A SOCIOCOGNITIVE PERSPECTIVE OF
INDUSTRY-LEVEL COLLECTIVE STAKEHOLDER ACTION:

THE CASE OF THE SCOTCH WHISKY INDUSTRY

Natasha Vijay Munshi
City University London

London, UK

Abstract

This paper explores industry-level, collective stakeholder action. It argues
that industry stakeholders will act collectively at the industry level when they
perceive change to be radically in conflict with their shared beliefs. Although
collective action may not be in their immediate economic selfinterests, this type
of industry level collaboration is undertaken with the long-term interest of the
collective industry in mind. The example ofthe Scotch whisky industry is used here
to illustrate such collaborative industry-level collective stakeholder action.

Introduction

Mancur Olson's (1965) treatise 'The Logic of Collective Action,' has long
influenced the way economists have treated the subject of collective action.
Theorists such as Olson have reasoned that the basis for collective action is a
pure rational one oflooking out for one's own immediate self interest rather than
the collective benefits that could result out of collaboration. If one was to use
this rationalist perspective to study collective stakeholder action at the industry
level, then one should observe collaborative action only when each 'rational'
actor perceives his/her individual economic interest or stake to be in danger
rather than that of the collective group. The self interest motive is the case in
many instances of observed collective action. However, this perspective does
not explain the collective action of actors who appear to be acting against their
own immediate economic interests. By subsuming their own interests to those
of the collective, these actors appear to be giving up their own economic gain
in the short run. This paper's main purpose is to examine what drives collective
stakeholder action at the industry level. It uses the sociocognitive perspective
(Fiske and Taylor, 1991) as its theoretical lens to study this question in order to
provide an alternative viewpoint to the rationalist economics based perspective
of collective action.

The paper next briefly reviews the relevant literature on how social cognition is
involved in the evolution of industry structure. It also provides a short overview
ofthe extant research on the stakeholder's perspective. This paper uses the extant
stakeholder literature (Freeman, 1984; Frooman, 1999; Mitchell, Agle, and Wood,
1997; Rowley and Moldoveanu, 2003) and the literature on the social and cognitive



34 Journal ofBusiness Strategies Vol. 23, NO.1

aspects of industries (Abrahamson and Fombrun, 1994; Christensen and Gordon,
1999; Daniels, Johnson, and Chernatony, 2002; Porac and Thomas, 1995; Porac,
Thomas, and Baden-Fuller, 1989; Spender, 1989) as its theoretical underpinning
in order to further investigate this research phenomenon. It then follows with a
brief description ofthe events associated with the introduction ofthe Cardhu Pure
Malt whisky in the Scotch whisky industry. The paper then discusses the factors
contributing to industry-level stakeholder group action in traditional industries
and concludes with implications of this study for scholars and for practitioners
who are interested in learning more about the stakeholder concept.

Literature Review

Prior research on firm-stakeholder relationships has focused mainly on manage-
rial cognition, i.e., how managers perceive and manage their stakeholders (Free-
man, 1984; Mitchell, Agle, and Wood, 1997; Agle, Mitchell, and Sonnenfeld,
2000). However, relationships are embedded within their social context (Rowley,
2000). Studying a single firm's relationship with a single stakeholder doesn't
capture the full complexity of the etTects of the social context on such relation-
ships. A better understanding can only be gained when these interactions can
be studied within the broaden context in which they are embedded. This paper
addresses the issue of collective stakeholder action in one such context, namely
the industry context, as not much is known about collective stakeholder action
at this level of analysis within the extant stakeholder research.

Furthermore, there is a dearth of knowledge on the stakeholder's perspective of
the relationship that has only recently been addressed by new research on stake-
holder action (Frooman, 1999; Rowley, 1997, 2000; Rowley and Moldoveanu,
2003). Frooman's (1999) study applied concepts from resource dependence theory
to argue that stakeholders can act together - by using either direct or indirect
access to resources - to influence the focal firm's behaviour. In another study
that takes a stakeholder's perspective, Rowley and Moldoveanu (2003) examined
stakeholder groups' propensity for action. They proposed that an interest based
rationale is a necessary but insufficient condition for when stakeholder groups
will mobilize to act. They concluded that when group identity is highly valued
by the members of the group, this is likely to rally stakeholder groups to act
even when there are no economic benefits to be obtained through such action.
This line of research is built on to address collective stakeholder action at the
industry level.

