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Journal of Business Ethics (2008) 83:745758  Springer 2008

DOI 10.1007/s10551-008-9662-y

Corporate Social Responsibility (CSR):


Models and Theories in Stakeholder Linda ORiordan
Dialogue Jenny Fairbrass

ABSTRACT. The pharmaceutical sector, an industry has attracted from inter alia the media, governments,
already facing stiff challenges in the form of intensified and non-governmental organisations (NGOs), there
competition and strategic consolidation, has increasingly has been mounting pressure on businesses to respond
become subject to a range of pressures. Crucially, in to the challenge of corporate (social) responsibility
common with other large-scale businesses, pharmaceutical (CSR). These demands are superimposed on an
firms find themselves invited to respond positively to the
already testing environment surrounding the
corporate social responsibility (CSR) expectations of their
stakeholders. Consequently, individual managers will al-
pharmaceutical industry, arising out of intensified
most certainly be obliged to engage in some form of competition and strategic consolidation. Part of the
stakeholder dialogue and this, in turn, means that they will burden of addressing the demands of CSR is the
have to make difficult choices about which practices to need to engage effectively with a range of stake-
adopt. This real-world management predicament runs holders. Individual managers in pharmaceutical
parallel to an academic interest in CSR stakeholder dia- companies have to confront the complicated task of
logue theory and models. Accordingly, the approach of this choosing which stakeholder dialogue practices to
paper is to focus primarily on the academic debate sur- adopt, why, and with what intended effect. This
rounding stakeholder dialogue, by reviewing past attempts real-world management predicament runs parallel to
to research and theorise the subject, by identifying gaps and an academic interest in CSR stakeholder dialogue
weaknesses in the literature, and by proposing a new ana- theory and models.
lytical model. The central aim of the proposed new model is
To briefly develop some of the points raised
to offer a unified, structured, systematic, and comprehen-
sive approach to CSR decision making whilst simulta-
immediately above it is important to acknowledge
neously providing a practical framework for CSR that there is a growing sense of public disquiet and
executives who face the challenge of responding in an disapproval of big business in general and phar-
effective manner to stakeholders. The model outlined here maceutical companies in particular (Acutt et al.,
is currently being employed to conduct international 2004, p. 306; Baker, 2004; Clark, 2000; Greenfield,
comparative empirical research into stakeholder dialogue 2004; Handy, 2003, p. 78; Hoertz Badaracco, 1998;
practices amongst UK and German pharmaceutical firms. Kotler and Lee, 2005, pp. 221222; Weiss, 1998,
In the longer term the intention is to use the model to p. 4). One likely cause for the negative image
undertake international comparative research encompass- associated with big business is the repeated occur-
ing a broader range of countries and industries. rence of certain high-profile events, labelled by
many as scandals. These events have involved some
KEY WORDS: corporate social responsibility, pharma-
of the largest and previously most highly respected
ceutical industry, stakeholders, stakeholder dialogue
business organisations in the world including Enron,
Arthur Andersen, Parmalat, Shell, Nestle, Union
Introduction Carbide, and Nike (Handy, 2003; OHiggins, 2005;
Ruggie, 2003). Their behaviour has often been
Given the critical attention that big business in highlighted by attention from the media and other
general, and pharmaceutical companies in particular, stakeholders who have seized the opportunity to
746 Linda ORiordan and Jenny Fairbrass

