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E5 – Societal transparency and co-determination

Background + Goal

Companies do not exist in a vacuum; their business activities have an effect on the societal environment of the region. Internal entrepreneurial decisions can have a long-term influence on external contact groups such as residents / people from the region, civil society, future generations and nature (flora and fauna). These groups are affected by location and product decisions and for this reason, they should be involved in decision-making processes.

Comprehensive transparency is an indispensable pre-requisite for promoting co-determination. Although sustainability reporting is gaining in currency, often essential aspects are ignored or only considered in part. There is often little external verification of published data from sensitive areas (for ex. locations in critical countries, etc.).

Common-Good oriented companies inform the public actively and comprehensively concerning all essential aspects of their business activities. Thus, all contract groups (civil society, residents, etc.) gain insight into the company and are able to advocate their interests and exert a positive influence on the company in the sense of the Common Good. The credibility of such transparency increases if it is possible to verify data externally or if independent institutions have unrestricted access to such information.

Co-determination on the part of the societal environment is necessary for all fundamental and framework decisions which have massive effects on stakeholders. The company actively approaches the affected stakeholders before making the decision, involving them in the process on a consensual basis. In our view, broad participation regarding daily operative decisions seems to be neither practical nor purposeful, however.

Differentiation/relation to other indicators

Involvement of stakeholders is relevant for various indicators:

  • A1 = Suppliers
  • B1 = Financiers
  • C5 = Employees
  • D1 = Customers
  • D2 = Competitors

 

E5 pertains to the following groups not considered by these other indicators:

  • Regional stakeholders (residents / municipalities / state)
  • NGOs in civil society which are affected, including those which represent future generations, nature and the environment.

Prompt questions

Concerning transparency

  • Which form of reporting do we have? Which key and critical data do we make accessible to the public and in which way?
  • What constitutes critical information for stakeholders in society? What degree of transparency do we have? What reasons are given for transparent/ less transparent procedures?

Concerning co-determination

  • Which stakeholders are affected by which entrepreneurial decisions? How is this impact assessed?
  • Which forms of stakeholder[1] involvement do we have? How many stakeholder discussions have we conducted during the period of reporting? Are they documented? Which types of stakeholder co-determination do we engage in and for what reasons?
  • For which decisions would it be advisable to gain an outside perspective or involve stakeholders? For which decisions would this be necessary?
  • What degree of co-determination do we have? What prevents us from involving stakeholders more intensively? What positive experiences have been made in our sector concerning this? What are background reasons for increasing involvement of stakeholders?
  • How can involvement be consensual, begin in the preliminary phases and be effective while demanding as few resources as possible?

[1] By stakeholders we mean the relevant contact groups, in this case the regional contact groups and those from civil society.

Evaluation table

Transparency

 

In principle, transparency is achieved by drawing up a Common Good Report or a sustainability report. If other publications (homepage/brochures) are issued, the same evaluation standards apply as those used for the Common Good Report or the sustainability report (in terms of depth and scope).

Sub-indicator

 

First steps

(0 - 10 %)

Advanced

(11 - 30 %)

Experienced

(31 - 60 %)

Exemplary

(61 - 100 %)

Scope of Common Good Report

 

Relevance: high

Common Good Report with fewer than 3 substantial statements on each sub-indicator

Common Good Report with 3 substantial statements on each sub-indicator

Detailed description of each sub-indicator; direct link from cover page

+ all critical[2] aspects are named; direct link from cover page; active advertising of Common Good Report

 

 [2] Critical data are, for example, investments in other companies and subsidiaries in tax havens, lobbying payments to political decision-makers / institutions (parties, associations). If no Common Good Report was drawn up during the last year, the following assessment can be used for a sustainability report:

 

Sub-Indicator

First Steps
(1-10%)

Advanced
(11-30%)

Experienced
(31-60%)

Exemplary
(61-100%)

 GRI Level[3]

