interests, different perspectives on timing and urgency, prohibitive laws, and lack of leadership. See for example the recent farmers’ protest in the EU or the immigrant workers’ misery in slaughterhouses, particularly visible during the COVID19 pandemic.
Responsible business and the interests of others
Even though there is a great appeal and logic to applying a wider stakeholder orientation at company level, it triggers opposed considerations. In my opinion, the end goal for a corporation – and society – is well formulated in the article ‘Stakeholder Theory at the Crossroads’ (Barney & Harrison, 2018): “a responsible corporation is a corporation that provides an excellent and safe product at a fair price, pays its suppliers fairly and on time, treats its employees well, is respectful to the local communities in which it operates, pays its financiers as promised, provides a reasonable return to its shareholders, obeys applicable laws, and exhibits trustworthy behavior in its interactions with all its stakeholders.” Finding pathways to realize in a structured, objective manner a responsible business with a truly stakeholder-oriented and stakeholder-‘based upon’ corporate strategy, will be the big challenge.
...an organization's basic competencies should be used to create short-term competitive positions that can be developed into longer-term competitive advantageStakeholder oriented strategy design & execution
Zooming in on this challenge with the perspective of corporate strategy, questions that can be asked are: how to structurally engage with (material?) stakeholders? How to truly design and execute this stakeholder-based corporate strategy? How to balance, trade off, value, and manage the different perspectives of stakeholders on activities and impacts? And, how to end up in a clear direction given by C-suite managers, despite their cognitive limitations?
As these questions are often difficult to answer, the quest for answers may benefit from applying strategic management theory insights. Strategic management theories about value creation and value distribution among stakeholders, and stakeholder theory are increasingly becoming intertwined, academically and in the mindset of managers. Marttin mentioned this also indirectly, referring to Davos.
The dynamic capability view defines dynamic capabilities (DC) as the capability of an organization to purposefully adapt an organization's resource base. Teece, Pisano, Shuen (1997) define DC as "the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments". The main assumption of this DC-framework is that an organization's basic competencies should be used to create short-term competitive positions that can be developed into longer-term competitive advantage. The DC view focuses on competitive survival in response to rapidly changing contemporary business conditions.
After riding a learning curve for a certain period, corporations lose some of their ability, eagerness, interest, or necessity to adjust their strategy based on stakeholders although they keep on learning how to interactDynamic Capabilities in stakeholder-oriented partnerships
Thus, a company must develop skills on how to apply a DC perspective on their stakeholder approach. Dentoni, Bitzer and Pascucci (IFAMA ‘veterans’) argue in their 2015 article ‘Cross sector Partnerships and the co-creation for Dynamic Capabilities for Stakeholder Orientation’ that co-creation of these DC is crucial for Cross Sector Partnerships (CSP) to have an impact on society, since stakeholder oriented organizations are more suited to deal with wicked problems. We know that almost all sustainability problems are wicked.
Four dimensions of Dynamic Capabilities are distinct: 1. sensing, 2a. interacting with, 2b. learning, and 3. changing based on multiple stakeholders. Four business cases (Unilever, Friesland Campina, Sara Lee, and Heinz) follow these dimensions. These Multinational Corporations (MNCs) apply these dimensions and they interact in these CSP with heterogenous stakeholders. They do this from orientating, via designing a strategy, till execution, and the interaction with stakeholders.
The level of experience in dealing with the CSP increases in time but the development of the dimensions increases only until a certain point, where after it decreases (inversed U form) except for the dimension 2a. interacting with – this is an increasing line over time. Thus, after riding a learning curve for a certain period, corporations lose some of their ability, eagerness, interest, or necessity to adjust their strategy based on stakeholders although they keep on learning how to interact.
IFAMA as global network organization transferring academic and practical insights
“How to organize to get organized”, is a justified final question in the interview. I agree with Marttin’s view that private companies, in dialogue with other institutions, will have to lead the way. Academia in the IFAMA network are able to collect broad empirical insights, the ability to filter out the local context, and case specific elements, and reveal underlying mechanisms. IFAMA is a global network organization, wherein academia meet practitioners, different roles in the value chain are represented. It offers a tremendous platform to highlight collective learnings. IFAMA may function as a catalyst, sharpening this discussion and distributing learnings. In my view this is a very rewarding role which needs to be highlighted on this platform.
It is worthwhile to explore what the IFAMA network can bring along when we go back to the drawing table.