publicise the alleged failings (Brammer and Pavelin, profit-orientated focus adopted by businesses in the
2004; Clark, 2000; Oxfam/VSO/Save the Children, past, a view which invariably provided the basis
2002; Third World Network, 2004; Weiss, 1998, for strategic-planning and management approaches
p. 35). Undoubtedly, the image of big business (Crane and Matten, 2004, p. 50). The development
(pharmaceutical companies included) has been tain- of effective CSR stakeholder dialogue strategies and
ted. Crucially for any business organisation, whether practices by individual business managers, particularly
small or large, stakeholders perceptions are likely to those working within the pharmaceutical industry,
have a major impact on the interactions between the is without doubt a major task (ORiordan and
firm, those who have an interest in it, and who are Fairbrass, 2006).
affected by it. In response to some of the challenges identified
Therefore, stakeholders opinions should be a above, and by building on some initial exploratory
matter of significant managerial interest. For phar- empirical research conducted in 2005 (Fairbrass et al.,
maceutical companies in particular, who regularly 2006), this paper makes a timely contribution to the
face informed, critical, and active stakeholder atten- debate about CSR and stakeholder dialogue practices.
tion, the nature of their relationships and commu- The paper plays its part by primarily entering the
nications with stakeholders are especially important. academic debate and also offering some practical
Many stakeholder groups who are affected by and guidance for business managers. To achieve these
who attempt to affect the pharmaceutical industry objectives, the paper reviews past attempts to research
regard health as a fundamental human right. More- and theorise stakeholder dialogue, identifies gaps and
over, it is likely that because good health is seen as weaknesses in previous literature, and proposes a new
such a basic human entitlement, many of the sectors model. The model proposed here is currently being
critics are keen to highlight what they see as the used to underpin empirical research concerning CSR
industrys main faults. These include inter alia the and stakeholder dialogue practices amongst UK and
pharmaceutical industrys allegedly excessive profit German pharmaceutical firms. In the longer term the
levels, investment in unnecessary drug develop- intention is to employ it to provide the foundations for
ment, price fixing, limited patient access to medica- further research encompassing a wider range of
tions, animal testing, research methods and patient countries and industries.
clinical trials, as well as environmental concerns The remainder of this paper is divided into three
(CSR Risk Mapping Initiative, 2004; Get Ethical- parts as follows. Section CSR and stakeholder
Ethical Matters, 2004; Haugh, 2003; Newsaic, 2001; dialogue: a literature review provides a critical lit-
PriceWaterhouseCoopers, 2006; Quist-Arcton, erature review that serves as the basis for developing
2001). At the same time, financial stakeholders and a new model. Section Alternative model outlines
regulators continue to place more demands on and explains the model. Finally, Section Conclu-
pharmaceutical companies in terms of their financial sions concludes the paper.
performance and information requirements
(ORiordan and Fairbrass, 2006).
In short, big business in general, and the phar- CSR and stakeholder dialogue: a literature
maceutical industry in particular, has come under review
increasing pressure from its stakeholders to act
responsibly and to engage effectively with stake- This section of the paper examines some of the key
holders via various dialogue practices. Stakeholder terms and concepts employed in the paper: namely,
dialogue has come to be seen by some as part of the corporate social responsibility (CSR), stakeholders,
broader spectrum of socially responsible action and and stakeholder dialogue. We turn first to CSR.
activities that can be undertaken by companies.
Stakeholder theory (Freeman, 1984) suggests the idea
that investing time and other resources in addressing Corporate social responsibility
stakeholders interests is a justifiable managerial
activity. In this way stakeholder dialogue could Although it is not a new concept, CSR remains an
be said to stand in stark contrast to the explicitly elusive notion for academics and a contested issue for
Models and Theories in Stakeholder Dialogue 747

businesses and their stakeholders. Owing to the engagement with stakeholders to improve the well-
range of contrasting definitions, the concept of CSR being of society. (WBSCD, 2002)
has led to the emergence of a variety of practices
In seeking to fulfil their CSR obligations, firms
(Crane and Matten, 2004; Freeman, 1984; Welford,
might be expected to engage directly with their
2004, 2005). In brief, the concept has evolved
stakeholders. One such form of contact with stake-
considerably since it first emerged in the 1950s
holders is labelled stakeholder dialogue. Such a
(Carroll, 1999; Carroll and Beiler, 1977; Sturdivant,
dialogue could offer firms and their stakeholders an
1977). Currently, there appears to be significant
opportunity to identify and debate what each of
disagreement about what the term means, and how,
them regard as appropriate business behaviour in
or why it should be implemented (Stigson, 2002;
relation to economic, social and environmental
Welford, 2004, 2005).
matters (Fairbrass, 2006, 2008; ORiordan and
A number of specific factors may have been
Fairbrass, 2006). It is to the topic of stakeholders and
instrumental in generating the substantial body of
stakeholder dialogue that this paper now turns.
CSR literature that has emerged over the last half a
century. These include the topics relatively long
research history during which many and varied Stakeholders and stakeholder dialogue
theories, concepts, models, and themes have been
developed (Fairbrass et al., 2006; Habisch and The term stakeholder(s) is broad ranging in scope.
Jonker, 2005). The loaded nature of the topic has It has been defined as meaning all those individuals
also given rise to considerable debate relating to two and groups with a critical eye on corporate actors
further issues. The first is a generally negative image (Bowmann-Larsen and Wiggen, 2004). More neu-
concerning businesses and their actions in relation to trally, Freeman (1984, p. 52) suggests that stake-
society. Second, there appears to be some uncer- holders are
tainty relating to the questions about businesses in
terms of their alleged responsibilities and obligations groups and individuals who can affect or are affected
towards society (Crane and Matten, 2004; Freeman, by, the achievement of an organizations mission.
1984). In short, the range of definitions proffered for
the term CSR appears to arise from the various Stakeholders, acting either formally or informally,
perceptions held by individuals in relation to the individually, or collectively, are a key element in the
question of business responsibility and obligation. firms external environment that can positively or
These issues, in turn, are derived from a broader negatively affect the organisation (Murray and
debate about the role of business organisations in Vogel, 1997, p. 142). The main challenge for busi-
society (Deresky, 2000; Epstein and Roy, 2001; nesses is the task of identifying to whom they are
Haugh, 2003; Maignan et al., 2002; Maignan and responsible and how far that responsibility extends.
Ferrell, 2003; Woodward et al., 2001). Finally, Underpinning the difficulties of managing the rela-
another factor that has generated so much discussion tionship between a business and its stakeholders are
is the putative gap between rhetoric and reality issues such as:
concerning CSR policy and practice.
For the purposes of this paper we follow the lead divergent and often conflicting expectations
of the World Business Council on Sustainable between stakeholders (Bowmann-Larsen and
Development (WBCSD) and define CSR as an idea Wiggen, 2004; Brammer and Pavelin, 2004,
that includes the social (e.g. community pro- p. 706; Castka et al., 2004; Deresky, 2000;
grammes), the economic (e.g. employment), and the Fairbrass, 2006; Greenfield, 2004; Murray
environmental (e.g. waste reduction) aspects of and Vogel, 1997);
business activity. Explicitly, the WBCSD defines contextual complexities (CSR Risk Mapping
CSR as a concept that embraces Initiative, 2004; Daniels and Radebaugh,
2001) that are further complicated by varying
the integration of social and environmental values interpretations arising out of different geo-
within a companys core business operations and [] graphical regions and cultures (Castka et al.,
748 Linda ORiordan and Jenny Fairbrass

