3. The principle of stakeholders’ involvement in strategic planning process
3.1. Current approach and its criticism
The Federal law of June 28, 2014 №172-FZ "On strategic planning in the Russian Federation" doesn’t consider business entities as participants of strategic planning process in the government (article 9), i.e. those entities whose activities create GDP and shape the future of the Russian economy and Russia itself as a state. Such an attitude reflects historical tradition of Russian legal consciousness and legal environment with an essential trust in the state and its responsibility even for its own business.
Federal law No. 172-FZ treats strategy rather as unilateral actions of the authorities (article 10), largely disregarding the interests and opinions of other legal entities. Actual elimination of economic entities from the strategic planning process is not consistent with the strategic planning of economic development.59.
Formally, section 7 of the article 11 of the act provides that, "the development of strategic planning documents can involve trade unions and employers, public, scientific and other organizations subject to the legislation of the Russian Federation on the state, commercial, official and other protected by law secret", but it does not create procedural rights for involving experts and stakeholders in strategic planning. Rather it establishes the right of unilateral actions of public authorities with strategic planning, suppressing the possible formation of favorable legal environment for business and strategic civic engagement.
The regulation “On the organization of project activities” also avoids stakeholders’ participation. And even if the presidential Council of the Russian Federation on strategic development and priority projects has the rights “(a) to invite to attend in meetings federal, regional and municipal civil servants, representatives of public associations, scientific and other organizations; and (b) to draw in the prescribed manner for the implementation of analytical and expert works on scientific and other organizations, and also scientists and experts”, it never happens in practice. There are no mechanisms of business involvement in priority projects implementation and no tools of independent assessment of how federal authorities work.
Thus, the survey conducted by the Russian Union of Industrialists and entrepreneurs, representing more than 30 major companies of different spheres, identified the following:
A large number of surveyed companies are aware of the Federal law 172 – FZ;
A large number of surveyed companies considers necessity at the legislative level to provide a mechanism for the inclusion in the process of development, monitoring and implementation of strategic planning documents of companies with state participation and private companies;
More than 65% of surveyed companies reported that the development strategy of the company is directly linked to state strategic planning documents;
More than 55% of the interviewed representatives of the companies would like to participate in the development, monitoring and implementation of strategic planning documents by participating in the discussion of the documents via the Federal information system of strategic planning.60
The example of the Far Eastern and Northern regions illustrates how crucial stakeholders involvement in the strategic planning process might be.
It often happens that the plans of infrastructure monopolies are the most important factor for the development of individual regions of the Russian Federation. Unfortunately, in the current sectoral programs regional profile is presented poorly. The absence in these documents of specific proposals for development of their activities in a separate area makes it difficult to develop high-quality synchronized plans and strategies for socio-economic development of the Russian regions.
In case of the Republic of Sakha (Yakutia), in fact it is difficult to authotithies to obtain plans of such major companies as JSC "Surgutneftegaz", OJSC KHK Yakutugol" JSC "sun", OJSC "Aldanzoloto GRK", which significantly reduces the accuracy of forecasting and planning at the regional level, as a consequence, at the Federal level, determining priorities of state regional policies in the medium and long term.61
Stakeholders: how this topic has emerged?
‘Since the creation of the word “stakeholder” by Ansoff and Stewart in 1963 (Freeman, 1984, p. 31), and particularly since the work of Freeman in 1984, Stakeholder Theory has progressively been deployed through several books and numerous scholarly papers that have described and improved various approaches to the strategic management of actors (Elias et al., 2002; Savage et al., 2010). Beyond the scope of analyzing a firm through its industrial and economics trades, Stakeholder Theory integrates social and political exchanges between actors (Post, Preston, & Sachs, 2002; Wilson, Bunn, & Savage, 2010).62
Stakeholder participation can be defined as involvement of individuals and groups in the process planning, enabling them to influence decisions. Since the participation in itself does not lead to results, it is necessary to carefully plan it beforehand. The key question in participatory planning is the selection and the manner of including stakeholders (Kapoor, 2001, O’Rourke, 2005).63
The corporate planning literature incorporated a limited role for stakeholders in the development of corporate strategy. Ansoff’s classic book Corporate Strategy (1965) illustrated the importance of identifying critical stakeholders. However, stakeholders were viewed as constraints on the main objective of the firm and Ansoff actually rejected the usefulness of the idea. Here there is a fundamental difference between the Stanford Research Institute (SRI) approach and corporate planning. Corporate planning simply recognized that stakeholders might place limits on the action of the firm. Thus, management should understand the needs of stakeholders in order to set the bounds of operation. However, within these bounds management should develop strategies that maximize the benefits to a single stakeholder group, the shareholders. In contrast SRI saw the support of all stakeholders as central to the success of the firm. Therefore, successful strategies are those that integrate the interests of all stakeholders, rather than maximize the position of one group within limitations provided by the others.64
The idea of stakeholders’ involvement into planning activity was reinforced in the literature on systems approach in management studies. Systems approach has complex roots, but the strand that is relevant to stakeholder theory was pioneered by Russell Ackoff and C.West Churchman (1947) and developed mainly in Ackoff’s works on organizational systems in the early 1970’s (Ackoff 1970, 1974). Systems approach emphasizes the external links that are part of every organization. Thus, organizations described as ‘open systems’ are part of a much larger network rather than as independent self-standing entities. Identification of both the stakeholders and the interconnections between them is a critical step in this approach. From a systems perspective, problems can only be solved with the support of all the members, or stakeholders, in the network. Systems approach emphasizes the development of collective strategies that optimize the network. Individual optimization strategies are not the focus of analysis of this case. Individual strategies would simply result in sub-optimal network solutions.65
Stakeholders’ involvement in private and public strategic planning is different.