The Industry Context
To determine what are the boundaries of an industry, Porter defined an industry

as 'the group affirms producing products that are close substitutes for each other'
(1980, p. 5). Based on industrial organization (10) economics, Porter's framework
for industry analysis has pervaded academic and practitioner literature as a means
by which to analyze industry competitive behaviour and profitability. Porter in-



Spring 2006 Munshi: Collective Stakeholder Action 35

eludes buyers, suppliers, potential and existing rivals within this framework as
those actors that constitute part of an industry's immediate task environment.

However, this conventional view of an industry's structure is limiting and does
not provide an accurate picture of who constitutes a stakeholder of an industry.
There is research to suggest that industries are not merely clusters of competing
firms, but social and cognitive systems in their own right (Porac and Thomas,
1995; Porac, Thomas and Baden-Fuller, 1989; Reger and Huff, 1993). Grinyer
and Spender's (1979) research, and later on, Spender's dissertation work (1989)
would suggest that industries generate 'recipes' or patterns of belief that rely on
common knowledge and shared experiences. Other research, by Porac and col-
leagues (Porac and Thomas, 1995; Porac, Thomas and Baden-Fuller, 1989) on
the Scottish knitwear industry, provided empirical evidence that industries are
socially constructed based on patterns ofbeliefs ofthose who perceive themselves
as members. Social cognition theories (Fiske and Taylor, 1991) inform us that
social realities are constructed based on mutually shared perceptions between
individuals. This paper hopes that the social constructionist perspective can help
shed light on stakeholder group action in an industry context.

More recent work on industry level social cognition tries to reconcile the
economist's view with that of the cognitive view. This research suggests that the
'stickiness' of these underlying belief patterns of industry members may be at
risk when economic opportunities arise (Johnson and Hoopes, 2003). It is pos-
sible then that the socially constructed beliefs of members will be challenged by
any perceived innovative change that is radically different from the prevailing
values and beliefs of intra-industry stakeholders, which could lead to potential for
stakeholder action. Tn the next section, the existing literature on the stakeholder's
perspective is reviewed in brief to identify who might be considered industry
stakeholders and why these actors act collectively at the industry level.

The Stakeholder's Perspective
Stakeholder researchers (e.g., Mitchell, Agle, and Wood, 1997; Agle, Mitchell

and Sonnenfeld, 2000) have been preoccupied with managers' perception of
stakeholders and how to manage these stakeholders. However, Freeman (1984)
defines a stakeholder as "any group or individual who can affect or is affected
by the achievement of the organization's objective" (p. 46). Thus, it is important
to clarifY that stakeholders can act to influence a firmjust as well. Until recently,
not much was known about this stakeholder's perspective, especially in terms of
how stakeholder groups can collectively act to influence a focal organization's
behaviour. Frooman (1999) notably used resource dependence theory to suggest
that stakeholder influence strategies were based on gaining resource access. This
original study concluded that stakeholders act either directly or indirectly to gain
access to resources in order to influence the focal organization.

Rowley and his co-authors have also suggested there is a need to take into ac-
count the social context to study stakeholder-firm interactions within a network
of relationships. For example, Rowley (1997) took a social network approach



36 Journal ofBusiness Strategies Vol. 23, No. I

to study this research problem and found empirical support for the importance
of the relational context (Rowley, 2000). Furthermore, Rowley, Behrens, and
Krackhardt (2000) noted the importance of industry context on such types of
relationships. More recently, Rowley and Moldoveanu (2003) provide additional
insight on when multiple stakeholders will mobilize for action, i.e., intention
rather than actual action. They argued that stakeholders are most likely to take
collective action when they are both protecting their interest and are bounded
by their shared identity based on group membership. These works represent a
significant advance in stakeholder literature as they attribute motives to observed
behavior.