2004; Deresky, 2000; Epstein and Roy, they highlight certain aspects of CSR and stake-
2001; Fairbrass, 2008; Maignan et al., 2002; holder dialogue practices. Of particular merit in this
Maignan and Ferrell, 2003; Woodward et al., literature is the suggestion that five dimensions of
2001); corporate strategy may be particularly critical to the
the challenge of identifying what might be success of the firm and useful in relating CSR pol-
considered to be best practice with regard icies, programmes, and process to value creation.
to CSR stakeholder dialogue strategy and Those dimensions include centrality, specificity,
then communicating this to stakeholders reactivity, voluntarism, and visibility (Burke and
(Weiss, 1998). Lodgsdon, 1996, pp. 496497). However, whilst
this approach is comprehensive, the relationships
When attempting to manage these challenges, CSR between the elements could be better developed and
stakeholder dialogue can be seen as a key vehicle the practices portrayed in more specific detail. In
for the exchange of CSR offerings between the addition, we find Hofstedes (1997) and Trompenaar
firm and its stakeholders (Murray and Vogel, 1997, and Hampden-Turners (2004) work on culture to
p. 142). This exchange is one in which the firm be relevant to the discussion about CSR and
offers something of value (typically a social benefit or stakeholder dialogue practices, particularly when
public service) to an important constituency and, in examining the behaviour of large multi-national
turn, anticipates receiving the approval and support businesses, such as pharmaceutical companies. Ideas
of key individuals and/or socio-political groups in its about people and events, and theories about
environment (Fairbrass, 2006, 2008; ORiordan and values, strategy alternatives, and response models
Fairbrass, 2006). The discussion immediately above we also find to be significant in this context. Simi-
indicates why it may be appropriate for managers to larly, notions about communication within CSR,
look to the firms constituencies and stakeholders as well as ideas about control indicators (Welford,
when approaching strategic CSR-planning activities 2004, 2005) and managing goodwill, image and
(Murray and Vogel, 1997, p. 142), and how stake- reputation, and the process of how to execute
holder dialogue plays a vital part in the development stakeholder analysis (Weiss, 1998, pp. 3344) are
of CSR and other operational business strategies. also valuable.
However, taking the body of literature as a whole
we contend that it provides a fragmented patchwork
Previous analytical frameworks of ideas and concepts. None of the approaches is
sufficient in its own right in providing a compre-
Having outlined in brief some of the basic issues hensive framework (ORiordan and Fairbrass, 2006).
arising from the terms and concepts used in this Moreover, we also find that there are gaps in the
paper, we now turn to exploring in more detail literature and some misconceptions. In particular,
some of the key contributions to the literature on there are a number of flaws in the existing
CSR and stakeholder dialogue. Figure 1 provides an research with regard to the pharmaceutical industry.
overview of the literature reviewed and the frame- Although critical media attention with regard to
works, concepts, ideas, models, categorisations, and CSR and the pharmaceutical industry is widespread
classifications that were encountered and considered and has increased recently, to date the academic
to be useful for describing, analysing, and explaining research and literature is limited. It appears that data
stakeholder dialogue behaviour. For clarification, the specifically showing how pharmaceutical companies
literature selected for review was chosen in a engage in CSR stakeholder dialogue are largely
deliberately purposive manner. The intention was to absent in the literature. To provide further detail, the
explore those models and frameworks that had al- weaknesses in the literature that we have identified,
ready been developed with a view to identifying the relate to the following significant issues:
strengths and weaknesses of past research and theory
(ORiordan and Fairbrass, 2006). Positioning in the external environment: The litera-
Many of the frameworks identified in Figure 1 are ture suggests that a procedural context for man-
deemed to be useful (to varying degrees) in so far as aging the social environment has been largely
Models and Theories in Stakeholder Dialogue 749

