Corporate Governance

Emerald Article: Stakeholder governance: how stakeholders influence corporate decision making Heiko Spitzeck, Erik G. Hansen

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To cite this document: Heiko Spitzeck, Erik G. Hansen, (2010),"Stakeholder governance: how stakeholders influence corporate decision making", Corporate Governance, Vol. 10 Iss: 4 pp. 378 - 391 Permanent link to this document: http://dx.doi.org/10.1108/14720701011069623 Downloaded on: 04-10-2012 References: This document contains references to 68 other documents Citations: This document has been cited by 4 other documents To copy this document: permissions@emeraldinsight.com This document has been downloaded 3127 times since 2010. *

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Philippe Haspeslagh, (2010),"Corporate governance and the current crisis", Corporate Governance, Vol. 10 Iss: 4 pp. 375 - 377 http://dx.doi.org/10.1108/14720701011069614 Teresa M. Pergola, Gilbert W. Joseph, (2011),"Corporate governance and board equity ownership", Corporate Governance, Vol. 11 Iss: 2 pp. 200 - 213 http://dx.doi.org/10.1108/14720701111121065 Heiko Spitzeck, (2009),"The development of governance structures for corporate responsibility", Corporate Governance, Vol. 9 Iss: 4 pp. 495 - 505 http://dx.doi.org/10.1108/14720700910985034

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Stakeholder governance: how stakeholders inuence corporate decision making

Heiko Spitzeck and Erik G. Hansen

Heiko Spitzeck is based at the Doughty Centre for Corporate Responsibility, Craneld School of Management, Craneld University, Craneld, Bedford, UK. Erik G. Hansen is based at the Centre for Sustainability Management (CSM), Leuphana University of Luneburg, Luneburg, Germany.

Abstract Purpose This paper aims to explore how stakeholders are voluntarily granted inuence in corporate decision making. Design/methodology/approach The stakeholder governance practices of 46 companies were explored in a multiple comparative case analysis, drawing on publicly available sources. Findings The research nds that stakeholders are granted a voice regarding operational, managerial as well as strategic issues. The power granted to stakeholders varies from non-participation to co-decision making. The majority of engagements found are a combination of low power and low scope of participation, which are limited in their potential to align the views of those inside and outside the corporate boundaries. Research limitations/implications The data used in this research relied on publicly available sources, such as company reports, articles and web sites. Practical implications By seeing an array of different stakeholder governance mechanisms managers can reect on their own approach to stakeholders and see how other companies use stakeholder engagement for scenario planning and innovation. Originality/value The paper is the rst to empirically analyse a broad range of companies regarding their voluntary stakeholder engagement mechanisms. This design allows the creation of a heuristic for stakeholder governance as well as for identifying clusters. Keywords Social responsibility, Corporate governance, Structures, Stakeholders Paper type Research paper

Introduction
According to Lehman Brothers, in the eighteenth century we saw 11 banking crises, during the nineteenth century there were 18, and nally in the twentieth century there were 33 nancial crises[1]. Extrapolation from that experience suggests that the nancial crisis of 2008 could be the rst of approximately 60 crises in the twenty-rst century. Is it not ironic? The more crises occur, the less it seems we have learned to deal with them. Reecting on the recurring phenomenon of nancial crises Peter Senge (2008) states:
We are all familiar with nancial bubbles, the metaphor invented by economic historians to make sense of a recurring puzzle: How is that nancial overexpansion and collapse occur time and again, drawing otherwise bright and clever people into ruin?
Useful comments on previous versions of this article were received from Sophia Kusyk and Yuliya Shymko at the EABIS Conference in Barcelona in 2009. The authors are also grateful for the editorial support of Joan Fontrodona at the IESE Business School as well as Thea Hughes at Craneld School of Management.

The answer is that during a period of expansion, in effect, two parallel realities develop, one inside the bubble and one outside. Both feel equally real to those who live within them. But the more the bubble grows, the more people are drawn into its powerful reinforcing beliefs, and perceptions. Eventually, those inside the bubble become so absorbed by their reality that they literally can no longer understand the point of view of those outside.