This paper attempts to extend this line of research on when multiple stakehold-
ers will act collectively by addressing the phenomenon at the industry level of
analysis. Rowley and Moldoveanu (2003) use group membership as the basis
for identifying what constitutes a stakeholder group. For the purposes of this
paper, industry stakeholders are identified as those individuals and groups who
perceive themselves and are perceived by other members as having a member-
ship stake in the industry. It can be said then that industry stakeholders have a
shared mental model of the industry that is based on mutually shared beliefs.
Below, the events that unfolded following the introduction of the Cardhu pure
malt whisky by Diageo into the Scotch whisky industry are used as an illustration
of stakeholder action at the industry level.

Research Setting

In this study, collective stakeholder action is examined within the context of
the Scotch whisky industry. The specific example of multiple stakeholder action
against the introduction of a new product by Diageo, namely the Cardhu 'pure'
malt whisky is used as an illustrative example ofstakeholder action at the industry
level. There are several reasons why the Scotch whisky industry is useful in this
paper in order to explain this phenomenon. For one, it is a traditional industry.
Industry stakeholders used to be bounded by traditions and norms that comprise
commonly held beliefs. This has recently changed with the takeover of many
smaller distilleries by large multinational corporations that are more concerned
with global scale economies as they operate at the global level. This is an in-
dustry going through rapid changes, especially at the corporate level. But it is
still bounded by traditions and commonly held beliefs at the production level,
which makes this a fertile ground to observe industry level collective stakeholder
action. This section is followed by a brief discussion of how social cognitive
processes rather than purely rational motivations might have contributed to why
stakeholders collectively acted at the industry level in this example. Further il-
lustrations are provided in the form of excerpts taken from first-person interviews
with key industry actors such as distillery managers and distillery owners on the
production end, expert sources such as Whisky magazine, the Scotch Whisky
Association, and specialist retailers and whisky connoisseurs on the consumer



Spring 2006 Munshi: Collective Stakeholder Action 37

marketing end. These interviews were compiled as part of an ongoing research
study on the Scotch whisky industry.

The Scotch Whisky Industry and the Cardhu Pure Malt Whisky Incident

This main purpose of this paper is to examine collaborative stakeholder ac-
tion at the industry level from a sociocognitive perspective. The Scotch whisky
industry is used as a case in point. According to the Scotch Whisky Industry's
trade association (SWA), Scotch whisky is one the top five exports from the UK
as it makes up over 20% of UK food and drink exports with income exceeding £2
Billion per year in the last decade (Scotch Whisky Association, 2005). It is also
noted by the SWA that with over 10,000 employees drawn from local regions, the
Scotch whisky industry is a major manufacturing industry in Scotland and fur-
thermore, Scotch whisky outsells its closest rivals by four times in terms of sales.

In the production of Scotch whisky, there are many actors involved in the
process of delivering the final product to the consumer. These individuals can
be found in various parts of the production process such as the malting, mash-
ing, fermentation, distillation, maturation, and beyond that to the warehousing,
blending, bottling and packaging processes, as well as in distribution, advertising
and marketing. Other industry members include the cereal producers and sup-
pliers, energy producers, distributors, and retailers. In addition, there are other
key stakeholders such as the experts and connoisseurs, the whisky clubs and
other associations on the internet who also contribute in developing narratives
and myths behind the Scotch whiskies and are, therefore, also stakeholders in
the social construction process.

