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12/15/2005

Wyoming gas production: It's possible and prudent to measure stakeholder views

In southwest Wyoming, site of some of the largest oil reserves in the U.S. , a debate has been raging over natural gas production versus protection of the area's wildlife. The Bush Administration's lifting of a winter moratorium on drilling there opens up the possibility for further development by the energy companies. In a model designed to improve organizations' decision-making, Rice researchers demonstrate that it's possible and prudent for organizations - such as those involved this controversy - to measure both the impact and reactions of their stakeholders to their decisions.

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When it comes to corporate decision-making, today's managers must rely on more than estimated cash flows. They also need to weigh and balance the multiple social and environmental concerns of their stakeholders. Unfortunately, say Rice researchers, many are unwilling or unable to fully identify and measure the impacts of their company's decisions, in part, because they lack measurement tools and overlook less powerful, but nonetheless relevant stakeholders.

"Studies show stakeholders high in power, legitimacy and urgency may matter more to organizations than other stakeholders," says Sally Widener, an assistant professor at Rice's Jesse H. Jones Graduate School of Management.

"Managers need to consider a wide range of stakeholders, including those who may not have a loud or local voice, but whose reactions may affect the organization's long-term financial performance. "

In a report entitled, "Measuring Multiple Stakeholder Costs and Benefits for Improved Decision-Making," Widener and Marc Epstein, Rice's Distinguished Research Professor in the Jones School, illustrate the means by which managers can measure and integrate information from multiple stakeholders into their decision-making. By studying a decision involving a trade-off between energy development and protection of wildlife in one of the largest natural gas reserves in the U.S. , the researchers show how existing measurement techniques can be applied to even the most complex decisions.

In this particular case, the stakeholders included federal, state and local governmental agencies and offices, environmental groups, homeowners, local ranchers, hunters, tourists and future generations. The primary conflict was the impact of the energy companies' expansion on that area's wildlife population.

"By collecting as much stakeholder information as possible, we realized the problem was not simply a trade-off between wildlife development and energy development," Widener says.

"It became obvious that there were other considerations - both positive and negative social, economic, and environmental impacts - that the energy companies, the city and other stakeholders should take into account when making their decisions. "

After identifying all relevant stakeholders and gaining an understanding of their various perspectives, the researchers collected quantitative archival data to either substantiate or refute the interview data. Combining interview, archival and observational data, they were able to qualitatively gauge the company's economic, social and environmental impact should it pursue more development.  

Next, they measured stakeholders' reactions using a common survey method that measured a cross-section of stakeholders' willingness-to-pay to offset the effects of residential and natural gas development on wildlife. Over 650 survey responses were collected from the local community, and over 1,000 responses came from a national online survey administered by a national polling company.

According to Widener, respondents who felt environmental issues are important, had completed some level of education beyond their undergraduate degree, had higher incomes and were among respondents from the national survey, not the local respondents who resided in the affected area, were more likely to be willing-to-pay to mitigate the potential effects of development on wildlife.

"These results imply that managers must take care to consider all stakeholders regardless of their individual characteristics or their proximity to the decision being made," Widener states.

"Future research on stakeholder groups might shed some startling insights regarding their impact on a company's long-term financial performance. "

Widener concludes that overall their study suggests that organizations can facilitate their decision-making process in the area of corporate social responsibility and sustainability.

Widener's research on performance measurement and control within organizations is widely published in such scholarly publications as the Journal of Accounting and Economics , Accounting, Organizations and Society and the Journal of Management Accounting Research.

A member of the Jones School since 2001, she earned her master's degree in accounting from Colorado State University and her Ph.D. in business administration from the University of Colorado at Boulder.  

The author of a dozen books that have won top academic, professional and business awards, Marc Epstein taught at Stanford and Harvard Business Schools and the European Institute of Business Administration before joining Rice's Jones School in 1998. In the fall 2004, he was appointed Harvard's first Hansjoerg Wyss Visiting Scholar in Social Enterprise.

For more information on this research, contact Widener at widener@rice.edu or Debra Thomas in the Jones School at dthomas@rice.edu.