GRI Level C

GRI Level B

GRI Level A

GRI Level A and Sector Supplement

Verification

Selectively, indirectly, externally

verified

External evaluation of risks

External verification

of all key criteria, “low level of assurance”

External verification of all key criteria, “high level of assurance” +  + comprehensive cooperation with NGOs

 

 

 

 

 

 [3] On the basis of standards laid out by the GRI = Global Reporting Initiative – the current standard for sustainability reporting; also see http://www.globalreporting.org

 

Co-determination

Sub-indicator

First Steps
(1-10%)

Advanced
(11-30%)

Experienced
(31-60%)

Exemplary
(61-100%)

Type of co-determination + documentation

 

Relevance: high

Reactive: hearing of complaints and reaction

Active: dialogue with relevant decision-makers of company + comprehensive documentation

Active +: consensus-oriented decisions, documentation with consequences is made accessible to public

Innovative: at least 50% consensual decisions

Scope of co-determination + contact groups involved

 

Relevance: moderate

Individual measures / projects over limited time period

 

Some contact groups involved

Repeated comprehensive co-determination processes

 

The most important contact groups

Routine involvement in cases of important issues / strategic decisions

 

All contact groups

Ongoing dialogue and co-determination in cases of key issues / strategic decisions

 

All contact groups

 

 

Weighting of transparency / co-determination in percent according to size of company

 In principal one can say: the larger a company is, the higher the evaluation of real co-determination in relation to transparency will be.

Headcount

Weighting of transparency

Weighting of co-determination

1-2

80-100%

0-20%

3-10

70-90%

10-30%

11-50

60-80%

20-40%

51-250

50-70%

30-50%

25-1,000

40-60%

40-60%

Over 1,000

30-50%

50-70%

 

Here one would also have to distinguish more clearly between services and production operations. In principal, service providers have less impact on the environment than manufacturing operations do. Exceptions are architects, banks and PR agencies, for example. It is also necessary to look at each company concretely to determine which decisions might influence possible stakeholders and which type of possibilities for co-determination were employed for how many of the potential stakeholders.

Critical data / decisions

Here is a list of critical data / decisions for which transparency and co-determination are highly desirable:

  • Building projects of all kinds; environmental impact assessments
  • Production processes involving hazardous substances and potential impairment of residents through emissions (in the air, water, soil), noise, odours, light pollution, etc.
  • Impact on nature
  • Relocation of sites and dismissals resulting from this
  • Participation in other companies and subsidiaries in tax havens
  • Lobbying payments to political decision-makers / institutions (parties / associations)

 

Company-specific aspects

For sole proprietorships as well as all for other kinds of companies, a comprehensive Common Good Report can provide up to 100% transparency.

For sole proprietorships, the aspect of co-determination hardly plays a role because the impact of such enterprises is negligible. The smaller a company is, the less significant the aspect of societal co-determination will be.

The Common Good Report can either be integrated into a GRI sustainability report, but with indicators specific to the Economy for the Common Good being treated concretely, or the Common Good Report can be drawn up instead of a sustainability report.

Lack of a website should result in a 20% reduction of overall points.

If neither a Common Good Report nor a sustainability report was drawn up for the previous year, the highest category a company can reach is “First Steps” unless documentation / a homepage exists which is comparable to one of the two types of reports in terms of content, scope and depth.

Definition/ aspects

Wolfgang G. Weber and the international research network OPEN[4] cite the following levels of (employee) participation, which can also be applied for this indicator:[5]

  1. No participation
  2. Information
  3. Consultation
  4. Co-participation
  5. Co-determination, co-decision
  6. Self-determination

The higher the degree of co-determination is, the more positive this indicator should be evaluated. It is not only a matter of expanding the value of “democracy” to as many areas of society as possible (democratization), but also of tapping into collective intelligence. This form of co-determination helps make various activities of a company wiser, more sustainable and “better.”