Category T o pi c Sub Topic Framework/theory/concept/classification etc.

CSR Drivers/Influencers
Context/Circumstance
Environment Analysis PEST
Culture Dimensions: (Hofstede 1997;Trompenaars 2004)
Porter's Five Forces (Porter 1985)
Economic/political stance model (Blum-Kusterer & Hussain 2000:302
&303)
Open System's Model (Deresky 2000:19)
Environmental variables affecting management functions (Deresky
2000:106)
PWC model (www.PWC.com 2005:1)

(Gladwell 2005) Idea of net-workers; knowledgeable people and


People Exceptional Communicators motivators

Event Issue type and Impact (Gladwell 2005)

Behaviour/Response Factor overview: (Challen 1974:40; www.sustainability.com 2005:1)


Values Philosophy; Vision; Mission; Objectives
Defined scope/boundaries/limitations of CSR (Deresky 2000: 56; Esrock & Leichty 1998)
responsibility/obligation

Response models and option Carrolls CSR Model (Deresky 2000:57) and (Clark 2000:369)
Alternatives selection/prioritisation
Level of social response (Teoh and Thong 1984:190)
Market transaction approach to goodwill (Murray & Vogel 1997:142)
Theory on response (Woodward 2001:359)
Value creation (Burke and Logsdon 1996:496&497)
(Knoepfel 2001:8&10) Dow Jones categories for assessing response

Strategy Evaluation and selection of response action Factors driving CSR (www.sustainability.com 2005:1)
plan
Governance
Programmes/practices/policies to support Response - (Deresky 2000:63 & 69) codes of conduct & definition &
decision making scheme :72/72)
Communication Communication process (Deresky 2000:140); channels & cultural factors
(:161); Model (:151 & 154) Differences between two countrys styles
(:155)
Managing company-stakeholder interdependence (Deresky 2000:74-83)
Stakeholder Dialogue
Stakeholder dialogue process (Burke and Lodgsdon 1996:501)
Stakeholder Analysis (Weiss 1998:33-44)
PR Stages (Clark 2000:367;369-370; & 374)

Control Indicators
Measurement of various aspects CSR Elements (Welford 2004 & 2005)
Useful approach (Brammer & Pavelin:708)
Indicators of CSR ( Esrock & Leichty1998: 307)
List of issues/ company response & list of indicators (Veleva et al
2003:115)

Business Outcomes Credibility


Image/Reputation/Goodwill

Figure 1. An overview of selected frameworks. Source: ORiordan (2006).

ignored (Murray and Vogel, 1997, p. 142). how decision makers prioritise is not clearly
Further, how pharmaceutical companies view discussed (Clark, 2000; Crane and Matten,
their position in this greater external environ- 2004, p. 439; Epstein and Roy, 2001; Stigson,
ment is not clear (Freeman, 1984, p. 40). 2002; Woodward et al., 2001).
CSR practices: The literature reveals that while Stakeholder relationship type and issues: Murray
there is much discussion about what compa- and Vogel (1997) state that the way the firm is
nies should do, there are few data about or viewed and evaluated by stakeholders under-
analysis of what companies are actually doing in lies all subsequent interactions. Information
practice (Blum-Kusterer and Hussain, 2001, is lacking on this topic for pharmaceutical
p. 1; Business and Human Rights, 2003). companies.
Stakeholder prioritisation: The different priorities Communication methods in stakeholder relation-
demanded of pharmaceutical companies in ship: The literature (Clark, 2000, pp. 363,
the name of CSR by various stakeholders, and 372) reveals that effective communication
750 Linda ORiordan and Jenny Fairbrass

