The Steinhoff Saga Management review - University of Stellenbosch Business School

January – July 2021

Business and peace: Why a strong network of stakeholders matters

By Prof Brian Ganson, Tony L. He, and Prof Witold J. Henisz

  • JAN 2021

20 minutes to read

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Building a network of relations to reduce the risk of conflict

What if a new firm – say a mining company or oil company – wants to start operating in an environment made up of various groupings of people with different identities and ideals? What if the firm’s stakeholders belong to subgroups that do not see eye to eye? Can this firm afford to deal with only one group of stakeholders while ignoring the others in a conflict-prone environment?

It has been said that a firm’s relational strategies – which can be defined as the managerial choices that alter the structure of relationships within its stakeholder network to advance the firm’s goals – increase or decrease conflict risk between identity groups in the broader societal network.

But how does a firm facilitate intergroup cooperation and reduce conflict risk? How does it go about building a broader network of societal relations so that all sides benefit from the prosperity generated by the new business?

It has been said that a firm’s relational strategies – which can be defined as the managerial choices that alter the structure of relationships within its stakeholder network to advance the firm’s goals – increase or decrease conflict risk between identity groups in the broader societal network.

For a long time, it was thought that businesses can play a major role in establishing peace and facilitating societal development in conflict-ridden areas. Subsequent research has shown that conflict in this context can only be reduced if there is agreement on the distribution of costs and benefits among conflicting groups, i.e. if there is intergroup agreement.

This summary article is based on the journal article titled Business and Peace: The Impact of Firm-Stakeholder Relational Strategies on Conflict Risk by Prof Brian Ganson, Tony He and Prof Witold Henisz.

The authors of this article explore how leveraging the power of networked relationships increases cooperation and decreases conflict risk by changing the structure of relationships between groups in conflict-affected areas. Drawing on social network theory, they have developed four relational strategies that can help to build better flow of communication, stronger relationships and better cooperation in order to reduce conflict risk within a networked society.

But first, a word on the formation of identity groups and horizontal inequalities. People group themselves and others into identity groups based on, among others, their ethnicity, religion, culture, race, political ideology, class, gender, age, geography, and organisational affiliation. Horizontal inequalities refer to the differences in the distribution of economic, political, and social resources between groups. Horizontal inequalities shape group identities in the broader societal network. Collective disadvantages experienced by members of a group can reinforce group cohesion and identity, increasing willingness to escalate conflict. Members of advantaged groups in turn mobilise to protect their interests. Horizontal inequalities, therefore, also shape conflict and cooperation between groups.

When a firm unlocks new resources in an area the distribution of those resources can become a source of intergroup discord when these groups are characterised by horizontal inequalities. Therefore, in conflict-affected areas characterised by various subgroupings or identity groups with high levels of pre-existing horizontal inequalities, business-generated prosperity may contribute to the reinforcement of identity group boundaries, increased perceptions of comparative injustice, and the escalation of intergroup conflict.

… one solution is to form a strong network of relations with stakeholders from all the relevant subgroups or identity groups in the firm’s ecosystem.

Various case studies have shown that it is difficult for managers to improve intergroup relations in conflict-affected areas. According to the authors of this article, one solution is to form a strong network of relations with stakeholders from all the relevant subgroups or identity groups in the firm’s ecosystem. To achieve this, the firm should create incentives for each identity group to change the nature of their engagements with each other and to work towards mutually acceptable settlements on the issues that divide them. Peacebuilding therefore includes facilitating cooperative relationships between identity groups in conflict-affected areas.

This puts the spotlight on managerial decisions.

If managers are to facilitate healthier intergroup relationships, they must remain attentive to the issues and dynamics that divide or connect identity groups. They must monitor intergroup relations to help avoid the exacerbation of conflict.

The authors argue that, in the presence of substantial horizontal inequalities among the subgroups in a societal network, managerial decisions that change the structure of relationships within the firm’s stakeholder network can impact conflict risk in the broader societal network.

Furthermore, managerial decisions will have such impacts whether or not there is awareness of, or intention to effect, such outcomes. For example, managers of a firm operating in a conflict-affected area might allocate information, corporate social responsibility programmes, jobs, contracts, or other opportunities to various stakeholders. However, when the firm favours one identity group over another, this can exacerbate horizontal inequalities among these groups.

Using the tools of social network theory, the authors developed four propositions that examine how managers’ relational strategies can impact conflict risk by reshaping the structure of relationships between identity groups in conflict-affected areas. It is indeed so that certain relational strategies are more likely to increase conflict risk in the broader societal network.

The four propositions are brokering versus convening identity groups, including versus excluding stakeholders, managing fault lines within a firm’s network of stakeholders, and supplanting versus supporting helpful brokers.

