13
Stakeholders vs. Stockholders in The Office
In break rooms around the country there is a common complaint: “They only care about the bottom line; they don’t care about us at all.”1 “They” is synonymous with management, the ones who appear to decide the fate of the world—including whether the water cooler is going to remain in the break room, given the new budget cutbacks. From workers to suppliers, from customers to the larger community, a wide range of people and organizations are impacted by the decisions and actions of the corporate elite. The study of business ethics has given a name to this collection of interested parties. They are the stakeholders—and The Office is full of them.
Stakeholder Theory2
Stakeholder analysis is the consideration of which groups will be impacted by a business practice and what that impact is.3 Igor Ansoff’s version of stakeholder theory sums things up in this way:
This theory maintains that the objectives of the firm should be derived balancing the conflicting claims of various “stakeholders” in the firm: managers, workers, stockholders, suppliers, vendors. The firm has a responsibility to all of these and must configure its objectives so as to give each a measure of satisfaction. Profit which is a return on investment to the stockholders is one of such satisfactions, but does not necessarily receive special predominance in the objective structure.4
While there are different versions of stakeholder theory, the basic idea is the same: the more stakeholders that are satisfied by an action, the better the action is for the company.5 A real issue in utilizing stakeholder theory is determining who out of a potentially infinite set of people are salient stakeholders, or the stakeholders that matter in determining a course of action. One potential solution is to identify the stakeholders “to whom management should pay attention” by examining:
1 the stakeholder’s power to influence the firm;
2 the legitimacy of the stakeholder’s relationship with the firm; and
3 the urgency of the stakeholder’s claim on the firm.6
Using the Mitchell model, management is able to both consider the impact of a decision on a broad group of those impacted by it and focus on the satisfaction of those who will be most impacted by that decision. Using a smaller set of salient stakeholders is an attempt to address the fact that given the global nature of business, “it is bewilderingly complex for managers to apply” stakeholder theory in decision making (Mitchell et al. 1997: 857).
While much of stakeholder literature assumes (as I do here) that doing good by the stakeholders will result in financial benefits for corporations, “there is as yet no compelling empirical evidence that the optimal strategy for maximizing a firm’s conventional financial and market performance is stakeholder management” (Donaldson and Preston 1995: 78). Donaldson and Preston also note that using corporate reputation surveys shows that increased satisfaction of stakeholders does not come at the expense of other stakeholders. If we consider stockholders to be stakeholders, then this implies that the happiness (probably measured in dividends) of stockholders is not necessarily diminished by increasing the happiness of others (i.e., employees, customers). Further, there is “no notable evidence of [stakeholder theory’s] inconsistency” with profit (p. 81). But strong motivations for using stakeholder theory come from moral, not financial, pressures.
Looking at Dunder-Mifflin, a midsize paper and office supply distributor in the American Northeast with an emphasis on servicing small-business clients, we can see how these concerns play out. The immediate stakeholders are obvious: the stockholders (Dunder-Mifflin is “traded on the New York Stock Exchange, ever heard of it?”—as Andy Bernard informs us in “Traveling Salesmen”), the employees, and suppliers, and the customers. But in actuality the stakeholders go beyond these limited numbers. Focusing for a moment solely on the Scranton branch, we can see that Billy Merchant, the building supervisor for the Scranton Business Park, has an interest in the continued success of Dunder-Mifflin, as does Bob Vance (of Vance Refrigeration). Bob Vance, interestingly, is impacted by Dunder-Mifflin policies not only as a shared tenant of the office park, but (as of season 3) also as the spouse of Phyllis Vance (née Lapin). The Office has not yet explored how any tensions between these two roles will be reconciled. (In a similar manner, we did not know how Jan Levinson and Michael Scott would resolve any potential tensions between upper-management and mid-management priorities when Jan worked for Dunder-Mifflin.) Bob Vance did offer to take over the warehouse and hire all of the warehouse workers when it appeared that the Scranton branch of Dunder-Mifflin was being closed (“Branch Closing”). So it seems that Vance Refrigeration, though not directly impacted by the success or failure of Dunder-Mifflin, could indirectly benefit from the failure of the branch. This sort of impact on stakeholders is not always apparent— nor can businesses often consider it. Yet stakeholder theory calls for a business to realize “that the actions it takes have definite and often far-reaching effects—effects that go beyond stockholders, employees, and customer.”7
If we turn from this basic stakeholder picture to the individuals who make up Dunder-Mifflin, we can understand conflicts more clearly in light of the stakeholder model.
