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The hype behind stakeholder pressure

By Professor Ulrich Steger, Oliver Salzmann & Aileen Ionescu-Somers (October, 2006)

Professor Ulrich Steger, Oliver Salzmann & Aileen Ionescu-Somers

Professor Ulrich Steger, Oliver Salzmann & Aileen Ionescu-Somers

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Stakeholders and the business case for corporate sustainability
Four years ago, we set out to examine the business case for corporate sustainability. We surveyed close to 1,500 managers in nine industry sectors. Many of our respondents complained about a weak and rather elusive business case due to external stakeholders’ significant disinterest in or even opposition to corporate sustainability. This finding seemed to contradict numerous claims from “sustainability preachers’” about “ever-mounting outside pressure” on companies to address and mitigate social and environmental issues associated with their operations.

It was obvious to validate our findings by – this time – surveying the stakeholders themselves. Today – thanks to an analysis of our 265 interviews and 370 questionnaires – we are able to shed more light into how nine different stakeholders including financial institutions, governments, communities, unions, NGOs and media perceive and influence corporate sustainability.

Backlash on corporate sustainability in Europe Overall, stakeholders exhibit significant disinterest in corporate sustainability – as also our sobering low response rate of 3% indicates. They are primarily concerned about companies’ financial performance and competitiveness in today’s global markets. Customers and shareholders are still calling the shots and are generally not exerting much pressure on corporate social and environmental agendas beyond compliance. Given these circumstances, NGOs – as the most demanding stakeholder group – find it difficult to get the necessary buy-in from other stakeholders for their campaigns. The result is largely incremental social and environmental progress in companies.

More carrots than sticks
Also in light of companies’ significant bargaining power, it is not surprising that stakeholders such as governments, communities and unions tend to adopt a collaborative approach to influence companies. However, NGOs have also increasingly moved beyond their traditional advocacy stance. Many have taken part in stakeholder dialogues and quite a few (such as. WWF and the Forum for the Future) have established partnerships with the corporate sector. Nevertheless, this approach remains highly controversial in the NGO community. In any case, a certain amount of pressure (“sticks”) is needed to establish effective partnerships (“carrots”) with the corporate sector.

Corporate sustainability as a trade barrier? Europe has high social and environmental standards. Stakeholders are mostly happy about widespread compliance with existing regulations, they are also increasingly concerned about an non-level playing field – relative to developing countries and in particular some emerging economies. One of our interviewees commented:

"It will be interesting to see what is done about China; there is pressure on jobs in Europe. Ultimately, social and environmental criteria may even be used as a trade barrier with quotas and claims of low labor standards and low environmental standards. There is already some noise being made. This is likely to be more significant in the future."

Global companies are at a peak of their power…
…but will they stay there? After all, there is no natural propensity to a global market economy. It is currently accepted as the ‘best of a bad lot’ – in the aftermath of communism’s collapse. However, memories fade and social fabrics decay. Furthermore, some of the so-called “mega issues” (e.g. climate change, water, poverty) are on the horizon, although it remains to be seen whether societies decide to tackle them (and to what extent).

While companies need not worry too much about increasing pressure, the tide may turn again. It would be dangerous to become complacent. After all, one of the few ‘iron laws’ is that to maintain power, one has to use it responsibly.

Professor Steger holds the IMD Alcan Chair for Environmental Management; Aileen Ionescu-Somers is Program Manager of the IMD Forum for Corporate Sustainability Management; and Oliver Salzmann is the IMD CSM Research Associate.

For information on IMD's China Research Center

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