MIM 511/BA 548 Day 3: Stakeholder Engagement Scott Marshall Associate Dean, Graduate Programs and Research

Stockholder Theory Milton Friedman: The Purpose of Business is to make money for the owner or stockholders.

Stockholder Theory Purpose of business is NOT to: provide employment eliminate discrimination avoid pollution help the community make life better for workers

Stockholder Theory President/CEO has obligation to stockholders “a corporate executive is an employee of the owners of the business. He has a direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible…”

Stakeholder Theory “Traditional roles (of governments, civil society and the private sector) are shifting inviting imaginative response to societal and environmental challenges and offering the possibility of new alliances that have the potential of bringing greater stability to whole nations and more opportunities to millions of disenfranchised people”. R. Tennyson, Prince of Wales Business Leaders Forum

Stakeholder Theory Managers are entrusted with a fiduciary responsibility to all those who hold a stake in or a claim on the firm. Stakeholders are – ◦ Narrow definition - Stakeholders include those groups who are vital to the survival and success of the organization. ◦ Wide definition - Stakeholders include all groups or individuals who can affect or is affected by the corporation.

Stakeholder Theory

Management enacts and follow policies that balance the rights of all stakeholders without impinging upon the rights of any one particular stakeholder. Managing for stakeholders creates as much value as possible for stakeholders, without resorting to tradeoffs.

Stakeholder Theory The Drivers… EXTERNALITIES ◦ “Tragedy of the Commons” (Garrett Hardin, 1968)  Individual rational action and gain, Group loss  Non-technical solutions MORAL HAZARD ◦ Impunity from consequences of actions ◦ “Information asymmetry” ◦ Passing on the cost of pollution, poverty, etc. MONOLOPLY ◦ Strive to avoid competition

Stakeholder Theory Aida Greenbury, Director, Sustainability and Stakeholder Engagement, Asia Paper and Pulp Aida Greenbury, Director, Sustainability and Stakeholder Engagement, Asia Paper and Pulp ◦ Environmental and Social Issues ◦ Social Footprint Assessment and Environmental Footprint Assessment ◦ Non-regulated – Ethical, Voluntary, Proactive ◦ Multi-Stakeholder approach ◦ Supply Chain – Procurement Policy – Third Party Assessment ◦ “Open Door – Transparency ◦ Goal – “Carbon Neutral Paper”

Stakeholder Theory – Asia Paper & Pulp From Hart & Milstein, 2003

Stakeholder Dashboard Stakeholder engagement ◦ Is a key component of sustainability-based strategy. ◦ Decreases risk and increases business opportunities. ◦ Builds trust and creates partnerships. ◦ Needs systematized measurement to provide insights for leadership.

Stakeholder Dashboard Steps: 1.Stakeholder Analysis: Influence? Legitimacy? Urgency? Rank order based on salience. 2.Measurement: Establish metrics, understand perceptions, over time. 3.Gap Analysis: Missing information 4.Gap Filling: Surveys, focus groups, etc. 5.Dashboard: Standardize and input data. 6.Perceptions of Perceptions… 7.Review Findings… 8.Present Findings…

Stakeholder Dashboard Nike and Stakeholder Engagement Nike, Climate and Energy…and Stakeholder Engagement Nike, Climate and Energy…and Stakeholder Engagement

Climate and Energy Climate ◦ First, let’s differentiate between Climate and Weather…  Weather is what conditions of the atmosphere are over a short period of time.  Climate is how the atmosphere "behaves" over relatively long periods of time.  Climate Change is the alteration in long-term averages of daily weather.

Natural and Anthropogenic Contributions to the Carbon Cycle Global Environmental Issues and Policies and Economic Consequences

Climate and Energy

World Energy Consumption – Source: BP 2006 Statistical Reviewwww.wikipedia.com

Climate and Energy World Energy Use – By Type Source: REN global status report on renewableswww.wikipedia.comREN global status report on renewables

Climate and Energy Source: based on the work of Frank van Mierlowww.wikipedia.com

Climate Policies ◦ Kyoto Protocol ◦ European Union’s Integrated Energy and Climate Change (2007) ◦ China 11 th 5 Year Plan (2006) ◦ Japan “Cool Earth 2050” (2007) Energy Policies ◦ Germany ◦ Japan Climate and Energy

Germany – National Policies Direct investment in R&D; Direct subsidies; Government-sponsored loans; Tax allowances; Subsidies for operational costs/feed-in tariffs. Germany - % Renewable Energy, Year Capacity (MW) 11,94414,82118,32121,62524,82328,24932,00335,77939,93445,310 Generation (GWh) 37,21739,03345,64744,99356,05262,11271,48787,59793,26993,543 % of total electricity consumption

Climate and Energy Japan – National Policies ◦ 25% reduction of greenhouse gases by 2020 based on 1990 levels, ◦ Introduction of a Feed-in-Tariff for all quantities and types of renewables, ◦ Increasing the percentage of renewables as a primary energy source to 10%. Japan – Renewable Energy Production, 2008 Renewable Type Power Generation (GWh) Percent Solar Photovoltaic (PV)2, % Wind3, % Geothermal2, % Hydropower17, % Biomass11, % Total37, %

Stakeholders/Climate/Energy Striving for “Grid Parity” Figure 1 Cost of Energy

Stakeholders/Climate/Energy Rising pressures to minimize anthropogenic contributions to climate change…i.e., lower GHG emisssions Involves multiple sectors and stakeholders ◦ Policy-makers ◦ Scientists ◦ Governments – local, regional, national, global ◦ Companies Lobbying is fierce Competition is fierce

Exercise Debrief: Iberdola and Stakeholder Assessment Set up a team of three people – who have not worked together as a team in this class or another class. Discuss the Iberdola case study, focusing on its… 1.Strategic approach to sustainability 2.Process of engagement with stakeholders 3.Strengths and weaknesses of its approach. Four groups will be randomly selected to present Points 1, 2 and 3 to the rest of the class.

Stakeholders Summary of Today ◦ Stakeholder Theory (vs. Stockholder) emphasizes impact and value of a company’s stakeholders. ◦ Sustainability strategies require Stakeholder Engagement ◦ Climate change is changing corporate behavior (e.g., Asia Paper & Pulp) and government policy (e.g, Japan). ◦ Changing the ‘energy portfolio’ requires multi- stakeholder engagement.