On a small scale, we can see a divide between Michael Scott and the rest of the Scranton office on what appears to be an insignificant difference. Michael favors dining at large chains, while employees favor local restaurants and taverns. For example, Michael believes that Chili’s is “the new golf course” (even going to the point of sending a letter to Small Business Man Magazine) (“The Client”). He offers Devon Chili’s gift certificates as a bit of a consolation after firing him (“Halloween”), and even holds the annual branch awards event at Chili’s (“The Dundies”). Michael also frequents Hooters (“The Secret”), goes to Sbarro Pizza when in New York (“Valentine’s Day”), and appears to be sending Ryan Howard out to various Boston Markets for chicken (“The Injury”). Even in supposedly small matters, he favors national products; thus he subscribes to USA Today instead of the local paper, and drinks coffee from Starbucks (“Hot Girl”). In contrast to this, after his firing Devon invites everyone (except Michael, Creed Bratton, Dwight Schrute, and Angela Martin) to Poor Richard’s, a local tavern in Scranton. In an odd coincidence, after it is determined that the branch is not closing (and having sold company property for $1,200), Creed offers to buy shots at Poor Richard’s for everyone. In addition, while they cannot agree on where to eat, the office staff does briefly consider (at Phyllis Lapin’s suggestion) going out for lunch together—all at local restaurants8 (“Branch Closing”).9 Throughout the series we can see in the break room a menu for a local Scranton pizza shop, and when the staff goes out for coffee they do so to apparently locally owned stores (“Traveling Salesmen,” “The Negotiation”).
Aside from conforming to the idea that one ought to frequent smaller and local shops as opposed to larger national and multinational shops, this divide between what Michael does (or rather, where he shops) and what the others do invokes a bit of ethics that is often obscured in the more business oriented understandings of stakeholder theory. Much stakeholder theory is implicitly happiness-oriented. It assumes that the more stakeholders who are happy as a result of an action, the better that action is. For example, an action that resulted in the employees, the customers, and the near-neighbors of a branch being unhappy would be less desirable than one which brought about more happiness (or at least maintained the current level of happiness.) This approach relies on a view famously articulated in John Stuart Mill’s Utilitarianism. Mill (1806–1873) claims that “actions are right in proportion as they tend to promote happiness; wrong as they tend to produce the reverse of happiness.”10 By continually preferring national chains, Michael is setting up a situation where the local community is potentially losing its distinctive flavor. His employees, on the other hand, are supporting local flavor. Michael’s dining habits could actually result in a lack of engagement in the community, distancing the Scranton branch of Dunder-Mifflin from the community (its customers, employees, and other stakeholders). If we think in terms of utility, we can see that by shopping locally the Scranton employees of Dunder-Mifflin are enabling their neighbors to continue to own, run, or work for local businesses, which ideally will be more understanding of local concerns than national megabusinesses. In contrast, Michael’s almost exclusive patronage of chains sends money, decision-making powers, and supposedly happiness outside of his community. Stakeholder analysis would find that the better action is the one that makes the most stakeholders (perhaps weighed in some manner) happy. However, even if the difference in happiness between local and national buying impacts only a very few individuals, we need to remember that the “great majority of good actions are intended not for the benefit of the world, but for that of individuals, of which the good of the world is made up; and the thoughts of the most virtuous man need not on these occasions travel beyond the particular persons concerned” (Mill, 19). Given this guidance, consider again Michael’s preference for Chili’s over Poor Richard’s. In both cases, it seems clear that the servers at the restaurants would be pleased for business (and tips), but in addition the profits from Poor Richard’s would stay in Scranton, providing further financial impact to the city than a sale to a national chain can provide. By shopping locally, which is to consider stakeholders in economic decisions, businesses (and business managers) have the opportunity to exponentially spread happiness—something which, at least according to Mill, is morally correct to do.
