We've been talking about stakeholder strategy and specifically, I wanna focus on this idea of institutional pressure that can come from secondary stakeholders. So again, sometimes this comes from politically motivated actors and stakeholders that might simply have some self-interested reason to act against the firm. They want their own publicity or they just want their name in the news or something. But oftentimes, if you're receiving institutional pressure from secondary stakeholders that indicates that there might be some underlying stakeholder management problem that it would be wise to think carefully about and address. So in other words, sometimes this pressure can come from either some type of normative conflict or some type of distributional conflict. So let me talk about those two different kinds of conflict to help us understand what it is that we ought to think about as we're analyzing the source and the context that is generating the institutional pressure. So first of all, normative conflict. What is this? First of all, what are norms? Norms are essentially a societies accepted, established beliefs about the way things ought to happen. The way business ought to be done, what's considered fair, etc. So what's the issue? Well, normative conflict can arrive when firm actions act in conflict with those societal norms. So what are some examples of this? It's things like child labor, privatization or unionization. These are big, normative ideas that sometimes there can be conflict between a public or some sort of secondary stakeholder group and a business organization. So what are the potential solutions? Well, there can, of course, be public education, campaigns. There can be enfranchisement of groups that have been ignored. But I think primarily, if you're having a problem on normative conflict, you have to really decide whether your business model might need some adaptation in order to adjust to the norms of the context that you're operating in. So that's normative conflict. Let's talk about distributional conflict and there's a bunch of different kinds. So let's first focus on a type of distributional conflict known as market power. So what's the definition of this? Well, market power, understood this way is essentially the ability to price above what the competitive level would be in a free market. So what's the issue with that? Well, the issue is that firms are essentially capturing consumer surplus at the expense of general welfare. They're transferring wealth, undue wealth from those consumers. So what are examples of this? We think of things like collusion or cartels or predatory pricing. And so generally, these things in the developed world are sort of outlawed and regulated against. And oftentimes, the solutions come from the outside in the form of regulation or merger and acquisition approval or not or antitrust regulations. So these are the types of things that often come from the outside. But again, the principle here is that effective strategy ought to take some of this into account and there may be a way to avoid some of those regulations or some of that stuff that's coming from institutions and regulators. So that's market power. What's another type of distributional conflict? Let's talk about negative externalities. So what do we mean by negative externalities? These are essentially costs that are imposed on one stakeholder by the actions of another stakeholder without any sort of compensation, that's sort of an economist's way of thinking about it. What's the issue with that? The issue is that firms often times, specific organizations often times lack incentives to sort of deal with these sorts of externalities and we see this in a lot of economic models. The externalities are external to the model, so we can model supply and demand and find ideal price and that sort of thing. But we often don't take into account what's the impact going to be on secondary stakeholders in the community, for example. So a good example of a negative externality is some type of pollution, noise pollution or air pollution or water pollution. So that's a useful way of thinking about this and so what are the solutions to this? Again, oftentimes, they are imposed on business organizations from the outside in the form of regulation or there might be lawsuits or property rights might adjust one way or the other. Stakeholders that are really active on some of these issues might force some action on this. But again, an effective strategy, instead of waiting for those sorts of external solutions to a distributional conflict around negative externalities. Effective strategies ought to sort of think about how a business organization can be proactive and do a better job of not imposing those external costs on third party, secondary stakeholders. And if you do that, sometimes you can avoid some of these market solutions that come in from the outside. There's another type of distributional conflict that can surround the idea of common goods. So what do we mean by common goods? Common good are those sort of resources that are available to everyone. Everyone has access to them. But more for one type of stake holder, means less for another. There's a finite amount of these common goods. No one seems to be directly responsible for them, but we all have a stake in these common goods. So what's the issue with this? The issue is what's known as the tragedy of the commons. This is where firms or individuals over-consume common goods at the expense of other parties' access to those common goods. So what are some examples? Easy example is sort of natural resources extraction industries. We think of oil fields or water tables or any sort of natural resource, forests. As those resources get extracted by certain business organizations, there's less for other business organizations or even for third parties or secondary consumers. So again, what are the solutions to this? Oftentimes, certain business organizations might be granted monopoly over certain resources. So we can think of the provision of power and that sort of thing. Government might come in and regulate. There might be a lot of things that get imposed from the outside. But again, in a distributional conflict surrounding a common good. It's often times, very useful for a business organization to think about how they might quote, unquote self-regulate, how they might be proactive about minimizing those common goods effects on other secondary stakeholders. Finally, lets talk about a distributional conflict around what's known as information asymmetries. An information asymmetry is when one party knows more than another party and can essentially take advantage of that. So this can create what's known as the market for lemons phenomenon. What's the issue? Well, the issue is largely, it just dramatically increases transaction costs. So what are some examples? Think of the classic example of used cars or organic foods or share value or labor practices. These are things where insiders might have a better view. The used car salesman knows what the problems are with that car potentially and sort of keeps them hidden from the potential customer. And they just maximized the price of the transaction point and the customer discovers those problems after they've left the used car lot. Same thing with organic foods. I mean, we don't really know if those strawberries we're really grown in a organic way. We hope they are, we trust that they are and that sort of highlight what some of the solutions are to these information symmetries. Oftentimes, it's reporting or standards and labels, both private and public labels. So, any sort of kinda standardization process is a way of taking care of distributional conflicts that arise from information asymmetries. But once again, it often times, it's in a business organizations best interest to get out in front of this sort of thing. And in fact In fact, be proactive about influencing the type of labeling or what the standards ought to be. And when you do that, that can work to your advantage as a business organization while you're helping solving the information asymmetry problem at the same time. So this sort of leads to when we think about these kinds of conflicts, either normative or any of these types of distributional conflicts. What you need to think about from a strategy standpoint is what are some strategies, some sort of non-market strategies they're known as? How can we tackle some of these issues? So first of all, we might actually engage with government regulators. Perhaps against regulation, but in some cases, even for regulation. So this is what trade associations do sometimes on the behalf of certain industries or market segments. We could pursue resource through the courts. We could try our case in the court of public opinion through some sort of a media campaign to try to sort of counteract some of the negative press. We can negotiate with stakeholders, but really the key here is that if you determine that these institutional pressures arising from secondary stakeholders have their roots in some real stakeholder management issue. The best way to deal with that is to address those stakeholders concerns to self-regulate in some way that you adjust you business model. You're responsive to those stakeholder groups and that might actually allow you to be out in front and create some more value for those stakeholders.
