Managing Stakeholder Engagement: Reaching Beyond The Rhetoric

I

Table of Content

Table of Content................................................................................................................ I

1  Introduction 1  

1.1  Problem Definition 1  

1.2  Course of the Analysis 1  

2  Stakeholder Theory 1  

3  Stakeholder Identification 2  

3.1  Need for Stakeholder Identification 2  

3.2  Stakeholder Attributes 3  

3.3  Stakeholder Salience Stakeholder Classes 4  

4  Stakeholder Collaboration 5  

4.1  Need for Stakeholder Collaboration 5  

4.2  Tools for Stakeholder Collaboration 8  

5  Problems in Stakeholder Collaboration 9  

6  Outlook and Conclusion 11  

  References  13

1

1 Introduction

1.1 Problem Definition

Freeman published his book „Strategic Management: A Stakeholder Approach” in 1984. Since then, stakeholder theory has been severely discussed and has dominated the literature of business ethics as organizations are more and more in the focus of the media and society. 1

Stakeholder theory suggests that managers cannot limit their attention to the needs of stock- holders only. Instead, today’s manager has to attend to the needs of a vast variety of stake- holder groups and has to meet all sorts of social, environmental, economic and ethical expec- tations. A lot of research addresses the problems resulting from the vague term “stakeholder”, but little research goes beyond the mere recognition of this fact. 2

As the concept alone leaves many questions unanswered, this paper tries to explore the diffi- culties and possibilities stakeholder management might posses.

1.2 Course of the Analysis

For a better understanding, the background and the requirements of stakeholder theory will be discussed in the beginning. After that, means of stakeholder identification will be illustrated and the identification with the help of a framework derived by Mitchell and his colleagues will be introduced. Once stakeholder groups are identified, they have to be approached; there- fore stakeholder engagement will be discussed next. After that, the paper will explore some of the problems that might occur in terms of stakeholder theory in general and stakeholder en- gagement in particular. At the end, a conclusion will be drawn and a short outlook for future research will be given.

2 Stakeholder Theory

The measurement of corporate success has traditionally been limited to the satisfaction of only one stakeholder, the shareholder. Clarkson states that the pursuit of only that goal must be self-defeating for organizations. 3

Managers cannot be responsible for maximizing shareholder profit while, at the same time, neglecting the needs of other important stakeholder groups. Today’s managers have to fulfil the firm’s responsibilities to all its stakeholder groups.

1 See Reed (1999), p. 453.

2 See Unerman/Bennet (2004), pp. 685f.

3 See Clarkson (1995), p. 112.

2

According to Freeman, Stakeholder theory describes “The Principle of Who or What Really

Counts”. 4 Stakeholder theory is a theory of organizational management and ethics. 5

Attention to the interests and well-being of those who can assist or hinder the achievement of

the organization’s objectives is the central admonition of the theory. 6

The term “stakeholder” is relatively vague, though, and may mean many different things to

different people and thus is many times praised or scorned by scholars and practitioners.

The main problem is the proper identification of stakeholders.

3 Stakeholder Identification

3.1 Need for Stakeholder Identification

Freeman defines the term “stakeholder” as “[…] any group or individual who can affect or is

affected by the achievement of the organization’s objectives.” 7

This view of the stakeholder term is a very broad view, as “[…] virtually anyone can affect or

be affected by an organization’s actions.” 8

Narrower views such as Clarkson’s limit stakeholders to those groups who bear some sort of

risk in a firm. Others simply limit stakeholders to the financial important ones, namely cus-

tomers, suppliers, employees, investors and the like. 9

Freeman calls the lack of a proper stakeholder theory-framework “The Principle of Make It

Up As You Go Along”. 10

What this theory needs is a definition framework to help managers identify their key stake-

holders. Freeman himself argues that “some, myself included, have written as if managing

stakeholder relationship is just good business. […] The problem lies in the

question ‘What is a stakeholder?’ “ 11

As Mitchell et al. stated, “Narrowing the range of stakeholders requires applying some ac-

ceptable and justifiable sorting criteria to the field of possibilities” 12 4 Freeman (1994), p. 411.

5 See Phillips/Freeman/Wicks (2003), p. 480.

6 See Phillips/Freeman/Wicks (2003), p. 481.

7 Freeman (1984), p. 46.

8 Mitchell/Agle/Wood (1997), p. 854.

9 See Harrison/Freeman, p. 484.

10 Freeman (1994), p. 412.

11 Freeman (1994), p. 411.

12 Mitchell/Agle/Wood (1997), p. 862.

3

3.2 Stakeholder Attributes

In their widely accepted work, Mitchell and his co-authors established a framework for stake- holder identification.

They suggest that organizations should identify their stakeholders by the means of three stakeholder attributes: Power, legitimacy and urgency.

Power can be defined as “the probability that one actor within a social relationship would be in a position to carry out his own will despite resistance” 13

There are three ways to exercise power, namely coercive power, based on physical force, utilitarian power, based on material resources and normative power, based on symbolic re- sources. 14

But Power is not only the possession of but also the possibility to gain access to one of the aforementioned means, and thus is not a steady state, but transitory. 15

Power might be used by stakeholder groups, whether the stakeholder’s claim is legitimate or not.

Mitchell et al. accept the definition of Suchman who defines legitimacy as “a generalized per- ception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs and definitions.” 16

Legitimacy of a claim might be based upon, for example, contract, legal title, legal right, moral right, at-risk-status or moral interest. 17

Urgency is described as “calling for immediate attention” or “pressing”. Mitchell et al. de- scribe urgency as “the degree to which stakeholder claims call for immediate attention”. 18

This attribute adds a dynamic component to the process of gaining management attention.

In conclusion, entities that bear neither power, nor legitimacy nor urgency in relation to an organization are not considered to be stakeholders.

Further to these three attributes, Mitchell et al. state that:

13 Weber in: Mitchell/Agle/Wood (1997), p. 865.

14 See Etzioni in: Mitchell/Agle/Wood (1997), p. 865.

15 See Mitchell/Agle/Wood (1997), pp. 865f.

16 Suchmann, in: Mitchell/Agle/Wood (1997), p. 866.

17 See Agle/Mitchell/Sonnenfeld (1999), p. 508.

18 Mitchell/Agle/Wood (1997), p. 867.