methods are paramount but largely absent that the then-available paradigms were not sufficient.
from the social responsibility literature. Nearly 25 years later, such claims are still relevant.
Theoretical models are underdeveloped: The liter- The literature review section above has suggested
ature suggests that theoretical models are, as that managers require theory and practical help in
yet, underdeveloped. Further, the roles that engaging with their stakeholders, given that there are
corporate actors play in modern society are compelling reasons for taking external change into
not fully understood (Cropanzano et al., account when developing business strategy. The
2004, p. 109; Saravanamuthu, 2001, p. 295). challenge for management remains to be able to
In particular, management models that ad- separate the real and important changes from the
dress CSR activities and firm-stakeholder trivial in the external environment. Business man-
relationships are seen to be lacking (Murray agers also need to be able to analyse, prioritise, and
and Vogel, 1997, p. 141). engage with their stakeholders. Although much ap-
pears to have altered in business responses to the
Nevertheless, as indicated above, there are some CSR challenge over the course of several decades, it
clear merits in past research and theory that we have might be argued that further modifications are re-
reviewed. There are ideas that we can develop. In quired in how all stakeholders (including the com-
relation to CSR and stakeholder dialogue practices panys individual managers) perceive the external
the notions that appear to be most significant and and internal environment. In other words, the call
useful are context, obligations perceived to be impor- for a new conceptual approach is still valid today.
tant by the firm and its stakeholders, and the response The new model proposed here is designed to
of the firm to the context and any obligations counteract some of the perceived inadequacies
identified. To elaborate further, context is deemed identified in existing theoretical approaches discussed
to be a combination of circumstances (e.g. the size above. The literature review suggests that theoretical
and power of a given firm) and the stakeholders (i.e. models are, as yet, underdeveloped with regard to
their power, types, and relationships). The question CSR and stakeholder dialogue (Cropanzano et al.,
of business responsibilities and obligations are seen to 2004, p. 109; Murray and Vogel, 1997, p. 141;
be a product of perceptions and challenges. Finally, Saravanamuthu, 2001, p. 295). Freeman (1984, p. 40)
the response element requires an examination of the for example, argues that there is a need for conceptual
actual CSR management practices. We combine schemata that analyses, in an integrative fashion, the
these elements to provide the underpinning con- external environmental forces (including the com-
ceptual framework that supports our new model that plex interconnections between economic and social
we set out in the next section of this paper. forces). This clearly points to the need for a frame-
work or model that might help to fill these gaps
Alternative model (ORiordan and Fairbrass, 2006).
Whilst the existing models referred to above are
In this section we examine the rationale behind the useful for addressing isolated questions about CSR
new model, its basic components, our underpinning and stakeholder dialogue, they inherently fail to serve
assumptions, and how the model can be applied to CSR strategists in a comprehensive, all-inclusive,
the pharmaceutical industry. We turn first to the structured, yet practical way. Thus, the framework
rationale for the model. proposed in this paper contains concepts, elements,
and processes, to specifically address some of the gaps
that were explicitly identified. Accordingly, the
Rationale for the new model model includes the following additional elements:

Calling for a new conceptual framework, Freeman a method for managing a firms social envi-
(1984, pp. 45) noted how local, national, and global ronment, and more specifically its position-
issues and groups were having far-reaching impacts ing within that environment;
on organisations and causing turbulence (specifically a clear and phased approach for undertaking
increased levels and types of change) with the result CSR strategy to develop CSR practices;
Models and Theories in Stakeholder Dialogue 751

an approach for prioritising stakeholders; Framework


an all-encompassing approach for effective
communication within the stakeholder rela-
tionship. Stakeholders Context