Scotch whisky traditionally comprises the spectrum ofproduct categories from
blended to single malt whiskies. Prior to the Cardhu incident, it was commonly
understood that a blended whisky was made up of single malts and/or grain
whiskies from several distilleries while a 'single' malt whisky was from just one
distillery. A 'single' malt Scotch whisky is the product of one Scottish distillery,
and by law, is required to be matured for a minimum of3 years in Scotland prior
to sale. In reality, most single malts are matured for a minimum of 10 years prior
to being sold as single malts, which has raised serious concerns as demand has
begun to outstrip supply due to the increasing global popularity of this product
category (Coyle, 2003). Simply put, although the actual single malt product in
the bottle maybe a 'vatting' or marriage of several different years, the whisky
should have come from one distillery only to be called a 'single' malt - the
implicit and generally understood but unwritten rule was that, ifthe product was
a mixture of single malts from different distilleries, then it was to be referred to
as a vatted malt whisky or even a blend.

For Diageo - Cardhu distillery's parent company and the largest firm in the
industry - the introduction in April 2003 of the Cardhu 'pure malt' whisky was
seen as an innovative solution to the production shortage faced by the whisky
industry in their fast growing single malt sector (Diageo News Release, 2003).



38 Journal ofBusiness Strategies Vol. 23, No.1

The pure malt had been packaged and sold in Cardhu's overseas markets in
exactly the same way as its single malt whisky, although technically the 'pure'
malt product had single malts from Diageo's other distilleries in it as well and
in the opinion of Diageo 's competitors, should have been referred to as vatted
malt. For Diageo's brand director, Jonathan Driver, Cardhu pure malt presented
an opportunity in a fast growing market to increase product categories and gen-
erate greater revenues (Diageo News Release, 2003). It appeared that Diageo's
managers also thought that this pure malt category would be a revenue generator
for other distillery owners facing similar shortage problems.

Discord on this issue, however, was based on what industry stakeholders
perceived as a clash between Diageo's representation of the pure malt and what
the single malt whisky category stood for. One distillery manager commented
on the dilemma faced by Diageo:

"that was a marketing whoopsie ... Cardhu was so successful from a mar-
keting perspective that it outsold its production. Now given that there's
a twelve year wait on production, you can't simply produce overnight
for tomorrow, so had they (Diageo) known twelve years ago that they
were going to be as successful in Spain, then they would have increased
the size and capacity ofCardhu distillery. What they had originally was
access to a market that wanted more Cardhu and they looked at produc-
ing more Cardhu simply by changing the goal posts and fundamentally
changing the labelling on the whisky ... and that would have brought
the whole malt whisky category into some disrepute around the world
if it had been allowed to go ahead"

(July 2, 2004)
The problem was made worse by the fact that until this time, what constituted

a 'single' malt and what constituted a 'blend' was based on common understand-
ing rather than codified definitions (this definition has since been somewhat but
not entirely resolved by the Scotch Whisky Association, the trade organization
for the Scotch whisky industry). Despite the fact that there was some short-term
economic gain from the introduction of the pure malt concept for many of the
individual distilleries facing production shortages, the general feeling was that
this was a bad move for the industry. Some stakeholders were reported to claim
that the pure malt was bound to result in consumer confusion, which could lead
to a dilution of the Scotch single malt whisky's reputation (Scotman.com, 2003).
These stakeholders included not just Diageo's main competitors, but also con-
noisseurs, consumers, retailers, media, the UK and European governments. As
one distillery manager succinctly put it:

" .. (Single malt Scotch) is the only one today people are going to because
they have a bit of trust in the product"

(July 2, 2004)
The outcome of a much publicized intra-industry battle was that Diageo finally

pulled Cardhu 'pure' malt off the markets in 2004. The final resolution of the
issue was brought about through an SWA initiated discussion and was generally



Spring 2006 Munshi: Collective Stakeholder Action 39

perceived as being an amicable one. Ian Meakins, the head ofDiageo's European
marketing operation, issued a public statement stating among other reasons for
this withdrawal: "We believe that we have acted consistently in the best interests
of consumers, but acknowledge that we under-estimated the strength of feeling on
this issue" (BBC News Online, 2004). Interestingly enough, many ofthe distillery
managers interviewed perceived the entire problem as having originated on the
marketing rather than the production side. One distillery manager who has been
part of the industry for over 35 years stated:

"From a production standpoint, we have our brotherhood where every-
body helps one another. I think where marketing and sales is concerned
is probably where it gets slightly more vicious. That's where the compe-
tition comes in! But I can go and speak to other distillers about what's
going on at their distilleries, ask them questions about their production
and so on, walk around the plant with them."