We don’t have to look far to see larger-scope instances of stockholder concerns trumping stakeholder concerns. Consider these: the Pittsfield, Massachusetts Dunder-Mifflin office was closed over rumors of a union being formed (“Boys and Girls”). Devon is fired purely for financial reasons, and his selection is particularly random (even more so after it switches to Devon from Creed) (“Halloween”). The company health plan is restructured without consideration of need (“Health Care”). Obviously, these actions prioritize financial (stockholder) concerns over more communitarian (stakeholder) concerns. In each situation a decision is made apparently only because of profit and without consideration of who would be impacted by that decision.
Less clear is an interesting (and rare) example of Jim Halpert acting purely for profit. In “Diversity Day,” we see Jim attempting to increase his commission by “pushing” recycled paper on his biggest customer. When Dwight poaches the client from him, Jim’s actions end up backfiring even more than he could have imagined. Dwight becomes 2005 Salesman of the Year (“literally the highest possible honor that a northeastern Pennsylvania-based midsize paper company regional salesman can attain”) at least in part through taking Jim’s client (“Dwight’s Speech”). Jim’s action is uncharacteristic of him. As we see in “Traveling Salesmen,” Jim is aware that one of the best selling points that Dunder-Mifflin has is the service it can offer to customers that larger companies cannot.
On the other hand, Dwight’s stealing Jim’s customer is consistent with some of what we know about Dwight’s character. When given the opportunity to pick a health care plan, Dwight opts for the one that will save Dunder-Mifflin the most money, regardless of the impact on himself or fellow employees. (This comes up again in “Michael’s Birthday” when Toby Flenderson counsels Kevin to get alternate health insurance if possible given the possibility that Kevin has skin cancer.) When attempting to usurp Michael’s role as manager Dwight emphasizes to Jan (and later to the whole office) that there is a lot of room for firing unnecessary people (“The Coup”). Perhaps most tellingly he is able to aptly role-play David Wallace (the chief financial officer of Dunder-Mifflin) when explaining to Michael that Scranton is being closed for business reasons (“Branch Closing”). (Michael dismisses Dwight’s role-playing, believing that it is clear that the chief financial officer will understand that closing the branch will have a big impact on people.) On numerous occasions Dwight has made clear that he believes in a competitive business environment and that rules are necessary to separate us from the animals. It is less clear what we are to make of Dwight’s apparent knowledge of all of the outlet stores (and their contents) in the area between Scranton and New York. Perhaps Dwight has attempted to sell paper and office products to them, or perhaps, like Michael, he has begun to favor larger national chains.
Dwight’s “stockholder” concerns are somewhat balanced by what could be termed “stakeholder” concerns, or concerns about the larger community. Dwight was for some time a volunteer for a local sheriff’s office (though as deleted scenes for “Drug Testing” make clear he probably overstepped his authority). He supports the local minor-league baseball team the Scranton/Wilkes-Barre Red Barons (as evidenced by the Bobble-heads on his desk), and listens to local country-music station Froggy-101. By emphasizing the customer service of both Dunder-Mifflin and his own extreme accessibility (“Here’s my card. It’s got my cell number, my pager number, my home number, and my other pager number. I never take vacations, I never get sick, and I don’t celebrate any major holidays.”), Dwight is (inadvertently?) showing that he does understand that in business, the customer is important. Dwight has accepted at least the SRI model of stakeholder theory (which had stockholders as separate from stakeholders.) The tension in Dwight between, on the one hand, understanding that concern for stakeholders makes good business sense and, on the other hand, desiring to maximize stockholder profits (and thus show his own worth) makes him a fascinating character. In his own flawed way, Dwight’s attempts to excel by two different standards set him apart from Jim and the rest of the sales staff, who in Stanley Hudson’s words are simply “in a run out the clock situation” for much of their workdays (“Boys and Girls”).