There are two main motivations for involving stakeholders:

1)     Self-interest of the enterprise: entrepreneurial goals can be achieved with greater certainty if stakeholders are involved adequately and effectively. Stakeholder participation also has a preventive effect against possible long-term legal consequences (such as legal actions and compensation claims by residents or financiers).

2)     Obligation to the community: co-determination is viewed as a value in itself and for this reason, a relevant part of entrepreneurial decisions is discussed publicly and consensual decisions are made as comprehensively and effectively as possible.

The pre-requisite for co-determination in the societal environment is comprehensive transparency concerning internal decision-making processes and their potential effects as well as easy access to such information.

At the level of entrepreneurial transparency, the Global Reporting Initiative (GRI) standards have established themselves in the framework of sustainability reporting. Despite the increasing demands imposed by the GRI standards, many issues of ethical relevance remain only partially addressed.

The Common Good Report offers a further possibility for creating societal transparency.

A detailed comparison of Common Good indicators and GRI standards makes it easier for companies who have drawn up their sustainability report according to GRI standards in the past to switch over to Common Good reporting.[6]

Regarding the criterion of transparency, Common Good Reports are given a higher evaluation for this indicator because we view them as more comprehensive. Moreover, they are always subject to verification by independent auditors.

Co-determination / stakeholder participation

Maack/ Ulrich distinguish two forms of stakeholder engagement in terms of motivation and type:[7]

 

“Old-fashioned” management

“Modern” stakeholder management

 

Strategically motivated (primacy of the ‘rationale

of success’)

Ethically reflected (primacy of legitimacy)

Technocratic-manipulative

Oriented towards understanding

 

Management of influential potentials

Built on relationships

 

Immunization against criticism of powerful stakeholders (protective shield approach)

Establishment of trust and development of possibilities for cooperation

 

‘Short- and medium-term profits’

Long-term perspective

Motto: ‘…because it is required – or it pays off…’

Motto: ‘because it’s what’s right’ and it corresponds to our notion of responsible citizenship

 

This overview provides initial assistance for deciding whether stakeholder management is sustainable and relationship-oriented or merely constitutes another measure for increasing “shareholder value.” Our notion of co-determination extends far beyond “modern stakeholder management.”

Stakeholder dialogues constitute a first step in the direction of co-determination. For evaluations of such dialogues, it is essential to assess the degree to which stakeholders really do have the power to co-decide and the degree to which suggestions they make are actually implemented. Talking without acting cannot be categorized any higher than as “First Steps.”

According to Maak/Ulrich the following guiding principles, which could also serve as a source of orientation for other measures, apply for dialogues with stakeholders:[8]

  • Mutual respect and recognition
  • Willingness to communicate
  • Inclusion of all affected persons
  • Equal opportunities
  • Orientation to justification – negotiations on the basis of arguments
  • Sincerity and honesty
  • Willingness to reflect
  • Listening – openness to argumentation
  • Discussion with no coercive elements

Possible advantages and disadvantages of stakeholder dialogues  / management

Maak/Ulrich formulate the following advantages for active stakeholder management:[9]

  • Minimization of risks
  • Improved quality of decisions
  • Mutual understanding
  • Viable relationships
  • Earned reputation
  • Trust

 

Of course, there are also some potential disadvantages, for ex.:

  • Longer duration of decision-making processes
  • Greater efforts required for internal / external communication
  • Problems regarding selection of issues which should involve co-determination
  • Efforts required for the process itself 

 

The advantages are elucidated more comprehensively in a manual for conducting stakeholder dialogues commissioned by the Federal Ministry of Economic Development and Cooperation in Germany:

