The Impact of Stakeholder Influences on the Formation of CSR policy in the Airline Industry

Transcription

1 Bachelor Thesis Organization & Strategy The Impact of Stakeholder Influences on the Formation of CSR policy in the Airline Industry Name: S. Voet ANR: Supervisor: Dr. D.A. Hennessy Topic: Industries, Firms, Competitive Dynamics and Competitive Advantage Subtopic: Stakeholder influence on CSR policy Study Program: BSc Business Administration Academic year: Date: June 11 th Word count: 2.387

2 List of Contents Page Chapter 1 Introduction Problem Indication Problem Statement Research Questions Relevance Research Design and Data Collection Overview 5 Chapter 2 Corporate Social Responsibility in the Airline Industry 7 Chapter 3 Stakeholder Groups 8 Chapter 4 Stakeholder Influences 10 Chapter 5 Conclusion, Discussion and Recommendations 10 Reference List 11 2

3 Chapter 1 Introduction 1.1 Problem indication In the last few decades Corporate Social Responsibility (CSR) has developed into a global trend and more attention has been paid to the phenomenon on the political and economic landscape (Doh & Guay, 2006). Because of the growing interest in CSR, much has already been written about this concept. Through the years, different approaches towards the concept have arisen, which can be subdivided in four groups. Successively they consider CSR as obligation, as stakeholder obligation, as ethics driven and as managerial processes (Maignan & Ferrell, 2004). This paper will concentrate on the second approach, and thus regards CSR as stakeholder obligation. This point of view considers that businesses are not responsible to society as a whole, but only towards their stakeholders (Clarkson, 1995; Jones, 1995). This approach more or less states that the existence of CSR-policy originates from the sense of responsibility of a firm towards its stakeholders. In turn, stakeholder influences contribute to the formation of CSR initiatives by firms. The latter relationship has been analysed in the literature in general before. Recommendations for further research however, claimed that the relationship between stakeholder influences and the derivation and composition of a company s portfolio of CSR-activities needs more indepth study. Also analysis of this specific connection within an industry or for a particular firm was recommended for future research. This is because stakeholder pressures are often industry specific (Brammer & Millington, 2004). Therefore this research will focus on a specific industry, namely the airline industry. This industry in particular, because of the changing perceptions and market environment and their influence on the development of CSR-initiatives. The unstable oil market caused a rise in crude oil prices, which has led to fuel efficiency becoming a major issue for airlines. Besides that, growing attention has been paid to the environmental impacts of air transport in the last few years. These events have caused growing interest in the development of CSR-policies for firms within the airline industry (Tsai & Hsu, 2008). 3

4 1.2 Problem statement As noticed before, the concepts of CSR and stakeholder influences have been analysed extensively before. Also some research has been done about the relationship between them. However, applying it to a specific industry has not been studied elaborately. Therefore, interest is in whether various stakeholder groups are influent enough to urge companies within the airline industry towards a CSR policy. So, the main question of this paper is: To which extent can diverse stakeholder groups exert influence on the managers of a firm within the airline industry, and thereby contribute to the development of CSR policy? 1.3 Research Questions To be able to find a suitable answer to the above problem statement, it is necessary to formulate some more specific sub questions. First of all, the field of stakeholders within the airline industry and their potential influence needs to be further explored. The various stakeholders need to be grouped in order to be able to further investigate their specific power on managers and their companies, and the accompanying CSR-policies. Also industry characteristics, which possibly exert influence (a moderating effect) on the connection between the concepts have to be taken into account. Finally, all aspects will be combined. This will be done by answering the following questions: What are the most important stakeholders for a firm in the airline industry and how can they be classified? To which extent are CSR initiatives industry-specific? In which way can airline stakeholder pressures contribute to the creation of CSR-policy, and which role do managers and industry characteristics play in this? 1.4 Relevance Answers to the above research questions will be relevant from both academic and managerial point of view. As was noted earlier, much has been written about stakeholder influences and CSR already. Also the relationship between them has been analyzed partly. However, the information is rather scattered. Also the specific relationship between both concepts within the airline industry has not been studied broadly. Therefore it seems to be useful to do further research on this specific connection. 4