No analysis of the stakeholder dynamics in Dunder-Mifflin would be complete without looking critically at Michael. Michael doesn’t feel deeply connected to the community (as evidenced by his shopping and dining at large chains rather than local companies). He also doesn’t feel totally connected to the people in his office. In “Take Your Daughter to Work Day” he introduces Creed as being “in charge of … something … right?” To which Creed only responds, “That is correct.” (To date it still isn’t clear what Creed’s job is in the office, as he is not in sales, accounting, customer service, or a part of the corporate office.11 He appears, like Melville’s Bartleby, just to exist in the office.) Michael also minimizes the importance of customers when they are not, or cannot, do what he wants. For example, in “Health Care” Michael tries in vain to find an exciting surprise for the office, calling at one point the Lackawanna County Coal Mine Tour and hanging up in disgust after he finds out there is not a “free fall.” In the deleted scenes we discover that the Tour is one of Michael’s customers. Alternately, in “Business School” we see how Michael’s need for acceptance causes him to waver back and forth between stakeholder and stockholder concerns. When a student asks Michael how he responds when a customer says he is leaving for a large competitor, Michael answers with a stakeholder response, pointing out the customer will be losing service and local connections that the big chains cannot match. When asked what he says when the customer does come back, he explains, “We don’t want them back. They’re stupid.”
This interchange is fascinating when compared to the moment in “Take Your Daughter to Work Day” when Michael explains what Dunder-Mifflin does:
Michael: You need someone in the middle to facilitate— Jake (Meredith’s son): You’re just a middleman.
Michael: I’m not just a middleman.
Melissa (Stanley’s daughter): Wait, why doesn’t the manufacturer just sell the paper directly to people?
Michael: You are describing Office Depot. And they are kind of running us out of business.
(Dwight has the next line, which emphasizes the stakeholder response to stockholder concerns: “We have better service than they do!”) Office Depot may be running Dunder-Mifflin out of business (in the next five to ten years if Ryan’s estimate in “Business School” is accurate), but Michael cannot or will not look beyond the betrayal of his trust to take back a previous customer. No moment better shows the conflict of stakeholder and stockholder concerns within Michael than his job in convincing Christian, a decision-maker for all of Lackawanna County, to go with Dunder-Mifflin instead of a larger chain. In the midst of explaining that he “is” Scranton, that he grew up in Scranton, went to school in Scranton, and knows everything about Scranton, he and Christian are drinking in Chili’s, not in a local Scranton restaurant. Christian buys Michael’s (true) story, but only on the condition that they get a price concession (“The Client”). This compromise between stakeholder and stockholder concerns seems to have been the right balance, and in other successful sales calls we see that all of Michael’s staff utilizes their knowledge of Scranton and the customer to their advantage. This may be, quite inadvertently, a unique aspect of working for Michael. In a scene from Stamford we see Jim volunteering to contact new businesses as potential customers—and being labeled a suck-up for doing so (“Gay Witch Hunt”).
Despite, or perhaps because of, the tensions in Dunder-Mifflin regarding the relative importance of stakeholders and stockholders, we can see through The Office a real hope for better, and more ethical, business practices. It’s far too easy to focus on the fun and games, like encasing office supplies in Jell-O, egging non-customer businesses, or Flonkerton. We can see real lessons about how acting ethically in the business place creates a better business environment. Stakeholder theory emphasizes that in order for a company to succeed, it needs to think about the impact of business decisions and practices on those who are stakeholders in that business, be they customers, suppliers, employees, or the larger community.
Frank Abrams wrote that part of selling a business and a product is “the exercise of conscientious care and restraint in our businesses and part is the simple matter of remeeting the ‘folks’ ” (33). Michael and his staff understand this. They embody Scranton, and understand the importance of customer contact. Think about Phyllis and Karen Fillippeli’s successful sale after getting a make-over to resemble the client’s wife. In contrast to this, consider Andy’s botched attempt to make Dunder-Mifflin out to be a big player, or Ryan’s many failed attempts to make a sale. (Again, it’s worth considering that the only sales failure we see Jim having comes when he forgets the customer’s interests and tries to maximize his own commission.) Michael is successful when he connects with people, as when he woos Hammermill out of an exclusive deal with Staples (“The Convention”).
