1. © 2014 Routledge, Inc., Taylor and Francis Group. All rights reserved. PowerPoint Presentation Design by Charlie Cook CHAPTER 2 Strategic Stakeholder and Ethical Public Affairs, Issues, and Crisis Management © Routledge

2. Learning Outcomes After studying this chapter, you should be able to: 1.Describe stakeholder management and the need to balance stockholder and other stakeholder interests 2.Differentiate public affairs management from issues management 3.Identify the three-phase process of issues management 4.Define crisis and discuss the four stages of crisis management, including the 3 As of crisis communication 5.List and briefly describe the 5 Is strategic analysis 6.Categorize the issue life cycle stages with the strategic focus for each stage 7.Define the key terms in this chapter

3. © Routledge Balancing Owner and Strategic Stakeholder Interests Stockholder Approach Management, as the agent of owners/stockholders, has traditionally focused on meeting the needs of the owners/stockholders and maximizing profits without regard for any of the other business stakeholders. Stakeholder Approach Management seek to make ethical decisions on specific issues that address both owner needs for the creation of value and the needs of strategic stakeholders who can affect and are critically affected by the firm’s actions and performance.

4. © Routledge Public Affairs and Issues Management Public Affairs Activities and Functions Refers to how business interacts with and maintains its relationships with stakeholders. Public Affairs Management The process of developing corporate public policies and strategies regarding how the business will interact with stakeholders in the business, social, and government environments using issues management, crisis management, and strategic analysis. Issues Management Involves identifying, monitoring, analyzing, and selecting public issues that warrant nonmarket strategies.

5. © Routledge Figure 2.1Public Affairs Activities and Functions

6. © Routledge Public Affairs and Issues Management Issues Management Involves identifying, monitoring, analyzing, and selecting public issues that warrant nonmarket strategies. Issues Management Precludes Crisis Management The better managers deal with an issue, the less likely the issue is to escalate into a crisis. Scanning the environment for issues Evaluating issue impact on the firm Conducting a strategic analysis

7. © Routledge Figure 2.2The Issues Management Process

8. © Routledge Crisis Management Crisis A major unexpected event that has a large negative consequence on a firm. Crisis Mentality The belief that a crisis (e.g., violence, accident, or natural disaster) is unlikely to happen to our business. Crisis Management Stages 1. Developing the crisis team 2. Planning—risk assessment, monitoring, and crisis prevention 3. Managing the crisis—communication 4. Analyzing post crisis

9. © Routledge Crisis Management Team Activities 1. Conduct risk assessment and ranking to identify potential crisis events and determine the necessary degree of preparedness. 2. Utilize constant risk monitoring to anticipate crisis events and initiate a preplanned action when necessary. 3. Develop risk prevention and damage reduction strategies that can prevent a crisis, identify the warning signs of a crisis, and reduce damage if crisis occurs. 4. Have updated plans in place to respond quickly to a diversity of possible crises.

10. © Routledge Managing the Crisis—Communication 1. Timely communication is required as the firm may have only minutes to contain a crisis. 2. The crisis spokesperson (leader) should follow the “three A’s” of crisis communication: Acknowledge the crisis.Acknowledge the crisis. State the Action to be taken to deal with the crisis.State the Action to be taken to deal with the crisis. State how the crisis will be Avoided in the future.State how the crisis will be Avoided in the future. 3. Top management launches a post-crisis evaluation (preferably conducted by an objective third party) of the organization’s effectiveness in managing the crisis.

11. © Routledge Strategic Analysis Stages: The Five Is Issue Identification Interested strategic stakeholders Incentive of stakeholders Information about issues Interaction strategies

12. © Routledge The Nonmarket Issues Life Cycle Formation of issue and public sentiment Interested stakeholder formation Issue brought for voluntary action Legislative and regulation formation Enforcement and litigation

13. © Routledge Figure 2.4The Issues Life Cycle and Strategy Focus Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 ISSUE Identification and formation of the issue and public sentiment (possibly news media coverage) Interested stakeholder formation Issue brought to business for voluntary action (may be skipped) Legislative and regulation formation Enforcement and litigation STRATEGY Informational and societal strategies to influence the development of the issue Informational and societal strategies, developing coalitions Varies based on the issue and who brings it Political lobbying to prevent or support change Legal—comply with changes and avoid or bring lawsuits→

14. © Routledge The 5 Is Strategic Analysis Steps Interaction strategies Interested strategic stakeholders Information—Objectives Business Owners/ ShareholdersOwners/ Shareholders Employees/ ManagersEmployees/ ManagersBusiness Owners/ ShareholdersOwners/ Shareholders Employees/ ManagersEmployees/ Managers Incentive of stakeholders Issue identification 1 1 2 2 3 3 4 4 5 5 Strategy implementation and evaluation

15. © Routledge Strategic Analysis of Nonmarket Issues 1. Issue Identification Questions: What is the issue?What is the issue? At what stage in its life cycle is the issue?At what stage in its life cycle is the issue? 2. Identification of Interested Strategic Stakeholders: Which stakeholders support or will benefit from strategic action taken on the issue?Which stakeholders support or will benefit from strategic action taken on the issue? Which stakeholders do not support or will not benefit from strategic action taken on the issue?Which stakeholders do not support or will not benefit from strategic action taken on the issue?