We contend that the new model has merit for a


CSR
number of reasons. It can be employed to assist a Stakeholder Dialogue
company in its quest for competitive advantage (i.e. Practices
value added or the pursuit of increased profitability)
(Porter, 1985) in three ways. First, the model can Management
Response Event
serve as a graphical discussion platform to aid com-
munication of ideas and identify potentially relevant
factors, their strengths and linkages in the complex
Figure 2. Overview of circumstantial domains. Source:
field of strategy development. Second, it could help
ORiordan (2006).
to increase a firms credibility among its key stake-
holders by examining in a comprehensive manner The alternative model proposed here is a frame-
the likely effects of any planned business behaviour. work which identifies a series of four connected
Third, it allows managers to more clearly identify domains (Figure 2) that depict the landscape or
likely risks with the potential benefit of being able to determinants of stakeholder power which require
pre-empt them. Accordingly, the proposed model consideration when devising CSR strategy and
highlights certain important factors that might sig- stakeholder dialogue practices. As discussed above
nificantly influence stakeholders acceptance of the this builds on some of the critical issues and elements
behaviour of a firm and so be helpful in benefiting of CSR and stakeholder dialogue already identified
the firm. The fundamental idea here is not manip- through the literature review process. In construct-
ulation or exploitation of the context or situation in ing a systematic and comprehensive approach to
which the firm operates, but a subtle and nuanced CSR and stakeholder dialogue, we contend that it is
assessment of the most effective balance between the essential to identify and evaluate the context in which
firms need to generate profit objective with that of firms and their stakeholders operate, the significance
achieving the least harm or most good in society. of particular events (such as the release of a new
Building on the literature review reported above, potentially life-saving drug or the revelation in the
this paper now proceeds by presenting an alternative press that a particular firm has made excessive
model concerning CSR and stakeholder dialogue profits), the nature of the stakeholders themselves, and
practices. The purpose of the model is to identify the potential or actual management response to these
those factors, and represent their linkages and rela- factors or determinants.
tionships, that might be used to describe, analyse, Figures 36 serve to illustrate further specific
and explain stakeholder dialogue practices. elements of Figure 2 by providing additional detail
and depth. In short Figures 36 can be viewed as a
type of checklist, which help to highlight those
The model: basic components factors that may be crucial in influencing CSR
stakeholder dialogue practices. We will examine
The alternative framework presented in this paper each of the four domains in more detail in due
attempts to portray those factors that we treat as the course. First, however, we turn to a discussion of the
determining factors in relation to effective stakeholder assumptions that underpin the new model.
dialogue. It is designed to be worked through in
separate but interlinked phases which allow business
executives to methodologically, and systematically Underpinning assumptions
address the entire CSR stakeholder dialogue deci-
sion making process in one all-inclusive structured The model assumes that the first fundamental deter-
approach. minant of the effectiveness of a firms CSR strategy
752 Linda ORiordan and Jenny Fairbrass

Stakeholders
Context Context
Stakeholders
CSR
CSR External/contingent/conditional
issues e.g. Stakeholder dialogue
Stakeholder dialogue
Political, economic, social, Practices Event
Practices
technological, legal and
environmental climate
Media influence Management Specific nature and details of activity/event
Management Event Effectiveness of Response Activity undertaken and business division
Response stakeholder pressure Product lines, processes, and issues involved
Competitor activity Geographical area e.g. 3rd World
Industry structure (link Aspect e.g. Health
with event)
Affected e.g. the poor or children
Communication with stakeholders (link to
stakeholders)
Figure 3. Determinants in detail: context. Source:
ORiordan.
Figure 5. Determinants in detail: event. Source:
ORiordan.
Stakeholders

1. Stakeholder processes
Identification
Prioritisation Context Stakeholders Context
2. Stakeholder expectations
based on internal company
CSR
CSR
factors Stakeholder dialogue
Stakeholder dialogue
Size (number of employees, Practices
Practices
sales revenue, and capital)
Success level Management
Response Event
Type of business/industry
(link to event and context) Management Event
External listing status Response
Business culture & approach Pharmaceutical decision makers opinion regarding:
to stakeholders Ideas about responsibility/obligation (link with
Governance & CSR context)
practices
Risk, image, goals, and opinions
Business culture & approach to stakeholders
Stakeholders expectations (linked to stakeholder
Figure 4. Determinants in detail: stakeholders. Source: element)
ORiordan.
Figure 6. Determinants in detail: management response.
and its stakeholder dialogue is credibility in its Source: ORiordan.
operating environment. Or, expressed another way,
the acceptance it has won among its key stakeholders
in the society in which it operates is critical. The 2. Each domain element can be analysed by
model ventures to presume that CSR strategy and alternative levels of perspective ranging from
stakeholder dialogue must be developed in a way that the level of the individual firm up to the na-
is based on a sophisticated understanding of the ele- tional or international context.
ments which determine stakeholder power. Further, 3. Each domain element can be analysed in
if stakeholder power is understood, then the deter- greater detail (Figures 36).
minants of that power might be altered to the firms 4. Before undertaking CSR strategy and engag-
advantage. The ultimate aim of CSR strategy is thus to ing in stakeholder dialogue the contextual
achieve (or even increase) stakeholder acceptance of domain needs to be understood, and the rela-
the companys business activities via considered tive strength and change elasticity of its sub-
awareness of the impact of its activities on them. sectors require thorough assessment (Figure 3).
More explicitly, the model is underpinned by 5. To effectively understand stakeholder power,
seven underlying assumptions which build succes- stakeholders require identification and prioriti-
sively upon each other. These are: sation, but their expectations also need to be
taken into account (Figure 4).
1. The environment is made up of four interre- 6. To effectively grasp the determinants of CSR
lated but analytically distinct domains: Con- and stakeholder dialogue a clear understand-
text, Events, Stakeholders, and Management ing of the implications of any particular event
Responses (see Figure 2). is crucial (Figure 5).
Models and Theories in Stakeholder Dialogue 753

CSR Process

Phase 1: CSR Strategy Development Phase 2: Implementation

Implement/
Values Alternatives Strategy Output
Control

Vision/Mision Stakeholderpriorities Selection Communicate Goodwill


Objectives Causes supported Combination Stakeholder Reputation
Scope Methods of support Based on Dialogue Image
Practices/Policies Value
Fit

Figure 7. Phases and steps within the CSR process. Source: O Riordan (2006).