If this observation is right, Senge points to an important governance issue: how to align the world views of those inside and outside the bubble? Ireland has found a legal answer to this

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DOI 10.1108/14720701011069623

question. In ghting the effects of the nancial crisis of 2007 the country enacted the Credit Institutions Financial Support Scheme 2008. In section 32 the scheme states:
In order to promote the public interest, a covered institution shall, at the direction of the Minister, take all reasonable steps to appoint at least one but no more than two non-executive directors to its board from a panel approved by the Minister during the period of the guarantee. The covered institution shall remunerate those non-executive directors. The Minister will also have the right to appoint persons to observe all meetings of the remuneration, audit, credit and risk committees of a covered institution. Such observers shall have the right to attend all meetings and have access to necessary committee papers and other relevant information.

These so called public interest directors come from outside the bubble to the inside and have the challenge of continuously aligning the worldviews of those inside and outside. Public interest directors are one way of stakeholder governance allowing external stakeholders access to corporate decision making in order to prevent future crises from happening. This paper looks beyond legal mechanisms and investigates voluntary mechanisms of stakeholder governance applied by companies. While research has considered the importance of stakeholders being involved in corporate decision-making (Sutton, 1993; Turnbull, 1994; Bird, 2001; White, 2006, 2009), apart from anecdotal evidence (Lewis, 2000; Mirvis and Googins, 2006), no empirical investigation has evaluated how stakeholder input is taken into account on the corporate level. Thus, the critical question we address by looking at voluntary stakeholder governance mechanisms is: how do stakeholders inuence corporate decision making and help to align the worldviews of those inside and outside the organization? This article is structured into four chapters. First, we present the theoretical foundations of corporate governance and stakeholder theory. Second, we present our qualitative methodology and the empirical results. Third, we discuss the results. Finally, we end the paper with a brief conclusion.

Theoretical background
Corporate governance Corporate governance is understood as the system by which companies are directed and controlled (Cadbury, 2000). The objective of corporate governance has traditionally been conceptualized by agency theory (Williamson, 1975; Jensen and Meckling, 1976) as the maximization of prots for shareholders (Friedman, 1970). An over-emphasis on prot maximization and on share price performance, however, has been found as a root cause of the latest governance crises (Zandstra, 2002; Currall and Epstein, 2003) as well as the current nancial crisis of 2007-2008 (Stiglitz, 2009). Viewed from a political perspective (Scherer and Palazzo, 2007; Ulrich, 2008), corporate governance is dependent on the consent given by the governed which in turn refers to democratic principles such as the separation of powers and political debate (Gomez and Korine, 2005). This political view has been taken up by stakeholder theory (Freeman, 1984; Donaldson and Preston, 1995; Letza et al., 2004) arguing that stakeholders are critical for the survival of the organization and they need to be considered in the system by which companies are directed and controlled. Also key proponents of agency theory acknowledge nowadays that stakeholder interests need to be considered in enlightened governance arrangements (Jensen, 2001). While some limit their analysis to board governance (e.g. White, 2009), we regard corporate governance as a broader concept involving corporate decision making beyond the board of directors (Letza et al., 2004; Sison, 2008). Stakeholder theory A stakeholder in an organization is any group or individual who can affect or is affected by the achievement of the organizations objectives (Freeman, 1984, p. 46). From the corporate perspective some stakeholders such as employees and customers are critical for corporate survival (Lozano, 2005) as they provide the organization with essential resources (Pfeffer and Salancik, 1978). This line of reasoning is usually referred to as instrumental