Decisions that are made in the public sector influence thousands, millions people and should meet expectations of stakeholders at least at a minimum level. Participation of public in strategic planning process has many advantages in achieving of final results and better understanding each other. ‘The stakeholders can be individuals or groups active in all the levels from local to global (Freeman, 1984, Clarkson, 1995, Gass, Biggs and Kelly, 1997, Grimble and Wellard, 1997, Chevalier, 2001, Buanes et al., 2004)’.66
By participating in the decision making process, the public will realize the importance of their involvement in deciding their future (Chadwick, 1971). According to Slocum and Thomas-Slayter (1995), public participation is a means to convey individual and the society’s personal interests and concerns with regard to the development plans, given that these planning activities would consequently affect the public generally and certain groups specifically. According to Beierle (1998, p.ii), public participation exists in the form of ‘...traditional participatory [for example] public hearings, notice and comment procedures [as well as] advisory committees. [In addition, public participation includes] regulatory negotiations, mediations and citizen juries’. Other than serving as a means of educating people and enhancing their awareness, public participation is also vital in preparing an efficiently better planning framework as a result of better understanding of stakeholders’ demands and needs which thus leads to effective resource planning and management. Interestingly, the act of participating in structuring a development plan enables citizens to minimize political and administration problems promoting transparency within the professionals’ environment (Lukensmeyer, Goldman & Stern, 2011), which in turn will address perceptions of inequality of power.
To a greater extent, public participation stimulates information exchange between all the proposed stakeholders (the public, government and non-government organizations) which will further enhance the mutual understanding and relationship between the stakeholders and resulting in the government and the proposed development enjoying instilled support (Glass, 1979; Cavric, 2011).
‘From the public’s perspective, the act of inviting to engage in the decision making process is considered as a sign of acceptance by the government. The public is affected by the related development plan proposal, and it is within the public’s interest to allow citizens to participate in the decision making process from the early stage of related planning procedure as this will encourage citizens’ input in the planning process and present the views of the entire community on specific issues to ensure the proposed plan will mirror their aspirations. In a broader sense, appropriate public participation is a key towards sustainable development given that the proposed development will be structured based on the stakeholders’ demands and needs, which include the benefits for future generations’.67
The transparency and independency of the decision of who and for what reasons were included in the decision-making process in planning is extremely important. A useful classification of mechanisms of citizen involvement at the regional level of strategic process based on the character of interactions between the stakeholders was proposed in [Molchanova e.a. 2013]68:
1. Passive citizen involvement in regional strategy development and implementation.
Developers —> Citizens
In the case of this type of interaction citizens are informed about developed and adopted strategic decisions, they are merely informed about these processes tacitly supposing that citizens may agree or disagree with these decisions. However, no feedback mechanisms that allow respond to the public opinion exist. In other words, actually these mechanisms are information alone, thus the citizens may be considered as passive participants of the strategic planning process.
2. Involvement mechanisms of citizens as "outside experts".
Citizens —> Developers
The residents of the region are considered as holders of useful information and valuable knowledge to be used for strategy development and implementation. The developers gather this information, identify the residents' opinions but the citizens remain outside the real strategic decision making process; they act as some external experts.
3. Active citizen involvement in regional strategy development and implementation.
Citizens < > Developers
These mechanisms allow not only identifying the citizens' opinions about approaches to regional strategy development and specific strategy implementation actions but also involve the representatives of the public in strategic processes as full-fledged participants who have an opportunity to making influence on the strategic decision-making process.9
Stakeholder performance criteria, introduced in the paper, are presented below.
As for business participation or public-private partnership (PPP) they ‘are guided by the belief that meaningful collaborations between government and firms will deliver projects that have better outcomes than any one party could achieve on their own. In practice, within the infrastructure sector, PPPs have come to take on a narrower, more specific definition as a form of long-term contracting arrangement between the public and private sectors (Tiesman and Klijn 2002)’.69
Careful stakeholder management is crucial for the success of a project. Moreover, clear vision and understanding of the importance of relationships with different stakeholders during the project implementation is the way to get and maintain support, buy-in and participation.
It is also necessary to mention that at the planning stage of priority project all categories of stakeholders may not be evident and soon the list of stakeholders will be expanded, public-sector project managers can quickly become drawn into larger issues of public policy than first anticipated and into engagement with broader groups who have an ability to affect the project.
Why is it necessary for Russia?
Available content of the Federal law № 172-FZ leads to two possible alternative situations, the consequences of its implementation:
1. State strategic planning, being isolated from the real economy, interests and opportunities of its subjects, is just a PR propaganda of the current government.
2. The implementation of the strategic plans will be possible only through state-owned corporations and enterprises, which will require increasing nationalization of industry and trade, which due to the crisis and the lack of necessary funds for the purchase of companies will be carried out by means of lawless arbitrariness in taxation and additional taxes. Change of ownership is to destroy the existing economic relations; it leads to the worsening crisis of the economy, and subsequently of the state.70
To crown it all, these two situations are strategically destructive. Therefore, the described upgrade of the Federal law № 172-FZ and related to it legislation itself is of strategic importance, requires time and financial resources.
According to the report published by the Analytical center under the government of the Russian Federation ‘The public sector in the economy of Russia occupies a significant part. Out of 100 largest companies represented in the rating of Expert RA in 2015 (drafted in 2014), 28 companies are companies with state participation. In these 28 state-owned companies are working to 6.1% of all employed in the Russian economy, and their revenue is 2.8% of Russia's GDP in 2014’.71Attraction of business community is crucial in order to increase the share of private resources in the disposable basis of strategic planning.