7. The management response process to the land- activity, and the industry structure. For example, the
scape in which it operates involves two media may uncover scandals and draw the publics
phases and five distinct steps within them attention to them. There may also be stakeholder
(Figures 6, 7). activism that is designed to punish business indis-
cretions or failings. Competitors may also engage in
activity that might highlight or publicise the alleged
The model in more detail faults. These factors all potentially directly link with
particular events in the external environment(s) sur-
The specific elements of the model presented here rounding the firm and its stakeholders.
were selected for their merit in achieving a broad- The element stakeholder illustrated in Figure 4
ranging coverage of the topics that CSR and stake- highlights ways of identifying and analysing the factors
holder dialogue decision making may encompass. which influence CSR stakeholder dialogue within the
Their selection is based on the review of previous context of any set of given circumstances. To elabo-
research that is described in detail in Figure 1. In rate, stakeholder analysis can be conducted along the
short, Figure 2 sets the scene for the CSR stake- lines of the series of steps proposed by Weiss (1998, pp.
holder dialogue management process (ORiordan 3334) and is understood to be a necessary part of the
and Fairbrass, 2006). The remainder of this section stakeholder element. Firstly, business managers need
attempts to demonstrate how. to identify and prioritise their stakeholders. Secondly,
The element context (Figure 3) logically they need also to be cognisant of stakeholder expec-
positions the two players (i.e. stakeholders and tations. Such expectations may be dependent on
business managers) within the environment or cir- company factors such as:
cumstances that they face. This dimension could in-
clude those factors highlighted in the literature review The size of the firm (as measured in terms of
above, such as the political, historical, cultural, eco- number of employees, sales revenue, and
nomic, and other environmental factors surrounding capital);
the firm and its stakeholders. In other words, the Success level of the firm (as measured for
context for CSR and stakeholder dialogue also con- example in terms of profit levels);
ceivably includes other external, contingent, and The type of business and industry (this links
conditional factors such as media influence, the to event and context);
effectiveness of stakeholder pressure, competitor External listing status;
754 Linda ORiordan and Jenny Fairbrass

The business culture of the firm and its Figure 7) in which two distinct stages can be iden-
approach to stakeholders; tified. These are strategy development (which incor-
The governance of the firm and its CSR porates strategic analysis) and strategy implementation.
broader practices. The strategy development phase includes the
following factors:
The third domain is the event box (Figure 5). This
allows for the possibility that regardless of particular values which drive the strategy;
favourable or unfavourable contexts and the particular alternatives which encompass the various range
players involved circumstances might change, trig- of options available to decision makers (e.g.
gered by a specific event. Such events might include using an analogy from chess, the pieces on the
development or deletion of product lines or processes, board that are available to be moved);
which meet with the approval or disapproval of and the strategy (or action) which is the ensu-
society. Other related factors that may bring promi- ing result from the decisions taken in the
nence to an event might include issues such as two earlier steps of phase 1.
geography (for example, the outbreak of disease in
the 3rd world which the pharmaceutical company The implementation phase marks stage two of the
allegedly fails to address satisfactorily might bring CSR process. It includes the factors:
public censure). Alternatively, stakeholder attention
and criticism might be roused if particularly vulnerable implementation and control which involve the
groups are deemed to be adversely and unfairly af- technical aspects of implementation at a
fected (such as the poor, children or the elderly). more tactical level and the crucial step of
Such factors highlight the need for careful attention to control of the entire process (i.e. the feed-
stakeholder communication processes. Moreover, the back loop);
inclusion of this element allows for the incorporation Finally, the output step is included based on
of crisis and issue management planning, techniques, the rationale that a results-orientated ap-
and tactics that might be considered crucial in pro- proach is beneficial to ensure an effective
active CSR stakeholder dialogue management. and efficient use of managerial resources.
The element management response (Figure 6)
incorporates the idea of strategic planning and action In summary, using an analogy from a strategic game
by management with regard to CSR stakeholder of skill (namely, chess), Figure 2 represents the
dialogue, as distinct from the role played by man- chessboard and chessmen on it. Figure 7 illustrates
agement as stakeholders. Since one of the objectives the potential moves (CSR processes, phases, and
in designing the model was to provide illumination steps diagram). The framework can be used to
for decision makers undertaking CSR stakeholder incorporate all those factors and their relationships
dialogue business practices it was deemed useful to that we contend are crucial to CSR and stakeholder
focus explicitly and in detail on this element. The dialogue. Further, we argue that many of the
management response element highlights the opin- models elements are invariably interdependent and
ions and values of the pharmaceutical companies cannot be treated as mutually exclusive.
decision makers with regard to issues such as:

