A Stakeholder Management Model For Ethical Decision Making

Int. J. Management and Decision Making, Vol. 6, Nos. 3/4, 2005 299
Copyright © 2005 Inderscience Enterprises Ltd.
A stakeholder management model for ethical decision
making
Simone de Colle
CELE – Centre for Ethics, Law & Economics,
LIUC University of Castellanza,
Corso Matteotti, Castellanza 22 21053 (VA), Italy
E-mail: simone.decolle@qres.it
Website: www.qres.it
Abstract: This paper discusses the role of stakeholder management for
improving ethical decision-making processes within organisations. It presents
the key concepts and approaches developed within stakeholder theory and
analyses their implications from a management perspective. The concept of
‘stakeholder corporation’ is introduced, and the need for effective engagement
with stakeholders discussed under two different perspectives of stakeholder
theory, namely the instrumental vs. the normative approach. In the conclusion,
a ten-step model for stakeholder management is presented as a ‘management
tool’ that could be applied to improve decision-making processes within any
organisation, by enabling managers to identify and respond to legitimate
stakeholders’ interests.
Keywords: ethical decision making; stakeholder theory; stakeholder
management; social contract.
Reference to this paper should be made as follows: de Colle, S. (2005)
‘A stakeholder management model for ethical decision making’, Int. J.
Management and Decision Making, Vol. 6, Nos. 3/4, pp.299–314.
Biographical notes: Simone de Colle is a Researcher and Consultant in
business ethics and corporate social responsibility. Since 1999, he teaches
business ethics and social and ethical accounting, auditing and reporting in a
post-graduated master’s programme at the LIUC University in Castellanza,
Italy. At CELE, he is co-founder and Project Manager of the ‘Q-RES Project’,
an initiative promoting a management framework for improving the social and
ethical responsibility of corporations.
1 Introduction: stakeholder management for ethical decision making
Ethical decision making can be defined in many ways – but a fundamental distinction can
be drawn between two different perspectives on ethical decision making:
• what makes a decision-making process ethical?
• how do organisations deal with ethical issues?
Clearly, these two perspectives imply two very different levels of analysis. The former
deals with the (general) characteristics that makes a decision-making process an ethical

300 S. de Colle
process; the latter focuses on (specific) issues that have an ethical dimension, such
as – just to name a few examples – employee privacy, equity of compensation,
whistle-blowing, sexual harassment, and other human rights issues.
This work discussed only ethical decision making in the first perspective, considering
how one particular management approach – namely stakeholder management – can help
an organisation to improve the ethics of its decision-making processes, by taking into
consideration the legitimate interests and claims of its own stakeholders.
Stakeholder management is nowadays a common expression in the business
world – yet this concept and its practical implications on the way stakeholders’
relationships are and should be managed is still at the centre of a fervid discussion, which
crosses a number of disciplines, notably business ethics, management theory, corporate
law and organisation theory. Stakeholders have been defined by Freeman as follows:
“In a narrow sense, the stakeholders are all those identifiable groups or
individuals on which the organisation depends for its survival, sometimes
referred to as primary stakeholders: stockholders, employees, customers,
suppliers and key government agencies. On a broader level, however, a
stakeholder is any identifiable groups or individual who can affect or is affected
by organisational performance in terms of its products, policies and work
processes. In this sense, public interests groups, protest groups, local
communities, government agencies, trade associations, competitors, unions and
the press are organisational stakeholders.”(Freeman, 1984)
Figure 1 Freeman’s primary and secondary corporate stakeholders
2 A new perspective on the firm: the stakeholder corporation
The above definition of stakeholders bears significant implications on the concept of the
firm itself. With the identification of the wide set of complex and sometimes intertwined
relationships among the firm and its stakeholders – and among the stakeholders
themselves – a new definition of the corporation is suggested: the ‘stakeholder
corporation’, where the management bears ‘fiduciary duties’, i.e., is expected to act in the
interests not only of the firm’s owners, but on behalf of all its stakeholders. The term
‘stakeholder’ itself has been explicitly created to juxtapose, “with an ironic twist”, as
Freeman notes, the stockholder perspective.
The reasoning behind this broader definition of the management’s fiduciary duties
can be summarised as follows: in the traditional economic view, it is acknowledged that