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stakeholder theory and provides a basic rationale for the question of why stakeholder concerns should be considered in the way in which an organization is directed and controlled. Instrumental stakeholder theory holds that the corporation needs to pay attention to only those stakeholders who can affect the value of the rm (Donaldson and Preston, 1995; Mitchell et al., 1997; Jensen, 2001). From an instrumental perspective, stakeholder governance needs to give a voice to powerful stakeholders in order to secure their contribution to the success of the rm. This line of thought usually conceptualizes stakeholder dialogue strategically and is oriented around the needs of the organization such as risk management or the realization of opportunities (Ulrich, 2008). There are two other perspectives on stakeholder theory: a descriptive and normative view (Donaldson and Preston, 1995; Garriga and Mele, 2004; Lozano, 2005; Ulrich, 2008). The descriptive stakeholder approach identies and classies the different constituents of an organization without assigning any value statements regarding the legitimacy of their claims or their power (Lozano, 2005). Normative stakeholder theory goes further and grants stakeholder claims intrinsic value due to the moral rights of any individual affected by corporate conduct (Donaldson and Preston, 1995; Ulrich, 2008). Central questions of normative stakeholder theory consider rights and duties of the actors involved and how a just balance of concerns of different stakeholders can be achieved (Lozano, 2005; Fontrodona and Sison, 2006; Sison, 2008; Ulrich, 2008). From a normative point of view stakeholders need to be included in corporate governance in order to respect their moral rights. In order to do justice, stakeholder dialogue is not strategic but open and deliberative coming close to Habermas ideal speech situation (Habermas, 1984; Waddock and Smith, 2000). Stakeholder dialogue in this normative view applies a procedural understanding of legitimacy (Palazzo and Scherer, 2006) and a discursive understanding of responsibility (Habermas, 1984; Ulrich, 2008). It follows a political view that [p]articipation of the governed in their government is, in theory, the cornerstone of democracy (Arnstein, 1969, p. 216). Similar arguments for a normative perspective are brought forward by Mintzberg (1996) as well as Manville and Ober (2003). Independent from either an instrumental or normative view, the participation of stakeholders in corporate decision making has been related to efciency gains leading to competitive advantage (Turnbull, 1994, 1997) and is supposed to reduce conicts (Rothman and Friedman, 2001). Stakeholder governance has the potential to turn distrustful opponents into critical friends (AccountAbility and Utopies, 2007, p. 1). Empirical research has generated some evidence that rms leading in terms of corporate responsibility (CR) tend to be more stakeholder-oriented (Ricart et al., 2005). Other empirical research investigated the importance given to certain stakeholder groups (Jamali, 2008) or the impact of the dialogue on organizational learning and CR performance (Burchell and Cook, 2006, 2008). Also there have been some primarily descriptive single case studies on how organizations engage in communication and dialogue with stakeholders (Kaptein and Van Tulder, 2003; Foster and Jonker, 2005).

The conceptual model There are two important dimensions of stakeholder governance: power and scope. Power refers to the level of inuence stakeholders are granted in corporate decision making (Burchell and Cook, 2006; Jonker and Nijhof, 2006; Burchell and Cook, 2008). The two extreme poles of power in corporate decision making are: 1. non-participation in which stakeholders do not have any voice in decisions; and 2. stakeholder power in which stakeholders possess the power to decide (Arnstein, 1969). Scope refers to the breath of power in corporate decision making and usually spans along the line of deciding on isolated local issues to decisions affecting the general business model of the organization (Kaptein and Van Tulder, 2003; Jonker and Nijhof, 2006; Money and Schepers, 2007).

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Taking these two dimensions together generates a matrix which serves as the basis for our analysis (Figure 1).

Research methodology
As our literature review did not reveal a large number of empirical studies on how corporations voluntarily grant access to corporate decision making for stakeholders, we take a qualitative case study approach (Eisenhardt, 1989; Yin, 2003). We rst identied a number of corporations which run stakeholder engagement mechanisms either by following previous research (AccountAbility and Utopies, 2007; Castello and Lozano, 2009; Hansen et al., 2009) as well as referrals from experts in the eld. This approach helped us to identify 46 organizations using 76 mechanisms of stakeholder engagement (as some organizations have more than one mechanism of engagement with stakeholders). These 76 stakeholder engagement mechanisms were then analysed for patterns regarding governance structures (Spitzeck, 2009) and the inuence stakeholders are granted in corporate decision making. Following a grounded theory approach (Glaser and Strauss, 1967) this study seeks to classify different stages of stakeholder governance in terms of power and scope, thus developing theory from the comparative case study approach (Eisenhardt, 1989). The data was analyzed following Strauss and Corbins (1998) process of description, conceptual ordering and theorizing. The research team created proles of the organizations stakeholder engagement mechanisms which were then evaluated independently using a ve-point Likert scale for each dimension (1 low and 5 high). First, the research team evaluated the different instruments inductively searching for patterns in both dimensions of power and scope. Second, a form of analytic induction (Wilson, 2004) was used to compare constructs across cases. This process helped to facilitate cross-case comparison and is considered a suitable method for building theory and testing ideas across multiple cases (Miles and Huberman, 2005). Analytic induction is an iterative process and entails the sequential analysis of cases; propositions generated from the initial case are considered against subsequent cases, and rened as necessary. In addition, the process enabled the meaning of the construct to be continually rened (Eisenhardt, 1989). Figure 1 The power/scope grid of stakeholder governance