16. © Routledge Strategic Analysis of Nonmarket Issues (cont’d) 3. Incentives of Stakeholders: What is the basis for the legitimacy of stakeholder claims on the firm?What is the basis for the legitimacy of stakeholder claims on the firm? How much power do the stakeholders have to affect the performance of the firm?How much power do the stakeholders have to affect the performance of the firm? How urgently does a nonmarket strategy need to be developed and implemented?How urgently does a nonmarket strategy need to be developed and implemented? What is the likelihood of stakeholder action based on its costs versus its benefits to stakeholders?What is the likelihood of stakeholder action based on its costs versus its benefits to stakeholders? Which actions could stakeholders take?Which actions could stakeholders take? What would be the consequences of those actions?What would be the consequences of those actions?

17. © Routledge Strategic Analysis of Nonmarket Issues (cont’d) 4.Information What do people know or believe about the issue and the forces affecting the issue’s development?What do people know or believe about the issue and the forces affecting the issue’s development? Which objectives (end results) must the firm achieve to create value for stakeholders?Which objectives (end results) must the firm achieve to create value for stakeholders? What information is needed to meet the objectives?What information is needed to meet the objectives? How will the firm confirm the veracity and accuracy of its information sources?How will the firm confirm the veracity and accuracy of its information sources? How will the firm sort out truthful facts from assumptions and sentiments?How will the firm sort out truthful facts from assumptions and sentiments?

18. © Routledge Figure 2.5Stakeholder Incentives and Powers Stakeholder Incentive—Measure of Costs vs. Benefits Power—Strategic Action Stakeholder Might Take Market Environment Stockholders Sales and profits Fair return on investment—dividends Increased value of stock Vote for board of directors Pressure board and managers Managers/ Employees Compensation (wages and benefits) Job security and opportunities Working conditions Union/collective bargaining Work slow down—call in sick Strike Customers Price Quality Safety Buy from competitors Boycott if products or policies don’t meet expectations Suppliers Gain, or lose, sales to firm Payment, in full and timely Relationship, ethical Provide needed products Refuse to sell to firm Slow down delivery Sell to competitors CompetitorsMay face same issue Fair competitive practices Complain to regulators File lawsuits

19. © Routledge Figure 2.5Stakeholder Incentives and Powers (cont’d) StakeholderIncentive—Measure of Costs vs. Benefits Power—Strategic Action Stakeholder Might Take Nonmarket Society Environment Societal Interest Group Monitor firm to ensure compliance with its interest Picketing Organize demonstrations and rallies Boycott Appeal to press Appeal to government File law suits Business Associations Provide research and information Business creation of value Provide staff and resource help Provide political and legal help Community and Consumerism Not hurting environmentPeople are part of other stakeholder group power News MediaInform community of issues Shape public sentiment Shape nonmarket agenda Provide positive news coverage Provide negative news coverage

20. © Routledge Figure 2.5Stakeholder Incentives and Powers (cont’d) StakeholderIncentive—Measure of Costs vs. Benefits Power—Strategic Action Stakeholder Might Take Nonmarket Government Environment LegislativeMake laws to help business and society Make firm practices legal (can do) or illegal (cannot do) ExecutiveEnforce laws Make and enforce regulations to help business and society Tell firm what practices it can and can’t perform and make firm comply Can close down business JudicialInterpret the law Determine litigation outcome Can change laws Decide who wins lawsuits

21. Writing Objectives Objectives state the end result the business wants to achieve in trying to create value for the stakeholders of the issue.Objectives state the end result the business wants to achieve in trying to create value for the stakeholders of the issue. The writing objectives model:The writing objectives model:  To + action verb + singular, specific, and measurable result to be achieved + target date.  Increase current bottom-line profits by 25% no later than the end of the first quarter of 2016. © Routledge

22. Figure 2.6Determining Whether Information Is Factual in Nature Information Source Source Interest Reputation/ Expertise Data Confirmation Data/Fact Determination Stakeholders with subgroups 1.Business 2.Society 3.Government 1.Strategic stakeholder 2.Stakeholder 3.Disinterested party 1.High 2.Medium 3.Low List other sources with interest and expertise ratings Guaranteed Fact Nonmarket sources, disinterested parties, high reputation, multiple sources Probable Fact Mixed sources, stakeholder, medium, reputation single or double source Questionable Fact Market source, critical stakeholder, low reputation, no confirmation

23. © Routledge Sources of Information Primary Information Data that is gathered directly by the information seeker Secondary Information Data that is provided by outside sources Supportive Information Accurate facts and figures are made stronger when gathered, or supported, by outside sources

24. © Routledge Information Strategies Supportive information Research by outside resources Expert testimony Expertise of supportive stakeholders

25. © Routledge Strategic Analysis of Nonmarket Issues (cont’d) 5. Steps in the Creation of Interaction Strategies Brainstorm to generate creative alternative strategies to meet the objectiveBrainstorm to generate creative alternative strategies to meet the objective Forecast the market and nonmarket reactions and consequences of each alternativeForecast the market and nonmarket reactions and consequences of each alternative Select most feasible and appropriate strategiesSelect most feasible and appropriate strategies Implement chosen strategiesImplement chosen strategies Evaluate and adjust strategiesEvaluate and adjust strategies

26. © Routledge Figure 2.7The 5 Is Strategic Analysis Steps

27. © Routledge Key Terms 3 As of crisis communication 5 Is strategic analysis crisis crisis management stages information strategies interaction strategies issues life cycle issues management issues management process issues to business public affairs (PA) public affairs management stakeholder management strategic stakeholders strategic stakeholders with incentives supportive information writing objectives model