  • “Competencies are pooled. The challenges, for example rise in poverty, climate change, HIV/AIDS, corruption and globalization, all call for pooling of expertise on the part of various protagonists.
  • Cooperation in the form of stakeholder dialogues promotes more efficient use of means and resources since these are jointly employed.
  • Results reached through cooperation are often more stable and sustainable than individual solutions are, and for this reason they are more likely to be accepted by the stakeholders involved. The stakeholders’ environment is more likely to accept them too. This promotes acceptance and boosts the reputation of such cooperation.
  • Stakeholder dialogues increase the capacity of complex systems to find solutions. Bringing together various competencies and making joint efforts to design processes increases the ability to learn as compared to activities conducted by an institution or sector alone.
  • The quality and credibility of opinion-forming processes increase if a multitude of different perspectives is integrated and interests are harmonized. Knowledge of various arguments prevents rigid standpoints. To be sure, it often becomes more difficult to implement decisions in practice.
  • Jointly agreed strategies are easier to implement if they are developed in the context of a transparent dialogue based on equality. Then stakeholders do not have to be convinced of the benefit of resolutions made; they immediately identify with the outcome of the dialogue.
  • Stakeholder dialogues increase willingness to self-obligation since the protagonists involved are able to influence the way the future is shaped. They feel co-responsible and are thus interested in mutual success and dissemination of the results.
  • Stakeholder dialogues resolve societal tension and conflicts. Active participation in stakeholder dialogues promotes mutual exploration of options for the future. This expands the perspectives of those involved and opens up new possibilities for action on all sides.”[10]

In principal, the larger amount of effort required for organization and the greater time expense needed for implementation are compensated for by some clear advantages. Common-Good oriented conduct can also be economically successful!

Forms of resistance - questions

As is the case with in-company co-determination, various objections are made to societal co-determination. Some of them are listed below, followed by a few answers formulated from the perspective of the Economy for the Common Good.

“Why should there even be any external co-determination; why should external parties decide on internal issues?”

In terms of democratic policies, it seems understandable that the environments which are affected by a company should have some direct say in such matters. This is provided indirectly by local and national governments, but at present hardly any possibilities for direct influence exist. Businesses are not run in a vacuum; they have ecological, economic and social effects.

Stakeholder dialogues can prove advisable when:

  • "an issue can only be implemented with the support of various groups of protagonists and decision-makers;
  • sustainable implementation requires the acceptance of stakeholders (affected and involved parties); or
  • a change in the status quo is strived for, but the relevant protagonists do not agree on the direction, the objective and the modes for effecting such a change.”[11]

For individual entrepreneurs this is a field of experimentation which can only be successful if they stand behind the basic principle of democracy, and the co-determination processes have positive effects on the organization of the company itself.

“At present, hardly any societal co-determination in companies exists; why should I start getting involved in it?”

Any essential change in society requires pioneers who make a start. Without such “beginners,” there is no change. And Such a “beginner’s existence” is often tiresome, difficult and uncertain in terms of the outcome, but it can also be very fulfilling for a pioneer to look back over the past ten years and be able to say: “I remained true to my values and despite all the effort I have achieved something.”

And This pioneer mindset is principally independent, irrespective of the area in which it is implemented.

“Which stakeholders should have a say for which decisions?”

An analysis of stakeholders has shown that there are three criteria which can help make an initial selection:[12]

  • The degree of impact / affect on the stakeholder’s interests: low, moderate, high;
  • The presumed / real reaction to the measures / the project in question: positive, neutral, negative;
  • The actual power of the stakeholders: weak, medium, strong.

On the basis of these criteria, the company can design a matrix and perform a tentative differentiation. Ultimately, the company decides which stakeholders it wishes to involve in the preliminary phase in accordance with their own resources and interests. From a strategic perspective, those stakeholders should be involved whose resistance would have a negative influence on the company and its image. Ideally, all interested and affected contact groups should be involved.