Ideas about responsibility and obligations Application to the pharmaceutical industry case study
(this links with context);
Risk, image, goals, and opinions; The model proposed here has been formulated for
Business culture and approach to stakeholders; application to the pharmaceutical industry. That
Stakeholders expectations (linked to the industry has been explicitly chosen as the focus for
stakeholder element). undertaking empirical research owing to the par-
ticular challenges it faces which were described in
To elaborate further, the CSR and stakeholder the introduction to this paper. To reiterate, the
dialogue process can be seen as a phased activity (see pharmaceutical industry does face well-informed,
Models and Theories in Stakeholder Dialogue 755

active, and critical stakeholders in the shape of Conclusions


governments, NGOs, the media and consumers.
Some of these stakeholders, such as governments and As indicated in the Introduction, big business in
the media can exercise considerable influence over general, and the pharmaceutical industry in par-
the pharmaceutical firms. For example, governments ticular, has increasingly become the subject of
regulate and control the licensing of new drugs. critical attention. The pharmaceutical sector,
Moreover, governments are often major customers which is typically populated by large, powerful,
of the pharmaceutical companies. The media can international business organisations, appears to have
(and do) expose and publicise the alleged failings acquired a poor public reputation owing to highly
attributed to the pharmaceutical industry. In this way publicised events and behaviours (often referred to
the media can directly and significantly affect the as scandals) which active, well-informed and crit-
image of the pharmaceutical sector and the buying ical stakeholders have sought to emphasise and
patterns of individual consumers. In addition, the exploit. One of the most important consequences
pharmaceutical firms may have triggered some of of this trend is that if pharmaceutical companies
this critical attention as a result of their own actions. are ever to (re)gain public trust and approval they
For example, critics have focused on the (lack of) must engage in an effective manner with their
supply of medications to the third world, the prices stakeholders. However, quite clearly difficult
charged, the high level of profits made, animal choices will need to be made by pharmaceutical
testing and other related and controversial business company managers about how to engage with
practices seen by some to be scandalous. For these such stakeholders, when, why, and with what
reasons, it is argued here that pharmaceutical firms intended effect.
need to be highly sensitive to the demands of their Stakeholder dialogue potentially offers a fruitful
stakeholders (perhaps more so than less sensitive approach to managing stakeholder relations.
industries) and need to find ways of engaging Through such a mechanism, firms and their
effectively with them. All these issues are represented stakeholders can participate in a process which
in the model proposed in this paper. Quite clearly allows them to constructively air their views and
the four basic decision domains identified in the contribute to a debate about the potential shape
model (i.e. context, the stakeholders themselves, and extent of the social responsibilities to be
particular events, and the response of pharmaceutical shouldered by the firms. By entering a dialogue
company managers) are likely to be critical to the about the possible social, economic, and environ-
way in which the pharmaceutical firms address their mental obligations of pharmaceutical companies,
corporate social responsibilities and engage with business managers may find ways of identifying,
their stakeholders. The model potentially offers a evaluating, addressing, and balancing the demands
systematic framework to pharmaceutical business of their stakeholders.
managers to assist them in deciding which stake- The problems referred to immediately above are
holders should be a priority and how the choice is demonstrably practical in nature. However, similar
made. concerns have emerged in corporate social responsi-
Despite the original motivation for developing bility research and theory literature over the past few
the model (that of application specifically to the decades. Scholars have attempted to grapple with
pharmaceutical industry) we also contend that the complex and elusive concepts such as corporate social
model proposed here is sufficiently comprehensive, responsibility, stakeholders, and stakeholder dialogue.
strategic, and general to be useful in other scenarios. The result of these endeavours has been the accu-
We argue that it could be applied (although some mulation of a substantial body of empirical research
modifications may be required which could be the and theoretical scholarship. An assessment of existing
focus of further research) to any industry, in a variety models (in serving to address the challenges, frame the
of geographical spaces ranging from the local to the discussion, and generally add value) indicates that
international, and also be used for developing busi- previous frameworks are useful for addressing frag-
ness strategies relating to all types of products and mented or discrete questions, but inadequately address
services. the CSR and stakeholder dialogue challenge in its
756 Linda ORiordan and Jenny Fairbrass

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