A stakeholder management model for ethical decision making 301
shareholders have a legitimate interest in the firm because they invest their capitals,
which implies that the management – the agent requested to act on behalf of its principal,
the shareholders – have an obligation towards the shareholders to provide adequate levels
of remuneration of the capitals invested. The right to maximise the profits is the legal
acknowledgement of the legitimate interests by the shareholders. But also stakeholders
have legitimate interests in the firm, not because of their financial investments, but
because they have rights that are ‘at stake’ in the management of the firm and their
well-being can be affected by the activities of the firm. Moreover, stakeholders also
contribute in many different forms – e.g., with their skills and labour (employees), goods
and services delivered (suppliers), purchasing decisions (customers) and influence
(NGOs, local community) – to the realisation of the ‘Mission’ of the firm. In this
perspective, each stakeholder can be seen as an individual or a group, which chooses to
act in a cooperative way towards the firm, investing its own resources in view of a mutual
advantage. The management of the corporation has therefore additional fiduciary duties
towards all the stakeholders: the obligation to treat all stakeholders with impartiality and
balance stakeholder interests in a fair way (Sacconi, 2000). In other words, the
stakeholder approach implies a shift in the definition of the fiduciary duties of the
management: from a mono-stakeholder perspective (where only the interest of the
shareholders is to be taken into consideration) to a multi-stakeholder perspective, where
all the corporate stakeholders are relevant to identify the management’s fiduciary duties.
This approach, which has been called “a stakeholder theory of the modern
corporation”, (Freeman, 2001) is based on the assumption that the organisation should be
managed by taking into consideration the various stakes that can be typically identified
with reference to the main stakeholder groups, beyond the stockholders:
• Employees have their jobs and usually their livelihood at stake: in the relationship
with the firm, they often develop specialised skills that cannot be used in other
industries (i.e., these are specific investments that add value to the working
relationship with the firm). Employees have therefore a legitimate interest in the
security of their jobs, in fair wages and a safe and meaningful working environment.
They expect the corporation to pay attention to their needs and involve them in
decision-making processes that can affect these issues at stakes – e.g., in case of
industrial reorganisations.
• Suppliers provide goods and services to the firm and in turn the firm is a client for
them. Therefore, suppliers have quotes of their income at stake in the relationships
with the firm, which can become a vital aspect particularly when talking of small
suppliers who deal with a large corporation as their main or unique client – in this
case there are usually specific investments done by the suppliers to improve the
quality of goods and services delivered, which generate a stronger dependency on the
relationship with their particular client-firm. Suppliers therefore expect the
corporation to develop a partnership approach with them, and not be used simply as a
source of raw materials or services.
• Customers who buy the corporate products originate revenues available for the
organisation, which in turn can be used by the management to improve the quality of
the existing goods and develop new products and services. Customers therefore have
a legitimate stake in the quality of the corporate products, in the information made
available on their use and possible negative impacts originated (e.g., smoke,
alcohol); they expect the corporation to deal with them in a service-oriented way,