Brokerage versus convening of identity groups

When a firm occupies a structural hole in a network – i.e. a network position that connects otherwise disconnected parties – managers act as the “brokers” of information with the ability to gather, recombine, and redirect resources to their advantage. The managers can decide to keep the network subcomponents disconnected or in conflict with each other so that they can “manipulate or exploit” the disconnected parties for the firm’s benefit. This is a way of staying in control.

When managers pursue a disunion strategy that keeps subcomponents apart, social network theory suggests that the sparseness of direct communication channels between subcomponents would restrict both the speed and accuracy of the information flowing between them.

However, a firm can also play a convening role by fostering network closure across subcomponents within the broader societal network, where network closure is defined as a high density of direct connections between actors from different subcomponents. In this convening role, managers attempt to strengthen cooperation between the disparate parties. If the stakeholders are disconnected, managers can create introductions and propose collaborative endeavours; and if the stakeholders are in conflict, managers can facilitate positive dialogue. A firm acting as a convener of actors from different identity groups can enable better communication and coordination that might benefit the firm and those convened.

When a firm occupies a structural hole in a network – i.e. a network position that connects otherwise disconnected parties – managers act as the “brokers” of information with the ability to gather, recombine, and redirect resources to their advantage.

When managers adopt a convening role instead of a brokering role, they build bridging social capital within the network because network closure facilitates better information flow and resource exchange between actors from different identity groups. The higher the bridging social capital, the lower the conflict risk in the groups.

  • Proposition 1: The higher the pre-existing level of horizontal inequalities, the more a firm fosters a denser (sparser) network of cooperative ties between identity groups, the more it reduces (raises) conflict risk in the broader societal network.

Exclusion versus inclusion of stakeholders

Next, the authors looked at how the patterns of exclusion and inclusion that determine the composition of stakeholders with whom a firm builds relationships can exacerbate or moderate conflict between identity groups in the broader societal network.

When managers favour the stakeholders from one identity group over those from another group, those being ignored may feel deprived or envious.

Indeed, the composition of a firm’s stakeholder relationships can influence conflict risk between actors from different identity groups within the societal network. This can trigger social comparisons, intensify group polarisation, hamper intergroup communication and result in greater conflict risk over institutional arrangements to distribute benefits, costs, and risks. When this happens, groups become less willing to resolve their problems across group boundaries.

The managers can decide to keep the network subcomponents disconnected or in conflict with each other so that they can “manipulate or exploit” the disconnected parties for the firm’s benefit.

However, when managers engage with stakeholders from multiple identity groups – i.e. when they embrace inclusivity – they help to avoid the reinforcement of intergroup differences, reduce the likelihood of conflict, and enable the joint development of communication capabilities and shared norms of behaviour.

  • Proposition 2: The higher the pre-existing level of horizontal inequalities, the more a firm bridges identity groups (privileges one identity group over another) when building firm-stakeholder relationships, the more it reduces (raises) conflict risk in the broader societal network.

Managing fault lines within a firm’s network of stakeholders

When managers build cooperative ties with stakeholders from different identity groups, the firm’s stakeholder network may simply grow in a way that mirrors the societal boundaries between these groups. If pre-existing horizontal inequalities are high, it is likely that stakeholders will stay within their identity group boundaries reinforced by economic, political, and social issues or interests. These boundaries are called fault lines. The members of the identity groups will stand together to protect their advantaged status or to change their disadvantages status, which can escalate into resistance to cooperate (“I go to work, I do my job, that’s all”), or conflict.

When fault lines between identity groups are reinforced this may add to tension, inequality and conflict, which divides groups in a broader societal network.

One way to overcome this is for the firm to focus on “common third parties” that cut across strong boundaries. This can help to mobilise groups across fault lines, nurture mutual interests, facilitate the sharing of information, enhance consensus, and prevent opportunistic behaviour. Stakeholders that work across boundaries can help to minimise conflict, resolve disputes and get people to cooperate in the distribution of the firm’s benefits, costs, and risks.

  • Proposition 3: The higher the pre-existing level of horizontal inequalities, the more a firm erodes (reinforces) the boundary between identity groups within its stakeholder network, the more it reduces (raises) conflict risk in the broader societal network.

When fault lines between identity groups are reinforced this may add to tension, inequality and conflict, which divides groups in a broader societal network.

Supplanting versus supporting helpful brokers

Managers who need to bridge subcomponents characterised by weak intergroup ties – a structural hole – often make use of so-called “helpful brokers” in a conflict-affected area in order to help reduce the possibility of conflict risk in the broader societal network. These brokers generate value from their position in the system across economic, political, and/or social dimensions. They may organise the sharing of knowledge, provide space for friendly or neutral interactions, and/or create incentives to motivate cooperative behaviour. Such brokers are inherently a part of network subcomponents with members engaged in some pre-existing conflict, but they might also possess a degree of embeddedness in each subcomponent, which provides them with some credibility and trust with the members of each group.

