Managing Stakeholder Ambiguity

Companies increasingly need to engage a wide range of stakeholders, but managers often underestimate the complexity of the task.

Stakeholder management — especially that of secondary stakeholders — is becoming increasingly important in many industries, although its effects may vary from sector to sector and company to company. Multinationals, particularly in natural resource-based industries such as oil and gas, agriculture, mining and forestry, are increasingly under pressure to manage conflicting or difficult to reconcile stakeholder demands. For example, the efforts of St. Louis, Missouri–based Monsanto Co. in agricultural biotechnology have been aggressively contested by secondary stakeholders such as Greenpeace and Friends of the Earth due to concerns over health, safety and environmental uncertainties (Chataway et al. 2004). In Brazil, concerns have extended to include the impact of biotechnology on farmers’ rights and competencies and the potential domination of an important industrial sector by foreign multinationals (Hall and Matos 2004). Houston-based Shell Oil Co.’s experiences doing business in Nigeria have forced the company to address stakeholder concerns about its relationship with a corrupt and exploitive government. Such thorny issues are now clearly on the minds of many senior managers.

In contrast to primary stakeholders, such as customers, suppliers and shareholders, secondary stakeholders are often difficult to identify beforehand, or they may not be willing or able to engage, negotiate, compromise or clearly articulate their positions — a phenomenon we have referred to asstakeholder ambiguity (Hall and Vredenburg 2003). Although much management literature represents secondary stakeholder engagement as a panacea for a variety of ills and a means of accessing untapped opportunity, this largely ignores the fact that stakeholder ambiguity is difficult to manage because it is idiosyncratic and context-specific. Managers are often ill-prepared to deal with stakeholder ambiguity and typically revert to formulaic decision-making frameworks such as discounted cash flow and cost-benefit analysis, which misrepresent the challenges.

For example, major multinationals, such as U.S.–based Conoco-Phillips and Texaco and France-based Perenco, encountered resistance from antidevelopment religious groups in the oil-producing region of the Ecuadorian Amazon (Hall and Vredenburg 2004). The companies’ difficulties stemmed in large part from their lack of understanding of the locals’ social and environmental sensitivities. Midsize producer Canada-based Pacalta Resources, on the other hand, moved its headquarters to the Ecuadorian capital of Quito and set up a quasi-independent nongovernmental organization composed of locals who understood these problems.

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Acknowledgments

Funding for this research was supplied by the Social Sciences and Humanities Research Council of Canada and Genome Canada. We also acknowledge our colleague Stelvia Matos and industry partners.