5 Additionally, more analysis of the connection could be useful from a managerial perspective. When more is known about the relationship, managers can use this information in order to identify the most important and influent stakeholders of their company. And for that reason, handling with the preferences of the stakeholders and taking better decisions will be easier. 1.5 Research Design and Data Collection This paper will be a descriptive and causal literature review that is based on secondary literature about the concepts. These concepts include stakeholder groups, stakeholder influences, business management, CSR-policy and the airline industry. This literature will be articles published in relevant academic journals. The articles can be found via the library of Tilburg University and with the help of other appropriate search engines available. Restrictions can be the relative short time frame for writing the paper and the possible incomplete information given by the specific search method. 1.6 Overview The paper consists of several chapters. Each section will focus on a different aspect of the problem statement. In the following chapters the different concepts are going to be studied individually. Each chapter is assigned to one or several variable(s). In the end all variables will be combined and an answer to the problem statement will be given. The different variables and their interactions are shown in the figure below. This paper will concentrate only on these relationships, although the connection between the independent and dependent variable can be interpreted as reciprocal. Conceptual Framework Stakeholder Influences (Independent Variable) Airline s management (Mediating Variable) CSR-Policy (Dependent Variable) Industry Characteristics (Moderating Variable) Figure Conceptual Framework 5

6 The second chapter of this paper will concentrate on the dependent and mediating variable. Insight into CSR-policies in the airline industry and their formation by management teams will be given. The independent variable, the stakeholder concept, is discussed in the third chapter. The stakeholder approach will be studied and the most important stakeholders will be identified. Those stakeholders will be subdivided in groups that are significant for firms operating in the airline industry. For example, there are legislative and political stakeholders, community and consumer stakeholders, and financial stakeholders. The stakeholders will be categorized in external and internal ones and each stakeholder group will be discussed elaborately in the corresponding chapter. The forth chapter will study stakeholder influences on airline CSR-policies, through management teams, taking into account environmental characteristics. Industry features partly determine the possibility of stakeholder interventions and therefore perform a moderating role between stakeholder influences and a firm s management team, which in turn leads to the creation of CSR-policies (Brammer & Millington, 2004). This chapter will combine all the variables and strive to give an answer to the central problem statement. 6

7 Chapter 2 Corporate Social Responsibility in the Airline Industry This chapter further explains the Corporate Social Responsibility concept. Also the managerial contribution towards corporate social behaviour will be discussed. In the existing literature various interpretations of the concept of CSR have been suggested and no strong consensus about a clear definition exists (McWilliams et al., 2006). Thereby, many different terms are used that more or less imply similar or identical meanings: corporate social responsibility, corporate citizenship, corporate social responsiveness, public responsibility, corporate social performance, business citizenship, business ethics, stakeholding company, sustainable company, etc. (Valor, 2005). According to McWilliams and Siegel (2001) CSR includes situations where the firm goes further than consideration and engages in actions that appear to further some social good, beyond the interests of the firm and that which is required by law. This definition describes the CSR concept well. It seems to be that CSR pressures and initiatives are industry specific. More attention to this topic is paid in the industries that are regarded to be heavily polluting or damaging to their environment, like for example the petroleum or mining industry. The detection, extraction and processing of mineral resources is considered as one of the most environmentally and socially disrupting activities (Peck & Sinding, 2003). Warhurst (2001) notices that many of the environmental catastrophes or human rights incidents that have contributed to the growing communal concern about CSR over the last forty years, happened in the mining or petroleum industries. Also in the airline industry corporate citizenship attracts attention. Besides the rising concerns about the environmental impact of air transportation that has led to CSR becoming part of business plans, also the rise in crude oil prices has contributed to the development of CSR policies. The rise in prices recommended for airlines to become more fuel efficient (Tsai & Hsu, 2008). Airlines becoming more fuel efficient is not caused directly by stakeholder pressures, but more or less by outsiders. The first point on the other hand, the concerns about the environmental impact, can be viewed from a stakeholder point of view. Pressures towards cleaner air transportation originate from these worries. Because of the broad concept of CSR, many forms of responsible behavior by firms can be assigned as responsible behavior. (Here I want to insert a part which considers different forms of CSR-initiatives and the role of managers in it) 7