302 S. de Colle
and management to take into account consumer needs (e.g., by adapting a product
design, packaging or technical specifications).
• The local community provides to the firm a vital resource: the environment where the
firm builds its own facilities, and where its own employees, customers and suppliers
engage with each other. The local community benefits from the contribution of
wealth creation generated by the presence of the corporation, and from the amount of
taxes paid to the local government. But there are also negative impacts to be
considered, such as increased pollution, environmental risks, toxic waste and
increase of traffic – all these represent stakes that the local community has towards
the corporation.
• Key government agencies are those agencies, which provide the necessary
institutional and legal framework within which a corporation can operate, such as
regulatory agencies, market control institutions and international agencies. The firm
cannot operate without such framework and the government agencies expect in
return that the management acts in a cooperative way with them, ensuring the firm is
in compliance with all relevant legal requirements, such as tax payments, lobbying
and other sensitive corporate activities.
• The management in the ‘stakeholder corporation’ has a special role to play. On the
one hand, managers are also stakeholders, and their stakes are similar to those of the
employees described above. On the other hand, managers are as well the people who
govern the firm, and therefore have a duty of safeguarding the welfare of an abstract
entity such as the corporation. Managers are also governing the relationships with the
different corporate stakeholders, and this involves mainly an issue of balancing the
multiple claims that – legitimately – stakeholders raise towards the firm.
The natural implication of the concept of the firm as a ‘stakeholder corporation’ is to
require that stakeholders’ legitimate interests and concerns are reflected in the way
decision-making processes of the organisation are carried out. However, this highlights a
key problem in stakeholder theory, which has been also been called the Stakeholder
Paradox:
“It seems essential, yet in some ways illegitimate, to orient corporate decisions
by ethical values that go beyond strategic stockholders considerations to a
concern for stakeholders generally.” (Goodpaster, 1991)
The paradox is that stakeholder theory seems both to require that managers respect their
fiduciary duties towards the stockholders and towards all the stakeholders at the same
time, which leads to the logical contradiction to ask managers to maximise the profit
(stockholder approach) and abandon the profit-oriented mindset (stakeholder approach)
at the same time. The heart of the problem can be illustrated as follows:
• stakeholder theory acknowledges that stakeholders have legitimate interests and
claims towards the corporation
• stakeholder interests can be conflicting with each other
• the management’s role is to govern the firm, which means taking decisions that
represent a balance among conflicting stakeholder interests
• stakeholder theory does not provide any criterion that can be used in corporate
decision-making processes in order to balance conflicting stakeholder interests.

In other words, stakeholder theory has the great merit of having broadened the traditional
vision of the firm, helping managers to understand the complex network of the different
stakeholders of the corporation. Yet stakeholder theory has not been able to provide any
criterion that managers can use in their decision-making processes in order to balance the
multiplicity of conflicting stakeholder interests.
To discuss this problem and its implications on stakeholder management, it is useful
to look at three different approaches that have characterised the development of
stakeholder theory.
3 Stakeholder theory: instrumental, descriptive, and normative
approaches
As Donaldson and Preston (1995) have pointed out, the development of stakeholder
theory has proceeded along three often-confused lines:
• Instrumental approach. It assumes that if managers wish to maximise the objective
function of the firm, then they do a better job by taking into account stakeholder
interests. It also suggests that ignoring stakeholder interests can represent a
significant risk for the firm. Therefore, its logical implication for the management is
that a firm will be more successful – and profitable – by catering to the interests of
its stakeholders. The relationships with stakeholders are seen as instrumental to the
financial performance of the firm.
• Descriptive approach. It refers to a number of studies and empirical research aimed
at analysing how managers, firms and stakeholders in fact interact. The purpose of
this approach is mainly to improve the understanding of the complex relationships
among the different stakeholder groups, identifying and describing the most typical
issues at stake.
• Normative approach. It assumes that managers should consider stakeholder interests,
regardless of the consequences to the firm, because there is an ethical obligation to
be responsive to a number of legitimate stakeholder claims. This approach is not
about describing how stakeholder relationships are managed in the real world, but
about prescribing how these should be managed, from an ethical point of view.
Figure 2 Three approaches of stakeholder theory
Source: Adapted from Donaldson and Preston (1995).