(July 2, 2004)
Furthermore, the manager said:

"I think initially we were embarrassed and after it was all tidied up, ]
think there were little upsets ... but we're all part ofthe Scottish whisky
association of Scotland and we all sit around the table together. .. we've
still got work to do and we've still got things that we need to fight as a
body beyond the Cardhu incident..."

(July 2, 2004)

Discussion

The sociocognitive approach was used in this paper to demonstrate when
stakeholders will act collectively at the industry level for the collective's interests
at the expense of their own immediate short-term economic interests. There are
several reasons for why this incident in the Scotch whisky industry illustrates
industry-level collective stakeholder action that evolves from social construc-
tion. First of all, it is an industry whose reputation is built on traditions held
together by collective beliefs of the industry members. It is said that commonly
held beliefs shape social construction of the industry (Porac and Thomas, 1995).
One reason for why the intra-industry stakeholders acted in unison to oppose the
'pure' malt category was to prevent change in their commonly held beliefs in
regards to what they perceived the product categories represented. It is plausible
that the intra-industry stakeholders' expectations regarding what was best for the
industry was based on their collective perception of what would be in the interest
of the industry's long term viability. It can be argued that as the intra-industry
stakeholders collectively tried to make sense of the pure malt product, the stake-
holders perceived it to be inconsistent with their shared beliefs regarding what
single malt category represented.

Furthermore, the Scotch whisky industry's stakeholder actions were primarily
driven by their collective identity (Rowley and Moldoveanu, 2003), which led to



40 Journal ofBusiness Strategies Vol. 23, No. I

their action on the Cardhu pure malt whisky issue. It is argued here that in unique,
traditional industries, the one reason why stakeholders are more likely to rally to
action as compared to stakeholders in other industries, is because their individual
identities are tied to those ofthe industry collective and this could take precedence
over their economic interests. It is possible that one reason why intra-industry
stakeholders were mobilized to act in this case is because their collective identity
could be the coordinating mechanism enabling collective gains, as opposed to
taking the short-term self interested option for individual gain.

This paper puts forth one explanation for why traditional industries in particular
are so idiosyncratic in their stakeholder actions. It suggests that industries' stake-
holder action can be unique in themselves because of the interactions between
socially constructed representations of actors and institutions, both internally
and externally. These socially constructed representations in industries take the
form of narratives and beliefs that stakeholders of the industry can collectively
and individually identify with. As seen in the case of the Scotch whisky indus-
try, the production side of the whisky industry perceived as a 'brotherhood'
among all the distillery producers with a shared tacit understanding of what
the industry's products represent. These render a far more complex picture for
why stakeholders mobilize than Porter's industry analysis would allow for. To
the extent then that industry stakeholders perceive change as being at odds with
mutually shared beliefs, there is a greater likelihood of collective stakeholder
action at the industry level.

Proposition: When industry stakeholders perceive change to be in dis-
cord with mutually shared beliefs, there is greater chance of collective
stakeholder action at the industry level

Industries differ in the variety of stakeholders associated with them, in what
these stakeholders value and how these stakeholders cognitively make sense of
what constitutes the 'industry.' Just as stakeholder maps exist for an individual
firm that constitute a group of idiosyncratic stakeholders within a network ofrela-
tionships, so too within a particular industry, there can exist industry stakeholders
that have a shared mental schema or model of what the industry constitutes. It
is possible that these stakeholders generate a socio-cognitive map that is closely
tied to a collective identity, which when disturbed through the introduction of
radically perceived change, could result in industry-level stakeholder action.