High

Stakeholder Power Low

Low Scope of Participation

High

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Results
Our analysis revealed a 3 5 matrix. Only three different patterns of scope of stakeholder participation could be distinguished. The scope increases from operational issues, to a managerial and nally to a strategic level of interaction. Five different levels of power could be distinguished starting from a situation where no evidence of stakeholder inuence is provided to a nal stage where stakeholders have a say in corporate decision making. Table I provides an overview of the results. The analysis of the results is presented in two different forms. First, the different levels of power (1-5) as well as scope (1-3) are explained with reference to the data. Second, we present some logically derived clusters of stakeholder governance mechanisms. Power 1. No evidence of stakeholder power. In 17 cases the corporations were demonstrating their efforts to engage with stakeholders without explaining how the dialogue shaped corporate decisions;, e.g. Dow created an Independent Energy Advisory Panel in March 2008 to provide insight on potential scenarios and challenges related to energy. No evidence could be found in the descriptions of the panel that its deliberations had any impact on corporate decision making. 2. Listening to stakeholders voice. In a total of 14 cases companies showed evidence of listing to the concerns of stakeholders. These companies generally report that the dialogue with stakeholders fosters organizational learning and shapes corporate decisions. However, in all these cases it is difcult to make clear links between the stakeholder input and the decisions adopted by the company. The German Merck KGaA, for example, states in its 2009 CR Report:
We learn from these exchanges, which take place throughout the entire organization. They help us to recognize changing requirements and to assess the impacts they have on the company whether as opportunities or as risks. In this way, formal and informal interactions impact our decisions (Merck KGaA, 2009, p. 15).

3. Intermediary impact. In the majority of cases (25 in total) there was evidence of limited and intermediary impacts related to stakeholder engagement. In these cases stakeholder opinions for example impacted on corporate reporting or helped to establish a materiality matrix. While the link between stakeholder opinion and the corporate response is stronger as on the listening to stakeholders voice stage, the impact of stakeholders is limited to an intermediary sphere of decision making such as reporting and establishing a materiality process. While this might lead to stakeholders inuencing a precise corporate decision (e.g. as demonstrated on the power levels 4 and 5) there is no evidence that this happens. For the impact on reporting the description by Anglo Platinium is typical for this stage: Changes have been made to the content, order and layout of the 2008 report based on the feedback from our wide stakeholder base. (Anglo Platinum, 2008, p. 9). Similarly, many companies start to develop a materiality matrix such as in the case of Otto: Table I Frequency of stakeholder governance mechanisms by power and scope of participation
SUM Power 5 4 3 2 1 Stakeholder power Policies and KPIs Intermediate impact Active listening No evidence 15 1 4 1 2 7 1 Operational 40 0 4 20 6 10 2 Managerial Scope of participation 21 6 5 4 6 0 3 Strategic 76 7 13 25 14 17 SUM

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Comparing the internal company viewpoint with the external stakeholders perspective gave specic indications of which topics were important to everyone involved, thus allowing content foci to be derived for this Sustainability Report. The results of this so-called materiality process, which identied the most material (most relevant) issues for this report, are illustrated in a Materiality Matrix (Otto, 2009, p. 20).