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The implications on stakeholder management of the three different approaches are
significant, in particular with regard to the instrumental vs. the normative approach.
According to the instrumental approach, managers should be concerned with
understanding and responding to stakeholder interests as a way to improve the corporate
performance. As Donaldson and Preston (1995) suggest, an instrumental stakeholder
management approach could be developed following these logical steps:
• First, managers should assess the ability of a particular stakeholder group to pose a
threat to the organisation, or to be a supportive ally to help the firm to achieve its
goals. The decision of the relocation of a corporate plant is given as an example. In
this case, government agencies can play a role in terms of providing fiscal incentives
and relaxing specific local legislation; trade unions could support the move by
agreeing to more flexible work rules and suppliers by promising more favourable
terms.
• Second, the firm should assess the costs that stakeholders could impose to the
organisation, if they are against the decision taken by the management. In the
relocation case, unions could decide to start to strike, community groups might
decide to develop forms of public protest, such as boycotts, and existing suppliers
might sue the corporation for contractual breaches.
• The final step for the management following the instrumentalist approach would then
be to assess the expected costs and benefits generated by stakeholder (re)actions, and
compare these with the expected net benefits on the overall corporate performance
generated by the decision under examination.
In contrast, the normative approach to stakeholder management emphasises doing ‘the
right thing’, which cannot be based on a cost-benefit analysis. It would follow a different
decision-making process:
• First, the managers should consider which legitimate stakeholder interests are
involved in a corporate activity, or by a management decision. As an example,
considering the safety requirements of corporate products, this approach would
imply to consider more than the likely product liability costs in deciding how safe to
make consumer goods. It would in fact require managers to consider that
consumers/users as stakeholders have a legitimate interest in their own health and
safety.
• Second, the firm should consider whether its own actions and impacts generated
could represent a risk of harming legitimate stakeholder interests. Again, in the case
of product safety, if the management has reasonable concerns that a dangerous or
defective product could represent a risk for consumer safety, they should act in
appropriate way – e.g., by recalling the whole stock of products on the market
potentially involved – even if the corporate lawyers would not require such a
decision, or directly advise against it because it could increase the firm’s liability
exposure.
Therefore, the normative approach to stakeholder management is not based on a
cost-benefit analysis, but on the evaluation of the moral implications of different
corporate strategies, and suggests to undertake case by case those decisions that seem to
represent a morally justifiable way of balancing stakeholder interests.

4 Identifying and mapping stakeholders
The identification and classification of the nature of the stakeholder relationships with the
firm is the necessary first step in order to develop an effective stakeholder management
strategy. This is of course true whether management wishes to pursue the instrumental or
the normative approach above discussed.
Freeman (1997) suggests three levels of stakeholder analysis to identify and map
stakeholder relationships with the corporation:
• The rational level. The first level of stakeholder analysis concerns how the
corporation as a whole fits into its larger environment. It requires the management to
consider the history and the nature of the business in which the firm operates, to
accurately identify those groups who have a stake in corporate activities. The results
of this analysis can be represented, for a hypothetical XYZ Company, by a
stakeholder map such as the one depicted in Figure 3. As Freeman points out, this is
only the surface of stakeholder relationships: some stakeholder groups are still
aggregate (for example, under financial community there might be investment and
commercial banks, private investors, financial analysts and the national bank).
Moreover, the figure is a simplification of reality, as presents stakeholder
relationships as static, whilst in reality they evolve over time in a dynamic way, and
stakes change in relation to the strategic issues under consideration. Unfortunately,
most companies trying to develop a stakeholder analysis end with the construction of
a map such as in Figure 3.
• The process level. To develop a more meaningful stakeholder map, the second step
requires managers to consider the process level of their organisations. Every
organisation, particularly large and complex ones, bases the realisation of their
strategies on a number of core business processes, standard operating procedures
and management tools. To understand how corporations works and how they manage
stakeholder relationships, it is necessary to look at this dimension of the corporation,
by analysing the organisational processes that are used to implement corporate
strategy and govern the relationships with the external environment – including
stakeholders. The idea is that existing strategic processes that work reasonably
well could be enriched with a concern for multiple stakeholders.
• The transactional level. The third level of stakeholder analysis deals with the set of
transactions that managers in organisations have with stakeholders. This is the
‘bottom line’ for stakeholder management, as it concerns how in practice the
organisation interacts with its stakeholders. Crucial elements for this analysis are the
nature of the transactions involved (e.g., buying goods and services from
stakeholders as suppliers or selling items to stakeholders as customers), the level of
the resources allocated by the corporation to manage stakeholder relationships and
the understanding that the behaviour of organisational members have significant
impacts on stakeholders’ perception on the quality of their relationship with the firm.

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Figure 3 Stakeholder analysis: the rational level
Source: Freeman (1997).
5 Strategic prioritisation of stakeholders
Once all the key organisational stakeholders are identified, the significance of stakeholder
claims towards the corporation needs to be assessed. Different criteria and methodologies
have been developed to provide guidance for prioritisation of competing stakeholder
interests. Some have suggested to look at the relevance of stakeholder groups (assuming
that primary stakeholders’ interest should prevail in case of conflict with secondary
stakeholders’ interests), others at their legal status or at the nature of the contractual
relationships with the firms (implicit or explicit). One useful tool mostly adopted in
stakeholder management is the power/interest grid shown in the Figure 4, which provides
a methodology for classifying and prioritising stakeholder groups by assessing their
power over the corporation (or over specific corporate projects) and by their interest in
specific corporate activities. Figure 4 can therefore be developed around any single
strategic issue at stake, to assess the position of different stakeholder groups involved.
Figure 4 Power/interest grid for stakeholder prioritisation
Source: www.mindtools.com/stress/pp/StakeholderManagement.htm.

