Seminar Paper, 2005
17 Pages, Grade: 1,7
1.1 Problem Definition
1.2 Course of the Analysis
2 Stakeholder Theory
3 Stakeholder Identification
3.1 Need for Stakeholder Identification
3.2 Stakeholder Attributes
3.3 Stakeholder Salience & Stakeholder Classes
4 Stakeholder Collaboration
4.1 Need for Stakeholder Collaboration
4.2 Tools for Stakeholder Collaboration
5 Problems in Stakeholder Collaboration
6 Outlook and Conclusion
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.
Stakeholder theory suggests that managers cannot limit their attention to the needs of stockholders only. Instead, today’s manager has to attend to the needs of a vast variety of stakeholder groups and has to meet all sorts of social, environmental, economic and ethical expectations. A lot of research addresses the problems resulting from the vague term “stakeholder”, but little research goes beyond the mere recognition of this fact.
As the concept alone leaves many questions unanswered, this paper tries to explore the difficulties and possibilities stakeholder management might posses.
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; therefore 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 engagement in particular. At the end, a conclusion will be drawn and a short outlook for future research will be given.
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.
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.
According to Freeman, Stakeholder theory describes “The Principle of Who or What Really Counts”. Stakeholder theory is a theory of organizational management and ethics.
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.
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.
Freeman defines the term “stakeholder” as “[…] any group or individual who can affect or is affected by the achievement of the organization’s objectives.”
This view of the stakeholder term is a very broad view, as “[…] virtually anyone can affect or be affected by an organization’s actions.”
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 customers, suppliers, employees, investors and the like.
Freeman calls the lack of a proper stakeholder theory-framework “The Principle of Make It Up As You Go Along”.
What this theory needs is a definition framework to help managers identify their key stakeholders. 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?’ “
As Mitchell et al. stated, “Narrowing the range of stakeholders requires applying some acceptable and justifiable sorting criteria to the field of possibilities”
In their widely accepted work, Mitchell and his co-authors established a framework for stakeholder 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”
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 resources.
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.
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 perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs and definitions.”
Legitimacy of a claim might be based upon, for example, contract, legal title, legal right, moral right, at-risk-status or moral interest.
Urgency is described as “calling for immediate attention” or “pressing”. Mitchell et al. describe urgency as “the degree to which stakeholder claims call for immediate attention”.
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:
1. Stakeholder attributes are variable, not steady state.
2. Stakeholder attributes are socially constructed, not objective, reality.
3. Consciousness and wilful exercise may or may not be present.
Stakeholder Salience is defined as “the degree to which managers give priority to competing stakeholder claims.”
Stakeholder salience is positively related to the cumulative number of the three aforementioned attributes power, legitimacy and urgency that are perceived by managers to be present. Even though the three attributes may be obvious, it is still the manager’s perception that dictates stakeholder salience.
Resulting from the three attributes, one can discern several stakeholder classes, varying in salience according to the number of attributes they posses.
An important factor one must not forget is that the attributes are variable states; an entity with no attribute at all might be able to acquire one or even several attributes in the future.
The first class of stakeholders to be discussed are Latent Stakeholders.
Latent stakeholders are only in possession of one of the stakeholder’s attributes – power, legitimacy or urgency. As managers have only limited resources such as time, they might decide not to pay attention at all to these particular groups of stakeholders.
This is reasonable, as it is impossible to tend to the need of every single stakeholder demand all the time. The important thing to remember though remains the fact that
these stakeholders are present nonetheless, and that the attributes are variable states. Latent stakeholder might be able to cooperate with other stakeholders or might obtain another attribute and advance to a more pressing stakeholder class.
The next stakeholder class are the Expectant Stakeholders.
This group has a very different amount of salience, as they already posses two of the three identifying stakeholder attributes and are “expecting something”. The combination of two attributes leads to an active position of the stakeholder. The managers perceive those active stakeholders and pay them moderate to high attention.
The last class of stakeholders are the Definitive Stakeholders. When a stakeholder’s claim not only possess legitimacy and power, but is also very urgent, manager’s salience will be at its highest. Managers will definitely give heed to the demands of stakeholders who possess all three of the identifying attributes.
Using this framework, it is possible for managers to identify and prioritize stakeholder groups.
The framework has also been tested in practice, and it was confirmed that manager’s salience is indeed dependant on the three identifying attributes.
Mitchell et al. “found that in the minds of CEOs, the stakeholder attributes of power, legitimacy and urgency are individually […] and cumulatively […] related to stakeholder salience across all groups.”
Remarkable remains the fact that the salience of stakeholders that are part of the traditional production function – shareholders, employees and customers – is higher than the salience of stakeholders of the expanded stakeholder view – i.e. governments or communities. Mitchell et al. conclude that “The traditional production view appears to remain dominant in the minds of large corporations CEOs.”
Most of the literature on stakeholder theory is focussing on identifying key stakeholders so that managers know what to do to reduce the threats that these stakeholders may pose for the organization.
This is obviously very important, but it is also very important to go beyond the mere threat-reduction and find ways to manage and engage stakeholders, to involve stakeholders in day-to-day business.
After identifying relevant stakeholder groups, it is essential to tend to the needs of these groups and expand stakeholder engagement.
 See Reed (1999), p. 453.
 See Unerman/Bennet (2004), pp. 685f.
 See Clarkson (1995), p. 112.
 Freeman (1994), p. 411.
 See Phillips/Freeman/Wicks (2003), p. 480.
 See Phillips/Freeman/Wicks (2003), p. 481.
 Freeman (1984), p. 46.
 Mitchell/Agle/Wood (1997), p. 854.
 See Harrison/Freeman, p. 484.
 Freeman (1994), p. 412.
 Freeman (1994), p. 411.
 Mitchell/Agle/Wood (1997), p. 862.
 Weber in: Mitchell/Agle/Wood (1997), p. 865.
 See Etzioni in: Mitchell/Agle/Wood (1997), p. 865.
 See Mitchell/Agle/Wood (1997), pp. 865f.
 Suchmann, in: Mitchell/Agle/Wood (1997), p. 866.
 See Agle/Mitchell/Sonnenfeld (1999), p. 508.
 Mitchell/Agle/Wood (1997), p. 867.
 Mitchell/Agle/Wood (1997), p. 868.
 Mitchell/Agle/Wood (1997), p. 854.
 See Frooman (1999), p. 198.
 Agle/Mitchell/Sonnenfeld (1999), p. 507.
 Agle/Mitchell/Sonnenfeld (1999), p. 520.
 See Savage/Nix/Whitehead (1990), p. 150.
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