4. Impact on policies and key performance indicators. In 13 cases there was a clear link between stakeholder engagement and the adaption of new policies and key performance indicators as a result of the dialogue. A good example for policy adaptation is provided by the British retailer Marks & Spencer:
The views of our stakeholders customers, shareholders, employees, suppliers and others guide our policies. We monitor their views formally and also hold regular discussions with the UK and Irish governments, regulators, community partners, trade associations and environmental, human rights and animal welfare groups (Marks & Spencer, 2009, p. 38).

This general declaration is further evidenced for instance by the adaptation of a new policy regarding palm oil and the objective to phase out all palm oil from unsustainable sources by 2015 (Marks & Spencer, 2009, p. 29). 5. Stakeholder power substantiated impact. In seven cases stakeholders were granted signicant inuence on corporate decisions. Most of these cases refer to companies granting customers extensive options in the design of products and services. IBM provides an example here with its agile modelling approach, requiring active stakeholder participation to allow IT systems to be built to the specic requirements of the customer. An interesting case in this category was the sustainability-driven fruit drinks company innocent (Brown and Grayson, 2009). When invited by McDonalds to include innocents fruit smoothies as part of the happy meal menu for children, the company was unsure how to respond. Collaborating with McDonalds could have a serious impact on the companys reputation for sustainability. To reach a decision the company polled our regular drinkers a few weeks ago to ask them about it, and 72% said they would actively like us to be in McDs [McDonalds], 17% said they didnt care, and 9% said we shouldnt be there. (Innocent, 2007). After a decision had been reached, the company opened a blog on their webpage on this issue engaging with critical customers publicly. Scope of participation 1. Operational issues. In 15 cases stakeholder engagement involved operational issues. The majority of those represented local community engagement mechanisms such as BPs stakeholder advisory panel in Indonesia, which is consulted on the economic, political and social impacts of the Tangguh Liqueed Natural Gas Project[2]. Other operational issues included the efcient and effective management of biodiversity impacts, energy or the sourcing of palm oil. 2. Managerial issues. In the vast majority of cases (40) stakeholders were consulted on managerial issues such as reporting, identifying key performance indicators, issue and risk management, spotting opportunities, as well as reputation management. These managerial issues refer to the companys current approach towards relevant issues for stakeholders and do not involve any input on company strategy or business development. A typical example is Lafarges stakeholder panel which was convened to assess and recommend improvements on selected CR issues as part of the companys sustainability reporting process. It reviews the draft sustainability report to deliver a critical opinion for publication within the report (AccountAbility and Utopies, 2007, p. 17). 3. Strategic issues. In 21 cases stakeholders were involved in discussions about strategic issues such as business development, scenario planning and innovations. Usually the discussions centred on with whom to do business and under which circumstances on one side and on designing future markets and inspiring innovations on the other. An example for self-limiting its market is Rabobanks ethics committee that also handles employee requests with regard to internal and external policies:

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[The committee] reviewed a number of business customers in 2008 for their compliance with the Rabobank Group statement on the arms industry. Following this review, group entities struck up a dialogue with some business customers, asking them to cease their production of controversial weapons. Within this context, we decided to let go of one of our business customers (Rabobank, 2008, p. 20).

However, stakeholder input is also used for innovating and shaping future markets, e.g. in the case of General Electrics ecomagination advisory board consisting of sustainability thought leaders:
[. . .] the Advisory Board provided valuable input on commercial, technical, and policy-related opportunities for GE in the key strategic areas of carbon capture, energy efciency, and global economic recovery projects. Receiving ongoing input from the Advisory Board is one way GE increases its engagement with the public and leading environmental experts. This input will continue to shape the growth of the ecomagination program as GE identies new opportunities (GE, 2008, p. 5).