For example, members of the top management are likely to have high power and
influence over employees’ work projects and high interest. Employees’ families may
have high interest, but are unlikely to have power over it.
According to this view, mapping each stakeholder group and its stakes on the grid
provides some useful hints on the most effective stakeholder management strategy
towards them:
• Low power, less interested stakeholders. Stakeholders who neither have a high own
interest in corporate plans nor the power to exert much impact. Organisations should
keep these groups informed to the necessary extent, but should not invest too much
effort to manage these relationships. It is advisable, however, to monitor these
stakeholder groups as they ability to influence and their interest could increase over
time.
• Low power, highly interested stakeholders. These stakeholders have a high interest in
the corporation and its actions. However, they have limited means to influence
things. Despite their low power, such stakeholders could be valuable allies in
important decisions. Therefore, it is advisable to keep them informed about the issues
they are interested in. Managers should keep these people adequately informed, and
talk to them to ensure that no major issues arise. These people can often be very
helpful with the detail of specific corporate projects.
• High power, less interested stakeholders. This is a critical stakeholder group. In this
group, we might find, for example, institutional investors or legislative bodies. The
relationships with these stakeholders can be very complex to manage. They behave
passively most of the time and show a low interest in corporate affairs. Nevertheless,
they can exert an enormous impact on the organisation, e.g., when it comes to
investments. It is therefore necessary to analyse potential intentions and reactions of
these groups in all major developments, and to involve them according to their
interests. Therefore, it is advisable to keep them informed about the issues they are
interested in, and managers should put enough work in with these people to keep
them satisfied (e.g., through effective corporate communication).
• High power, interested stakeholder. These are the most important stakeholder groups
that managers should manage closely in order to consider their key interests in all
relevant strategic decisions, for they have both a high interest at stake in corporate
activity and a great ability to influence over the organisation. These are the groups
managers must fully engage and make the greatest efforts to satisfy on a regular
basis.
The power/interest grid, as well as the stakeholder analysis, represents useful techniques
that can help managers to identify stakeholders, understand their views and analyse
stakeholder relationships. However, it must be noted that their focus originates from the
perspective of the corporation – not from a multi-stakeholder perspective. This means
that they mostly deal with the instrumental approach we have described earlier.
In order to develop a meaningful stakeholder management strategy, a normative basis
is needed, by which the various analytical tools and methodologies for stakeholder
management can be anchored. In the next paragraphs, we therefore turn our attention to a
number of principles for stakeholder management that can offer such a normative basis.

308 S. de Colle
6 Principles for stakeholder management
In this section, we present the key concepts of three different normative frameworks for
stakeholder management.
6.1 The Clarkson principles of stakeholder management
The Clarkson principles of stakeholder management have been developed with the aim to
“make managers more aware of the diverse constituencies that they are obliged to serve
and increase the openness of management processes” (Clarkson Centre for Business
Ethics, 1999). According to these perspectives, the management is responsible for
negotiating contracts with the firm’s ‘voluntary constituents’, and for governing the
relationships with the firm’s involuntary stakeholders, in order to develop cooperative
relationships with the firm. The underlying assumption is that managers have a moral
obligation to deal openly and honestly with the firm’s stakeholders, and that managing
the organisation according to a common standard of fairness will contribute to the
long-term survival and success of the firm. The Clarkson principles of stakeholder
management illustrated in Table 1 should therefore be applied by corporate managers as
general guidelines to better manage the performance and impacts of the corporation.
Table 1 The Clarkson principles of stakeholder management
Principle 1 Managers should acknowledge and actively monitor the concerns of all legitimate
stakeholders, and should take their interests appropriately into account in
decision making and operations
Principle 2 Managers should listen to and openly communicate with stakeholders about their
respective concerns and contributions, and about the risks that they assume because
of their involvement with the corporation
Principle 3 Managers should adopt processes and modes of behaviour that are sensitive to the
concerns and capabilities of each stakeholder constituency
Principle 4 Managers should recognise the interdependence of efforts and rewards among
stakeholders, and should attempt to achieve a fair distribution of the benefits and
burdens of corporate activity among them, taking into account their respective risks
and vulnerabilities
Principle 5 Managers should work cooperatively with other entities, both public and private, to
ensure that risks and harms arising from corporate activities are minimised and,
where they cannot be avoided, appropriately compensated
Principle 6 Managers should avoid altogether activities that might jeopardise inalienable human
rights (e.g., the right to life) or give rise to risks, which, if clearly understood, would
be patently unacceptable to relevant stakeholders
Principle 7 Managers should acknowledge the potential conflicts between:
their own role as corporate stakeholders
their legal and moral responsibilities for the interests of stakeholders, and should
address such conflicts through open communication, appropriate reporting and
incentive systems and, where necessary, third party review