By contrast, in a standard business model employees are considered mere assets. Employment “involve[s] an implicit agreement to the effect that, in return for wages, an employee [does] not expect his employer to be concerned with his personal goals and objectives. Hence he could be … treated as though he was a replaceable part of a machine.”12 Michael, probably subconsciously, sees upper management as operating on this model. Thus, his presentation to David Wallace emphasizes “The Faces of Scranton” (“Valentine’s Day”). Consider also Michael’s poignant concern about what will happen if the Scranton branch closes:
It is an outrage, that’s all. They’re making a huge, huge mistake. Let’s see Josh replace these people. Let’s see Josh find another Stanley. You think Stanleys grow on trees? Well they don’t. There is no Stanley tree. Do you think the world is crawling with Phyllises? Show me that farm. With Phyllises and Kevins sprouting up all over the place. Ripe for the plucking [long pause]. Show me that farm. (“Branch Closing”)
Workers, his workers, are not cogs in the business machine. They are people, and “people never go out of business” (“Business School”).
Involvement with the larger community is one of the serious business lapses we see at Dunder-Mifflin in Scranton, though this can be explained partially because The Office has only recently ventured outside the workplace and work life of the employees. But the Diwali celebration (“Diwali”) and the show at Pam’s art school (“Business School”) may be the beginning of The Office and its employees taking a greater interest in the community.
What can be learned from The Office? The concerns of stockholders and stakeholders don’t have to be at odds with one another. Good (ethical) business can be good (bottom line) business, or in the very least, ethical business practices need not be bad business practices.
NOTES
1 The wording of this complaint is remarkably consistent, and almost always evokes the mysterious “They.” For the philosopher, this cannot help but raise specters of Martin Heidegger’s concerns with “The They” (das Man) in Being and Time. As interesting as that analysis might be, the focus here is on business ethics. Go read Heidegger for yourself.
2 As Thomas Donaldson and Lee Preston note, “Unfortunately, much of what passes for stakeholder theory in the literature is implicit rather than explicit,” which results in “diverse and somewhat confusing uses of the stakeholder concept.” See “The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications.” Academy of Management Review, 20, 1 (1995): 65–91. In the following a bit of the flavor of these “diverse and confusing uses” is provided.
3 The folks at Stanford Research Institute (now SRI International, Inc.) apparently first used the term stakeholder in an internal memo in 1963. From their understanding, stakeholders (as opposed to stockholders) were “groups without whose support the origination would cease to exist.” The SRI memo is quoted on page 31 of R. Edward Freeman’s Strategic Management: A Stakeholder Approach (Boston: Pittman, 1984). Freeman’s book did much to popularize stakeholder analysis; so much so that many business students mistakenly believe that he developed the concept himself (apparently never having read the book that he wrote about the method).
4 R. Igor Ansoff, Corporate Strategy (New York: McGraw-Hill, 1965), p. 34. While Ansoff uses the stakeholder term he references this passage’s source as a Frank Abram’s article referenced below, from 1951—twelve years before SRI’s use of the concept. These bits of “history of ideas” are endlessly fascinating to academics, but most folks in the business world don’t pay attention to footnotes and references so never notice this. Wait, are you still reading this? Go back to the main text. I don’t want to see you down here again.
5 The differences between models show conflicting priority. In the Ansoff model (as well as Abram’s model), stockholders are considered stakeholders. In the SRI model they are distinct classes. As such, the SRI model tends to lend itself to an adversarial understanding of stakeholder and stockholders while other models aim for a more communitarian understanding. These differences, as well as other models, result in some analyses weighting some stakeholders (most commonly stockholders and employees) more highly than others.
6 Ronald K. Mitchell, Bradley R. Agle and Danna J. Wood, “Toward a Theory of Stakeholder Identification and Salience Defining the Principle of Who and What Really Counts. Academy of Management Review, 22, 4 (1997): 853–856.
7 Frank W. Abrams, “Management’s Responsibilities in a Complex World,” Harvard Business Review, 29 (1951): 29–34.
8 Ok, Kevin Malone suggests Hooters. But what else would we expect from him?
9 In an odd turn of events, the local restaurants and taverns mentioned in The Office appear to all be actual places in Scranton, PA. However, Chili’s, Hooters, and Benihana do not have locations in Scranton.
10 John Stuart Mill, Utilitarianism (Indianapolis: Hackett, 2001), p. 7. (Mill’s essay was originally published in 1861 in Fraser’s Magazine.)
11 We discover in “Product Recall” that one of his job responsibilities is to do weekly Quality Assurance checks at suppliers, but it seems implicit that his job entails more than just these spot checks.
12 Russell L. Ackoff, Redesigning the Future (New York: John Wiley, 1974), p. 34.