Clusters of stakeholder governance mechanisms Based on the power/scope grid developed in the prior section, we further analysed the data in the grid using a logical cluster analysis. This analysis revealed four clusters (the clusters are not entirely distinct, but partly overlap), as presented in the following Figure 2. Each cluster is further elaborated in the sections below. Dialogue and issues advisory (low scope and low power) The mass of stakeholder engagement mechanisms (61 per cent) of our sample remain with low to intermediate power and within operational or managerial scope. Mechanisms in this cluster demonstrate a high diversity of stakeholders (i.e. broad types of stakeholders are involved). Two major types of formal instruments are important (as we will see, both are also important in the subsequent cluster, though with a different orientation): First, formal Figure 2 Clusters of stakeholder governance mechanisms

Stakeholder Power

Issues Collaboration (12%)

Strategic Collaboration (14%)

Diversity of Stakeholders

Dialogue & Issues Advisory (61%)

Strategic Advisory & Innovation (13%)

Scope of Participation Diversity of Stakeholders

Note: Figures in parentheses denote frequency in percentage

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stakeholder dialogues which are usually multi-stakeholder forums with a very broad and diverse group of stakeholders. Second, stakeholder advisory panels (SAPs), a body constituted of a limited number of external stakeholders that meets regularly. Most of the SAPs in this cluster are in fact report review committees (RRC) with power mostly limited to assurance of the CR report or even without such formal power. Strategic advisory and innovation (high scope and low power) About 13 per cent of the mechanisms belong to the cluster characterised by a large scope, however, still with low power. Broad stakeholder dialogues become unimportant in this cluster, which also leads to reduced diversity of stakeholders. Comparable with the prior cluster, a reasonable share represents SAPs. In contrast with the issues advisory predominant in the prior cluster, this clusters SAPs advise the organisations strategy more broadly and also focus on specic business opportunities. Examples are the earlier quoted ecomagination advisory board by GE that supports the business development of sustainability-oriented technologies as well as the SAP at DuPont advising on sustainability-related aspects of biotechnology (even though the panel has some degree of power, the voice of the stakeholder is limited in the way that only pro-biotech-oriented representatives are appointed to it). Further instruments have an even stronger orientation towards innovation and more specic, open innovation: new products or services are developed on multi-stakeholder platforms together with business partners and non-governmental organizations (NGOs). Consider, for example, the German reinsurance company Munchner Ruck that collaborates with other stakeholders insurance services to mitigate climate change. The IBM Global Innovation Outlook aims at collecting stakeholder input for solving the worlds most pressing problems (see www.ibm.com/ibm/gio/ and http://www.collaborationjam.com/ (accessed 15.01.2010)). Issues collaboration (low scope and high power) The 12 per cent of the mechanisms belonging to the cluster of issues collaboration are characterized by signicant stakeholder power; however, only within a limited scope (usually focusing on specic issues or local communities). The diversity of stakeholders is low, in the sense that each mechanism addresses only a small number of different stakeholder types. One advisory panel consists of local Indonesian experts; a local community advisory panel (CAP) interacts with the neighbourhoods of specic plants; and two companies survey or integrate customers with respect to their products and services development. Also, two rms engage in multi-stakeholder collaborations that are targeted on more environmental-friendly resource usage (e.g. sustainable palm oil). A small number (3) of dialogue mechanisms and advisory panels with signicant impact on corporate policies also belong to this cluster. Strategic collaboration (high scope and high power) In this nal cluster, corporations regard stakeholders as partners in the sense of strategic collaborations. However, governance mechanisms are predominantly (eight of 11 mechanisms) limited to one specic group of stakeholders: customers. Instruments used for customer engagement are survey techniques, regular meetings with customer representatives, consumer involvement in brand management, customer advisory boards, and voting mechanisms. A good example is the one of innocent which polls customers on specic business decisions. The most advanced form of stakeholder governance in terms of scope and power was found in the case of The Co-operative Banks approach to business:
The views and concerns of The Co-operative Bank customers have shaped [. . .] our Ethical Policy ultimately deciding how we invest their money. [. . .] A series of customer focus groups and a range of internal and external forums tested a number of potential Policy developments and the subsequent development of a questionnaire, on matters of international development, human rights, animal welfare and ecological impact. Questionnaires were delivered to customers primarily as inserts alongside postal statements. Over 80,000 customers participated in the consultation (2001: 60,000), of which 99% endorsed the development of the Policy as proposed (2001: 97%). The resulting revised Ethical Policy, containing nine new or extended clauses, as

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detailed throughout the Report, was approved by the CFS Executive and ratied by the CFS Board in December 2008 (see www.co-operative.coop/corporate/Sustainability/socialresponsibility/ethical-nance/The-Co-operative-Bank-Ethical-Policy-Review-2009/ (accessed 18 January 2010)).