The Clarkson principles should be regarded as ‘meta-principles’, encouraging and
requiring management to develop more specific stakeholder principles and then to
implement those in accordance with the principles.
6.2 The AA1000 principles for stakeholder engagement
AccountAbility1000 Framework (AA1000) is the standard launched in 1999 by the
Institute of Social and Ethical AccountAbility with the aim
“to improve organisational accountability and performance by learning through
stakeholder engagement and increasing quality in social and ethical accounting,
auditing and reporting.” (AccountAbility, 1999)
AA1000 has been developed as a guidance document to help organisations to integrate
their stakeholder engagement processes into daily activities. The Framework helps users
to establish a systematic stakeholder engagement process that generates the indicators,
targets, and reporting systems needed to ensure its effectiveness in overall organisational
performance. AA1000 includes a number of principles for stakeholder engagement,
articulated in a hierarchical way, as shown in Figure 5.
Figure 5 AA1000 principles
Source: AccountAbility (1999).
At the top of the AA1000 hierarchy, there is the Accountability principle, which
encompasses three dimensions:
• transparency: the duty to account to all stakeholders with a legitimate interest
• responsiveness: concerns the responsibility of the organisation to be accountable for
its acts and omissions, including the processes of decision making and results of
these decisions
• compliance: refers to the duty to comply with the law and agreed standards regarding
both the organisational policies and practices.
The next principle of inclusivity states that the organisation should
“reflect in every stages of the social and ethical accounting, auditing and
reporting process the aspirations and needs of all stakeholder
groups … including ‘voiceless’ stakeholder such as future generations.”

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Stakeholder views are to be obtained through an engagement process that lies at the heart
of AA1000 framework. This perspective is not (pl. query) to be confused with a request
for shifting responsibilities from the management to the organisational stakeholders:
“engagement is not about an organisation abdicating responsibilities for its
activities, but rather using leadership to build relationship with stakeholders,
and hence improving the organisation’s accountability and performance.”
6.3 The social contract approach for balancing stakeholder interests
The social contract approach provides a normative criterion to balance conflicting
stakeholder claims based on the idea of a (ideal) fair agreement. Its basic assumption is
that all stakeholders who contribute to the fulfilment of the corporate mission
(the ‘primary’ stakeholders, in Freeman’s terms) are entitled to a fair share of the benefits
generated with their contributions. But the social contract approach also cares for other
stakeholders (the ‘secondary’ stakeholders): these are those individuals or groups whose
interest is involved because they undergo the ‘external effects’, positive or negative, of
corporate activity, even if they do not directly participate in any transaction with the firm,
so that they do not contribute to, nor directly receive value from the firm. The social
contract approach states that managers have a moral obligation to take into consideration
the legitimate interests of all the organisation’s stakeholder groups, both those
contributing to the achievement of corporate objectives, and those who are affected by
corporate activity.
The concept of fairness is at the heart of this approach: in the social contract
perspective, ‘fair’ is defined as “what rational people would unanimously and
consensually accept” (de Colle et al., 2003). Translating this concept to the firm and its
relations with stakeholders, the social contract represents the ideal fair agreement that can
be reached between the organisation and all its stakeholders, even in the presence of
conflicting claims. To reach such an agreement, some conditions must be satisfied
(Rawls, 1971):
• the legitimate interests of all stakeholders involved in the decision should be taken
into consideration
• all must be informed and not deceived
• no one must be have suffered or suffer for abuses of power or constraint
• agreement must be reached voluntarily through rationality.
The hypothetical reasoning that managers should follow in order to apply the social
contract approach to balance conflicting stakeholder claims can be described as
following:
• identify all stakeholder groups involved in a particular decision
• imagine to invite a representative of each stakeholder group to a roundtable
discussion
• imagine that, when entering in the room, everyone falls behind a ‘veil of ignorance’,
in which nobody knows his/her identity and which particular interests is represented