Means for facilitating implementation in the company

Quick help:

  • assess the actual state (How transparent are we currently? Which decisions are stakeholders involved in and in what way?)
  • determine the target state (vision / goal) – if possible on the basis of several/all indicators
  • define the strategy for reaching this target state – clear measures
  • conduct initial participation measures and evaluate them on the basis of the defined indicators (monitoring)

Examples + Good Practices

 
The Body Shop

The Body Shop is certainly a very credible example of how to involve stakeholders. In Indicator D1 “Ethical Sales,” a regional energy supplier from California called SMUD is described in the context of customer co-determination which is also a pioneer in the area of involving stakeholders in its decision-making processes.

Maak and Ullricht cite Anita Roddick’s “Body Shop” as a case study for a pioneer of stakeholder management which I wish to quote verbatim:[13]

“Anita Roddick founded the cosmetics company ‘The Body Shop’ in 1976, starting out as a ‘one-woman business’ in Brighton (UK). Revolted by animal experiments, packaging waste and the false promises of the cosmetics industry, she set her sights on integrative added value from the very start, i.e., not only on economic performance but also and primarily on social and ecological criteria. Inspired by her wide travels, she developed a large number of natural cosmetic products and decided to use the simplest and most environmentally compatible packaging possible. In the mission statement of the enterprise, formulated later on, we read: ‘[…] in conducting our business, we strive for social and ecological change.’

Sensitized to social and societal challenges, the company attempted early on to transform the integrative value creation model into suitable management tools as well. As a politically active entrepreneur, Anita Roddick knew that the public had a right to transparency beyond financial figures. In the 1990s, The Body Shop, as a pioneer enterprise, introduced the concept of ‘ethical auditing,’ recognizing that dialogue with stakeholder groups of the company would fulfil an important function. In the three main areas –  ‘ecological aspects,’ ‘social aspects’ and ‘animal experiments’ – consultancy with stakeholders was to take place. But who were these stakeholders – who should be invited to engage in conversations and how should this discourse be prepared?

From the very start, the aim was to make this dialogue as inclusive as possible. But instigating a global dialogue in a company which had become very successful internationally would have overstrained its capacity and for this reason, it was agreed that one should begin at home, in Great Britain. To start with, relevant stakeholders were asked to formulate their opinions on the enterprise’s policies. These stakeholders included employees, franchisees, customers, suppliers, shareholders, representatives of local communities and NGOs. After the most urgent problems were identified, The Body Shop sent out questionnaires with the aim of having entrepreneurial performance be evaluated from the perspective of the stakeholders and in terms of the enterprise’s mission statement. The results were evaluated by an independent organization and then published. Afterwards the report was sent out to all involved parties with the request that they submit feedback on the results, which were to be discussed at a follow-up meeting.

This process was clearly depicted in the Value Report put out by The Body Shop in 1997; the following depiction is merely illustrative, being limited to the area of ‘social aspects.’ A similar method was used for the areas ‘ecological aspects’ and ‘animal experiments.’ The report asked various stakeholders to make statements on the following points:

(1)  The approach taken by The Body Shop for conducting the dialogue;

(2)  Information supplied by the respective stakeholders;

(3)  The method used for consultation;

(4)  The results of the consultation process; and

(5)  Qualitative and quantitative standards used for the evaluation.

To communicate the next steps jointly, one member of management at The Body Shop answered to each of these sections.

At the end of the report, the results of the three main areas were verified by leading auditing institutions […]. In some local areas, Advisory Panels were introduced as well, which gave local stakeholders the possibility to act as consultants and present their views to the enterprise on-site to ensure that local engagement of the company was as effective as possible and to improve the stakeholder dialogue in general.”

 Premium-Cola

At “Premium-Cola” all of those involved, including end consumers, should have a say in how the company is run. This aim is to ensure that all those involved are treated fairly. The goals are:

 

  • to turn contractors into stakeholders
  • to ensure that more attention is paid to environmental impact
  • to see that good solutions win out – practically irrespective of who suggests them.