Another interesting approach is Rabobanks Ethics Committee to which employees are encouraged to submit moral issues at their discretion. The committee monitors the banks business with respect to various internal and external guidelines and, more broadly, under consideration of wider CR issues (i.e. it goes far beyond common compliance committees).

Discussion
One of our main (inductive) ndings is the stages on each dimension of the power/scope grid of stakeholder governance. The rst dimension, stakeholder power, actually relates to ndings from other authors, for example, the stakeholder debate versus dialogue classication (Kaptein and Van Tulder, 2003), or Burchell and Cooks (2008) four-item scale for stakeholder dialogues (dialogue, debate, mediation or negotiation) as well as Arnsteins (Arnstein, 1969, p. 216) Ladder of Citizenship participation describing the level of citizen power in even more detail using eight stages (from manipulation over consultation to citizen power). While some of these deductive approaches are more detailed than our ndings regarding the power dimension, overall, our inductive and empirically-based two-dimensional analysis allows for better description as it additionally discriminates the scope of stakeholder governance. The majority of stakeholder governance mechanisms remain in the category of Dialogue and issues advisory where stakeholders have a very limited inuence in decision making. However, when engagement and inuence do not come together, it can lead to frustration of stakeholders (Burchell and Cook, 2006, p. 168). Several decades back, Arnstein already stated that:
. . . participation without redistribution of power is an empty and frustrating process for the powerless. It allows the power-holders to claim that all sides were considered, but makes it possible only for some of those sides to benet. It maintains the status quo (Arnstein, 1969, p. 216).

As the cluster of Issues collaboration reects, there are also ways to make dialogues have a real impact on corporate decision making, this is usually the case when the corporation engages in open, learning-oriented dialogue (Burchell and Cook, 2008, p. 41) or symmetrical dialogues (Grunig and Grunig, 1992). Our ndings, especially in the cluster of Strategic advisory and innovation, show a multitude of governance mechanisms with the goal of collaborative development of new products and services such as customer collaborations, innovation competitions, NGO collaborations, and multi-stakeholder initiatives. More broadly, these mechanisms should be seen in the context of open innovation arguing that the integration of external sources into innovation management leads to more successful products and services (von Hippel, 2005). The results of Hansen et al. (2009) also show that the integration of stakeholders in innovation management leads to new and more sustainability-oriented products and services. Another important nding is that stakeholder diversity diminishes with increasing scope and power. Very high stakeholder power is, apart from a few exceptions, only achieved by customers. This is, however, nothing more than a reection of customer orientation as it is pursued by concepts such as customer integration and open innovation (von Hippel, 2005; Piller and Walcher, 2006). The idea of stakeholder theory is, however, to integrate much broader stakeholder groups than only customers. We also found Strategic collaboration mechanisms that are characterised by allowing stakeholders to take direct decision-making power, for example, the voting mechanisms

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regarding the banking policies of The Co-operative Bank. This empirical evidence supports a political view of the corporation (Scherer and Palazzo, 2007).