• ask to everyone to puts him/herself in the position of all the others and write the
agreement that everyone would accept, knowing that when they will leave the room,
the veil of ignorance will disappear
• if the agreement proposed is found acceptable to some stakeholders but not to others,
this agreement must be discarded and the procedure repeated until there is an
agreement that is unanimously accepted.
Following this hypothetical reasoning ensures that the terms of the agreement reached are
those that each stakeholder will be willing to accept from its particular point of view.
In other words, the social contract is the agreement that would be reached by
the representatives of all the firm’s stakeholders in a hypothetical situation of
impartial choice.
7 Conclusion: a 10-step stakeholder management model for ethical
decision making
The discussion of key principles and approaches to stakeholder management has pointed
out a number of lessons on the ‘normative’ foundations and the ‘instrumental’ devices
that can help managers to improve the decision-making processes that govern the
relationships with its stakeholders. In this final section we present a Stakeholder
Management Model aimed at improving the ethical decision making of organisations
(see Figure 6) by enabling managers to identify and take into consideration legitimate
stakeholder interests. The ten steps of the model discuss the key elements needed in order
to design and implement an effective stakeholder management approach within
organisations:
Identify and map all stakeholders
The starting point for the organisation is to identify all its stakeholders, including both
stakeholders in the strict sense (those who have an interest at stake because they have
made specific investments in the firm in the form of human, financial capital or social
capital) and stakeholders in the broad sense (those individuals or groups whose interest is
involved because they undergo the ‘external effects’, positive or negative, of corporate
activity).
Assess issues at stake
Second, the legitimate claims of each stakeholder groups should be identified and
assessed, by understanding the nature of their relationship with the firm (the analysis of
the rational, process and transactional level addresses this phase);
Identify corporate values and existing commitments
Stakeholder management is a way for the corporation to define its own stance with
respect to conflicting stakeholder claims. To reach this aim, it is important that the
management demonstrate that corporate values and existing commitments underpin the
whole stakeholder engagement process;

312 S. de Colle
Prioritise issues
At this stage, the ‘strategic’ element of stakeholder management for ethical decision
making comes into place: the management has to decide on the base of which criteria
stakeholder claims should be prioritised, in order to provide the best response to the most
urgent issues at stake (the Power/Interest Grid addresses this problem, by providing a
methodology for classifying and prioritising stakeholder claims by assessing their power
and interests with regards to the firm).
Review/develop policies
We enter here in decision-making processes dealing with the design of practical solutions
to specific issues: as Wheeler and Sillanpää (1994) have pointed out, potential policy
areas may include, with regard to the different stakeholder groups:
• The shareholders/owners
• Remuneration policy
• Dividends policy
• Mergers and acquisitions policy.
• Employees and managers
• Human resources policy
• Occupational health and safety policy
• Corporate code of ethics for individual rights and responsibilities.
• Customers
• Complaints policy
• Marketing and advertising policy.
• The Community
• Volunteering policy
• Donations policy.
• Business partners, suppliers and small businesses
• Purchasing policy
• Payment policy
• Code of ethics (regulating gifts).
• Global economy
• Ethical and human rights policy.
• The planet and future generations
• Environmental policy.
• The animal kingdom
• Animal welfare policy.
Set objectives
As with any other management process, stakeholder engagement is more effective if
specific objectives are identified in relation to the stakeholder issues that are at stake in a

