Tuesday, September 22, 2015

What Obligations Do Businesses Owe Competitors as Stakeholders?

The controversy over whether competitors should be considered stakeholders has been discussed many times. Ivey Business Journal, in tackling this issue, says in a 2004 article about stakeholder theory:
Competitors can certainly affect an organization and should therefore be considered legitimate stakeholders, but the organization and its managers have no moral obligation to attend to their well-being.
I agree with the first half of the statement, but not completely with the second half. Businesses definitely have legal and ethical obligations to competitors, based on accepted principles of fairness and honesty.

As one example, the tire company Pirelli codifies this obligation on its page on stakeholder relations, updated just a few months ago. Pirelli recognizes that fair competition is the backbone of corporate citizenship worldwide. Here's an excerpt from that page, with emphasis added to highlight the section on competitors:

Pirelli’s role in the economic and social context is inseparably tied to its capacity to create value with a multi-stakeholder approach, which means it pursues sustainable and lasting growth based as far as possible on the fair reconciliation of the interests and expectations of all those who interact with the Company with an awareness of its own global responsibilities as a Corporate Global Citizen, and in particular:
  • shareholders, investors and the financial community;
  • customers, since the Pirelli way of doing business is based on customer satisfaction;
  • employees, who are the repository of Group know-how and drive its development;
  • suppliers, with which it shares a responsible approach to business;
  • the environment, since it’s the only source of livelihood for all human activities in the present and future time;
  • competitors, because improved customer service and market position depend on fair competition;
  • institutions, governmental and non-governmental bodies, and the communities around the world where the Group operates.
My view: Although no company is obligated to help a rival compete, it is required to make decisions and take actions that are ethical and legal. Gaining market share by, for example, using predatory or unfair pricing, distorted product claims, or corporate espionage does not live up to the ethical and legal obligations a business owes its competitors or, in the long run, the obligations owed to shareholders and customers, among other stakeholders.

Strong competitors compel a company to do more in striving for excellence, to compete even more effectively. Strong competitors give customers real choices. Strong competitors encourage entrepreneurs and suppliers to innovate and profit by serving a strong industry. Acting ethically meets these obligations and benefits all stakeholders.

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