8 Chapter 3 Stakeholder Groups This chapter contains an explanation of the stakeholder concept and describes the main issues of the theory. Furthermore, a classification of the main stakeholders within the airline industry will be shown. Both academic and professional literature about the stakeholder concept has evolved enormously over the last few decades. In the past, businesses were mainly held responsible for creating and increasing shareholder value. This traditional view shifted from a shareholder orientation to a stakeholder orientation over time, and as a result firms were no longer only responsible for serving the owners. Nowadays, the notion that firms have stakeholders is commonplace in the management literature. The stakeholder perspective considers a corporation as an organizational entity through which numerous and diverse participants accomplish multiple, and not always entirely congruent purposes (Donaldson & Preston, 1995). This does not mean that businesses are accountable for society as a whole, but only towards their stakeholders (Clarkson, 1995¹; Jones, 1995). The development of stakeholder theory has concentrated around two main points, namely (1) defining the stakeholder concept and (2) identifying stakeholders and classifying them into categories (Rowley, 1997). The first issue of defining a clear definition of the concept has been discussed in academic literature elaborately. Different views on the term stake make it difficult to construct a universally accepted definition. Though the foundation of the stakeholder concept is laid in 1938 by Barnard, Freeman s (1984) Strategic Management: A Stakeholder Approach has led the stakeholder theory to where it is today. His explanation of a stakeholder: any group or individual who can affect or is affected by the achievement of the firms objectives, still provides the core boundaries of the term stake. Even though the discussion about whether to broaden or narrow the stakeholder specification continues, most researchers have used a definition close to Freeman s. Hill and Jones (1992) for instance describe stakeholders as constituents who have a legitimate claim on the firm. Carroll (1993) broadens their concept by including those people who can exert power on the organisation. Clarkson (1995²) argues that stakeholders are risk-bearers, because every stakeholder has some sort of capital (e.g. human or financial) at risk. 8

9 In any of the descriptions mentioned above, Freeman s definition holds and the core idea of the concept is evident (Rowley, 1997). Thus, no matter what definition within the stakeholder perspective, businesses are obliged to deal with stakeholder expectations, what makes management choices a function of stakeholder influences (Brenner & Cochran, 1991). In order to be able to manage their stakeholders, firms need to recognize them and determine what types of influences they can exert (Frooman, 1999). This first leads to the second issue of identifying and categorizing interested parties. Through the years, many researchers have tried to find an appropriate way of classifying stakeholders. Several schemes exist which attempt to categorize stakeholders according to the types of influences they exert on organizations (Rowley 1997). For example, Carroll s (1989) environmental sorting and generic and specific classification; Freeman s (1984) internal and external change distinction; Clarkson s (1995) primary versus secondary categorization; and the Scandinavian schemes which focus on types of transactions (Nasi, 1995). Just like similar research about the interaction between stakeholder influences and CSR policy in other industries, this paper will categorize the interested parties in four major groups. The first group includes bodies that consider protecting the environment as their duty. Non-governmental organizations (NGO s), like Greenpeace, are the main pressure groups. These organizations put pressures on businesses and industries from over the world to act responsible towards nature. Secondly, there is a regulatory cluster. Many forms of CSR are obliged by law. The main goal of regulators is to protect society and its environment through means of legislative requirements. In that way they hope to counteract waste and pollution. The third area is represented by those who have indirect interest in industry s environmental performance. They do not regard protection of the environment as an end in itself, but are glad to benefit from the rewards of cleaner manufacturing processes, products or services if they contribute to their own needs of profits. This group in itself includes many subgroups: financial stakeholders, like banks and speculators; customers; and media, like radio, television, papers and magazines. The three groups mentioned above are considered to be external stakeholders. These are interested parties who affect or are affected from the outside of the firm. The forth group therefore consists of the internal stakeholders of a firm. These include corporate officers, production, marketing and legal personnel (Fineman & Clarke, 1996). 9

10 Chapter 4 Stakeholder Influences This chapter will focus on the influences of the different stakeholder groups that were brought up in the former chapter. Per group will be studied to which extent their pressures are successful, as in resulting in corporate social responsibility by airlines. As noticed in the second chapter, pressures from stakeholders towards corporate social behaviour by firms are considered to be industry specific. (...) Chapter 5 Conclusion, Discussion and Recommendations The final chapter of this paper will summarize all the above findings and thereby attempt to answer the central problem statement: To which extent can diverse stakeholder groups exert influence on the managers of a firm within the airline industry, and thereby contribute to the development of CSR policy? After that a discussion and some recommendations will be given. (...) 10