It is said that commonly held patterns of beliefs make up the social construction
of an industry (Parac and Thomas, 1995). It is plausible that these belief patterns
would be strongly reinforced by stakeholders of traditional industries especially,
where they perceive their values and beliefs as being closely identified with
that of the industry. In the example of the Scotch whisky industry, the industry
stakeholders have similar beliefs and values that overlap to such an extent that
as a result, any change that is perceived as being radically different and not in
accordance with the existing cognitive schema will result in a higher likelihood



Spring 2006 Munshi: Collective Stakeholder Action 41

of stakeholder group action at a collective level. In contrast, it is plausible that in
industries characterized by rapid changes such as nanotechnology or biotechnol-
ogy, the industry schema is based on the introduction of radical innovations. One
could say that there is a taken-for-grantedness about change that is incorporated
into the cognitive schema of the stakeholder groups of these industries. Thus,
these stakeholders are less likely to act when they perceive radical change. Inter-
est based action (Rowley and Moldoveanu, 2003) is more likely to be the motive
for stakeholder group action in such competitive industries.

Conclusion and Implications

This paper addresses collective stakeholder action at the industry level to better
understand when stakeholders are motivated to act in a way that does not reflect a
purely short-term economic reasoning for their actions. This paper illustrates this
type of industry-level stakeholder action by using the example of the introduc-
tion of the Cardhu pure malt whisky in the Scotch whisky industry. It integrates
stakeholder and sociocognitive perspectives on collective group action to explore
when intra-industry stakeholders will act collectively at the industry level.

It puts forth one explanation for why industry level stakeholder action can oc-
cur. It suggests that industries constitute socially constructed representations of
individuals and groups that perceive themselves as having a membership stake
in the industry. These socially constructed representations in industries take the
form of shared narratives and beliefs with which stakeholders of the industry can
collectively and individually identify. Thus, changes that are perceived as being
radically different from these shared mental models will increase the chances of
industry level collective stakeholder action.

The collective stakeholder action at the industry level demonstrates that the 'The
Tragedy of the Commons' (Hardin, 1968) is not always the case. The Tragedy of
the Commons perspective argues that stakeholders will forsake their long-term
collective benefits for their immediate short-term economic self- interests. This
perspective has also been the foundation for various game theoretical models
of industry level competitive action. The sociocognitive approach developed in
this paper showed that the Tragedy of the Commons framework does not help to
explain stakeholder action in the Scotch Whisky industry. Here we see that the
stakeholders collaborated at the industry level in order to protect the reputation
of the collective industry, subsuming any short-term economic gains they might
have received from also going down the same road. The collective action of the
Scotch whisky industry's stakeholders at the industry level provides an intriguing
example of what can be referred to as 'The Joy of the Commons.'

Although this paper is limited by its focus on a single industry, its contribution
is that it provides a more fine-grained explanation for why stakeholders act col-
lectively at the industry level than a simple industry analysis based on Porter's
five forces framework. The paper also provides further support for Rowley and
Moldoveanu 's (2003) theoretical framework for collective stakeholder group action



42 Journal of Business Strategies Vol. 23, No. 1

that is identity based. One important implication of this study is that as firm level
stakeholder action may be contingent upon industry effects, studying industry at-
tributes might provide further clues for how firm-stakeholderrelationships evolve.

For managers, this study also provides one explanation for why stakeholders
will collaborate to act collectively against the focal firm. It also provides an insight
into competitive strategies that are not purely driven by economic self interest as
supported by rationalist economics driven theories. From the practitioners' point
of view, using the social constructionist perspective developed here in addition to
the rationalist economics based approaches achieves a more balanced approach
to industry analysis and collective stakeholder action at the industry level.

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Natasha Vijay Munshi, BSc, MCS, MBA, PhD, is an Assistant Professor in
Strategy at Cass Business School, City University London, and an Advanced
Institute of Management (AIM) Research Scholar. She teaches, publishes and
advises in the areas of technology strategy, leadership and innovation, corporate
social responsibility and stakeholder relationship management


	A Sociocognitive Perspective of Industry-Level Collective Stakeholder Action: The Case of the Scotch Whisky Industry