The manager attempting to bridge a structural hole thus faces a choice: whether to position the firm as an independent broker or convener between the parties, or to work through helpful brokers who are indigenous to the system. The former strategy may seem more straightforward: it builds the firm’s own social capital, it can keep the agenda more focused on pressing business issues, and it maintains greater firm control over processes and outcomes. However, this strategy can be highly problematic within the broader societal network. Helpful brokers, although sometimes difficult for companies entering a community to recognise, are part of the often informal but well-developed structures that help to sustain an acceptable level of cooperative relations despite the stresses of the conflict environment.

When outside actors intervene in ways that fail to take into account the nature of existing relationships in the broader societal network, they risk increasing intergroup conflict within the network, because the resources that outside actors bring to an even well-meaning convener role can divert attention, status, and social capital away from locally helpful brokers. This weakening of the helpful brokers undermines their effectiveness on the issue of interest to the firm, as well as their effectiveness in their broader role of mitigating intergroup conflict and maintaining social stability.

  • Proposition 4: The higher the pre-existing level of horizontal inequalities across conflictual network subcomponents, the more a firm supports (supplants) a helpful broker’s ties across those subcomponents, the more it reduces (raises) conflict risk in the broader societal network.

Even ethical private sector interventions that bring jobs, tax revenue, local procurement, knowledge creation, and other productive benefits of business-led prosperity cannot be presumed to be peace-positive.

Practically, what does this imply?

The authors have put on the table four propositions that capture how a firm’s relational strategies with its stakeholders can impact conflict risk in conflict-affected areas: brokering or convening stakeholders from different subcomponents; managing the exclusion or inclusion of stakeholders in the firm’s stakeholder network; strengthening or dissolving fault lines within the stakeholder network; and ousting or supporting helpful brokers to help contain conflict risk.

In the pursuit of business prosperity, managers have to decide how they allocate resources – including attention and conferred status – to various stakeholders in ways that alter the structure of relationships within the broader societal network. These strategies can enable intergroup settlement and reduce conflict risk when they foster communication, trust, norms, understanding, and consensus-building among identity groups. The opposite is also true as these strategies can alienate some of the identity groups in a network.

According to the authors, a direct causal link from private sector development to peace is misplaced or, at least, is in need of more nuance. Even ethical private sector interventions that bring jobs, tax revenue, local procurement, knowledge creation, and other productive benefits of business-led prosperity cannot be presumed to be peace-positive. When you have divided societies, which identity group’s capacities are built? Whose interpretation of the rule of law is supported? Which group benefits from jobs or contracts? Which intergroup bonds are built or broken through private sector activities? These decisions will result in either social cohesion or conflict risk. Hence, the authors call for a stronger network of relations with the groups present in the firm’s ecosystem.

Strengthening a firm’s stakeholder network literally means creating more connections with more people in more network nodes, and minding the managerial decisions that form or break stakeholder ties between identity groups.

To the extent that this is true, a firm operating in a conflict-affected area engages in peacebuilding – or undermines it – not primarily through any extraordinary efforts to bring parties together, but through its everyday decisions and actions. This calls for a closer look at the boundaries of the private sector’s peace-positive role, but also managerial agency within them. On a practical level, it is recommended that managers in conflict-affected areas focus their stakeholder relational strategies on the following:

  • Convening network subcomponents
  • Bridging members from different identity groups
  • Dissolving the fault lines within the firm’s stakeholder network
  • Leveraging the support of helpful brokers in the broader societal network.

 

If these intentional relational strategies are absent, business-generated prosperity is more likely to have perverse consequences through the exacerbation of grievances and marginalisation of certain identity group members, thereby enhancing conflict rather than peace at societal level. This approach of building interlinked networks can also benefit investors, creditors, and philanthropists seeking to address grand societal challenges of climate risk, racial and immigrant justice, human rights, and inequality.

Strengthening a firm’s stakeholder network therefore literally means creating more connections with more people in more network nodes, and minding the managerial decisions that form or break stakeholder ties between identity groups.

 

  • Find the original article here: Ganson, B., He, T. & Henisz, W. (2020). Firm-Stakeholder Relationships and the Institutional Capacity to Manage Horizontal Inequalities. Academy of Management Annual Meeting Proceedings 2020(1):17577. https://doi.org/10.5465/AMBPP.2020.17577abstract
  • Prof Brian Ganson is Professor and Head of the Africa Centre for Dispute Settlement at the University of Stellenbosch Business School. He received his J.D. from Harvard Law School. His research explores the positive and negative impacts of the private sector on peace and development in conflict-prone environments.
  • Tony L. He is pursuing a doctorate in applied economics at the Wharton School, University of Pennsylvania. He received his MBA from Harvard Business School. His research examines the firm, industry, and societal impacts of corporate political strategies and corporate social responsibility.
  • Witold J. Henisz is the Deloitte & Touche Professor of Management at the Wharton School, University of Pennsylvania. He received his PhD from the University of California, Berkeley. His research analyses corporate diplomacy.

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