11 Reference List Barnard, C.L. (1938). The Functions of Executives. Cambridge, MA: Harvard University Press Bowen, H.R. (1953). Social Responsibilities of the Businessman. New York: Harper & Row Brammer, S. & Millington, A. (2003). The Effect of Stakeholder Preferences, Organizational Structure and Industry Type on Corporate Community Involvement, Journal of Business Ethics, vol. 45, pp Brammer, S. & Millington, A. (2004). The Development of Corporate Charitable Contributions in the UK: A Stakeholder Analysis, Journal of Management Studies, vol. 41, no. 8, pp Brenner, S.N. & Cochran, P.L. (1991). The Stakeholder Theory of The Firm: Implications For Business And Society Theory And Research, In Mahon, J.F. (Ed.), Proceedings of the Second Annual meeting of the International Association for Business and Society, pp , Sun-dance, UT Carroll, A.B. (1979). A Three-Dimensional Conceptual Model of Coporate Performance, Academy of Management Review, vol. 4, no. 4, pp Carroll, A.B. (1989). Business and Society: Ethics and Stakeholder Management, Cincinnati, OH: South Western Carroll, A.B. (1993). Business and Society. Cincinnati, OH: South-Western Clarkson, M.B.E. (1995¹). A Stakeholder Framework for Analyzing and Evaluating Corporate Social Performance, Academy of Management Review, vol. 20, no.1, pp Clarkson, M.B.E. (1995²). A Risk Based Model Of Stakeholder Theory, Paper Presented at the Society of Business Ethics Conference, Vancouver, British Columbia Doh, J.P. & Guay, T.R. (2006). Corporate Social Responsibility, Public Policy, and NGO Activism in Europe and the United States: An Institutional-Stakeholder Perspective, Journal of Management Studies, vol. 43, no. 1, pp Donaldson, T. & Preston, L.E. (1995). The Stakeholder Theory Of The Corporation: Concepts, Evidence, And Implications, Academy of Management Review, vol. 20, no. 1, pp Fineman, S. & Clarke, K. (1996). Green Stakeholders: Industry Interpretations and Response, Journal of Management Studies, vol. 33, no. 6, pp Freeman, R.E. (1984). Strategic Management: A Stakeholder Approach. Boston: Pitman Frooman, J. (1999). Stakeholder Influence Strategies, Academy of Management Review, vol. 24, no. 2, pp

12 Hill, C.W. & Jones, T.M. (1992). Stakeholder-agency Theory, Journal of Management Studies, vol. 29, pp Jones, T.M. (1995). Instrumental Stakeholder Theory: A Synthesis of Ethics and Economics?, Academy of Management Review, vol. 20, no. 2, pp Maignan, I. & Ferrell, O.C. (2004). Corporate Social Responsibility and Marketing: An Integrative Framework, Journal of the Academy of Marketing Science, vol. 32, no. 1, pp McWilliams, A. & Siegel, D. (2001). CSR: A Theory of the Firm Perspective?, Academy of Management Review, vol. 26, no. 1, pp McWilliams, A., Siegeland, D.S. & Wright, P.M. (2006). Corporate Social Responsibility: Strategic Implications, Journal of Management Studies, vol. 43, no. 1, pp Näsi, J. (1995). What is Stakeholder Thinking? A Snapshot of a Social Theory of the Firm, In Näsi (Ed.), Understanding Stakeholder Thinking, pp , Helsinki: LSR-Publications Peck, P. & Sinding, K. (2003). Environmental and Social Disclosure and Data Richness in the Mining Industry, Business Strategy and the Evironment, vol. 12, no. 3, pp Rowley, T.J. (1997). Moving Beyond Dyadic Ties: A Network Theory Of Stakeholder Influences, Academy of Management Review, vol. 22, no. 4, pp Tsai, W.H. & Hsu, J.L. (2008). Corporate Social Responsibility programs choice and cost assessment in the airline industry A hybrid model, Journal of air transport management, vol. 14, no. 4, pp Valor, C. (2005). Corporate Social Responsibility and Corporate Citizenship: Towards Corporate Accountability, Business and Society Review, pp Warhurst, A. (2001). Corporate Citizenship and Corporate Social Investment: Drivers of Tri-sector Partnerships, Journal of Corporate Citizenship, vol. 1, no. 1, pp