 

The special way in which Premium-Cola (and Premium-Bier) conducts business is referred to by the protagonists as the "operating system" http://www.premium-cola.de/betriebssystem/159-premium-betriebssystem: they contribute the “hardware” (i.e., bottles, cases, trucks, ... ) using ideational “software” (made up of many small “programmes”) to the basic idea for how enterprises should operate.

Like every software, this one should be modified on an ongoing basis. For this reason there is a Wikipedia entry (which this information has been taken from) which is processed by all customers and involved parties and which can also be expanded (go to http://wiki.premium-cola.de/index.php?title=Hauptseite). Premium Cola wants other enterprises to copy their system in part or whole, disseminating and improving on it in this way. This is why the contents are free of charge. The only requirement is that the origin be named. The company also asks that they receive feedback on any further developments, for ex. in other sectors. Premium Cola calls this “Open Franchise.”

REWE Group  

In cooperation with Global 2000 (an E5-stakeholder) & Caritas (an E5-stakeholder), the REWE Group developed the “Pro Planet Siegel” for conventional agricultural products in 2010 to further enhance the eco-friendliness and socially compatibility of these products.[14]

This is an initial approach which entails not only asking E5 stakeholders for their opinions but also requesting them to engage in the development process.

Some critical questions pose themselves here, however. Why are organic agricultural operations not promoted better instead? Doesn’t adding yet another label actually cause more confusion among consumers? What concrete, verifiable success have such measures had?

Bibliography

 

Editor: Harald Bender: hfbender@web.de; preliminary work: Christian Rüther chrisruether@gmail.com                                

 


[1] The term stakeholder refers to relevant contact groups, here to regional contact groups or contact groups from civil society.

[2] Critical data are for ex. investments in other enterprises and subsidiaries in tax havens, lobbying payments to political decision-makers / institutions (parties / associations)

[3] On the basis of the specifications of the GRI = Global Reporting Initiative – the current standard for sustainability reporting; also see www.globalreporting.org

[4] Organizational Participation in Europe Network (OPEN)

[5] Cf. Weber, Wolfgang: Demokratie, 1994, pg. 272; Wegge, Jürgen: Motivation, 2010, pg. 159.

[6] This comparison can be downloaded from our wiki: https://wiki.gwoe.net/pages/viewpage.action?pageId=1540419  

[7] Maak, Thomas/ Ulrich, Peter: Unternehmensführung, 2007, pg. 177.

[8] Cf. Maak, Thomas/ Ulrich, Peter: Unternehmensführung, 2007, pp. 184-5.

[9] Cf. Maak, Thomas/Ulrich, Peter: Unternehmensführung, 2007, pp. 178-80.

[10] GIZ: Manual, pp. 5+6

[11] GIZ: Stakeholderdialoge. Ein Manual, found at: http://www2.gtz.de/dokumente/bib-2011/giz2011-0182de-stakeholder-dialoge.pdf, pg. 7 (03/08/2011)

[12] Cf. 9:pm: Stakeholdermanangement. Ein Best-Practise-Ansatz, at: http://www.virtualuniversity.ch/ autor/weilacher/stakeholdermanagement.pdf  pp. 3+4 (03/08/2011)

[13] Maak, Thomas/Ulrich, Peter:Unternehmensführung, 2007, pp.173/4. The sources of the case study are: “Centre for Stakeholding and Sustainable Enterprise (2002): ‘The Body Shop – Local Community Consultation,’” Research Report Kingston University (UK); The Body Shop 1997 ‘Value Report’; The Body Shop website (source: www.thebodyshopinternational.com, downloaded on 16/12/2004)

[14] Cf. http://www.global2000.at/site/de/magazin/umweltmagazin/konventionellelandwirtschaft/article-konventionellelandwirtschaft.htm, a critical view on this at: http://www.handelsblatt.com/unternehmen/handel-dienstleister/zoff-nach-ard-markencheck-rewe-weist-vorwuerfe-gegen-oeko-siegel-zurueck/7616568.html and the television program Markencheck Rewe (ARD) – from 29” 30’ on.