Conclusion
This paper set out to evaluate how stakeholders are voluntarily granted inuence in corporate decision making. Besides the mass of traditional customer integration mechanisms, conventional stakeholder dialogues and advisory boards we also found some innovative approaches for providing diverse stakeholders with power to inuence core business decisions. We believe that these ndings serve as a good basis for further research in this direction. Theoretical implications Our research nds that most corporations take an instrumental approach in granting stakeholders more access to corporate decision making. In 74 per cent of the cases (61 per cent dialogue and issues advisory plus 13 per cent strategic advisory and innovation) we reviewed, stakeholders either play an advisory role or are involved in open innovation programmes. Only a minority of corporations (26 per cent) grant stakeholders signicant power in shaping corporate decisions. Remarkable examples of this more normative approach to stakeholder governance include. The Ethics Board at Rabobank or the 80,000 customers who voted on The Co-operative Banks business policy. Practical implications The primarily instrumental approach to stakeholder governance also has considerable practical implications. An instrumental dialogue might help companies to shape strategies and to innovate, but it is not capable of aligning the worldviews of those inside with those outside the corporate boundaries (Scherer et al., 2006; Mackenzie, 2007). An instrumental approach to stakeholder governance represents a single-loop learning mechanism which does not encourage reection on core values and principles (Lozano, 2005; Burchell and Cook, 2008). However, we are not nave enough to think that there is only a single right approach to stakeholder governance mechanisms (e.g. a sole focus on strategic or normative collaboration). In contrast, we believe that corporations, especially publicly listed multinationals, require a broad range of stakeholder governance mechanisms depending on the readiness of the organisation and the task at hand. At the same time, we argue that it is not enough to remain at the stage of dialogue and issues advisory where the real stakeholder impact usually remains unobservable. In order to make stakeholder governance sustainable, corporations also need to provide stakeholders with real power in order to address the issues which are important to them. The authors hope that the developed heuristic on stakeholder governance enables managers to reect on their companys stakeholder engagement approach. Limitations and further research One major drawback of our methodology is the limitation of the analysis of corporate reports and, as a consequence, the issue of taking corporate statements in reports as fact. A triangulation with further qualitative data could help to establish a more critical analysis. As a consequence, our analysis does not reveal power categories others call manipulation or therapy (Arnstein, 1969, p. 216; Foster and Jonker, 2005, p. 51; Burchell and Cook, 2006, p. 167) or even cynical engagements (Burchell and Cook, 2006, p. 162) because such nuances are difcult to detect based on reports; e.g. it remains questionable if innocent really relied completely on their customers opinion when reaching a nal decision as to whether their drinks should be sold at McDonalds. Also DuPont is very clear about the fact that its Biotech advisory board is engineered towards producing pro-biotech results. These examples resonate with Foster and Jonker (2005) reporting that stakeholders are placed on rubberstamp advisory boards in order to engineer their support. Our research did not analyse the way how, in rather technical terms, stakeholder decision making is implemented. In order to prevent this from becoming a purely bureaucratic act,

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especially when large stakeholder groups are involved, rms should think about web-based decision-making platforms or toolkits as provided by solutions in the domain of open innovation and Web 2.0. Further research should analyse how these instruments from the domain of open innovation can be applied to broader decision making and potentially extend to an open strategy approach.

Notes
1. Taken from Henley (2007). 2. For the BPs Tangguh Stakeholder Advisory Panel see www.bp.com/sectiongenericarticle.do? categoryId 9004751&contentId 7008791 (accessed 15 January 2010).

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About the authors

Heiko Spitzeck is a lecturer at Craneld Universitys Doughty Centre for Corporate Responsibility in the UK. In 2008 he obtained his PhD in Business Ethics at the University of St Gallen in Switzerland. During 2006-2007 he held visiting scholar positions at the University of California at Berkeley and Fordham University in New York. He is President and Founding Member of the Humanistic Management Network (www.humanetwork.org). Between 2004 and 2006 he served as Director for oikos International, a student-driven NGO for sustainable management and economics. His research is oriented around organizational behaviour, especially learning and innovation from business and society interactions (corporate responsibility, normative and strategic management, NGO strategy, sustainability and management education). Before starting his academic career, Heiko worked for the international consulting rm Accenture in Munich. He studied European Business Studies at the Universities of Bamberg (Germany) and Seville (Spain). Heiko Spitzeck is the corresponding author and can be contacted at: heiko.spitzeck@craneld.ac.uk Erik G. Hansen is a researcher and lecturer at the Centre for Sustainability Management (CSM) at Leuphana University, Luneburg, Germany and a visiting researcher at Craneld University, Doughty Centre for Corporate Responsibility in the UK. His research interests are leadership, governance, and innovation in the context of corporate responsibility and sustainability. He teaches business classes at undergraduate, graduate and executive level. He gained his doctoral degree at Technische Universitat Munchen, Germany, with a work about Responsible leadership systems. He has also gained broad experience in industry jobs and academic exchanges in Brazil, China, Germany, and Thailand.

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