particular decision-making process of the organisation. When initiating the dialogue with
a specific stakeholder group, the management should clarify from the beginning what the
intended objectives of the dialogue are.
Measure performance
The corporation should be able to tell how well its stakeholder management processes are
going – which of course depends on what objectives the firm has set for a specific
stakeholder engagement process. In general, measures in this area relate on the one side
to the quality of information that the stakeholder consultation delivers to the
management – i.e., how useful it is for the decision-making process involved – and on the
other, on the increase of stakeholder trust and confidence towards the firm generated by
the process.
Communicate and report
A crucial element for achieving the benefits of stakeholder management is
communication and reporting activities, both internally, to provide the management with
useful information on stakeholder views and interests, and externally, to demonstrate to
stakeholders that the firm ‘walks the talk’.
Review commitments and policies
The initial position of the organisation on a specific issue that has been the focus of a
stakeholder consultation process should be reviewed as a result of the views expressed by
stakeholders during the consultation. Similarly, corporate policies should be reviewed to
develop the most appropriate company response to issues raised by the stakeholders
during the consultation process.
Continuous engagement
This final step of the model is an element concerning the whole process of stakeholder
management. It refers in fact to the need of engaging with stakeholders as an ongoing
approach, to allow managers to consider stakeholder views in every decision-making
process.
Figure 6 A 10-step model for stakeholder management for ethical decision making

314 S. de Colle
This stakeholder management model can be seen as a management tool, i.e., as a resource
that managers can apply to improve the quality of decision-making processes of their
organisation by identifying – and systematically taking into consideration – the legitimate
interests and concerns of their organisation’s stakeholders. Better understanding of
stakeholder views and effectively responding to their legitimate interests can help
managers in many strategic decision-making processes, such as planning the construction
of a new factory in a foreign country, finalising the design of a new product to be
launched in the market, introducing a policy for supplier screening based on social and
environmental criteria, or developing a new human resources policy to respond to human
rights issues.
As any other management tool, it is not perfect or unique. The ten steps described are
not to be meant as the only possible elements needed for developing a stakeholder
management approach; also, the sequence of steps is not to be taken in a strict
prescriptive sense. To be really effective, in fact, the ten steps should be adapted by every
organisation according to the specific nature and quality of the existing relations with its
stakeholders.
In conclusion, stakeholder engagement can be seen as a ‘meta-process’: a process that
can be used to improve decision-making processes within any organisation, bringing into
it the stakeholders’ perspective, and thereby helping the management to better serve the
interests of their stakeholders – which at the end can help the organisation to improve its
overall performance.
References
AccountAbility (1999) AA1000 Framework – Exposure Draft, The Institute of Social and Ethical
AccountAbility, November, London.
Clarkson Centre for Business Ethics (CBE) (1999) Principles of Stakeholder Management,
Toronto.
de Colle, S., Sacconi, L. and Baldin, E. (2003) ‘The Q-RES project: the quality of social and ethical
responsibility of corporations’, in Wieland, J. (Ed.): Standards and Audits for Ethics
Management Systems, The European Perspective, Series: Studies in Economic Ethics and
Philosophy, Springer Verlag, Berlin, pp.60–117.
Donaldson, T. and Preston, L. (1995) ‘The stakeholder theory of the corporation: concepts,
evidence and implications’, Academy of Management Review, Vol. 20, No. 1, pp.65–91.
Freeman, R.E. (1984) Strategic Management: A Stakeholder Approach, Pitman, Boston.
Freeman, R.E. (1997) ‘Stakeholder theory’, in Werhane, P. and Freeman, R.E. (Eds.):
The Blackwell Encyclopedic Dictionary of Business Ethics, Blackwell, Oxford/Malden, MA,
pp.602–606.
Freeman, R.E. (2001) ‘A stakeholder theory of the modern corporation’, in Beauchamp, T. and
Bowie, N. (Eds.): Ethical Theory and Business, 6th ed., Prentice Hall, New Jersey.
Goodpaster, K. (1991) ‘Business ethics and stakeholder analysis’, Business Ethics Quarterly,
Vol. 1, No. 1, pp.53–72.
Rawls (1971) A Theory of Justice, Harvard University Press, Cambridge, Mass.
Sacconi, L. (2000) The Social Contract of the Firm, Springer Verlag, Berlin-Heidelberg.
Wheeler, D. and Sillanpää, M. (1997) The Stakeholder Corporation, Pitman Publishing, London.
www.mindtools.com/stress/pp/StakeholderManagement.htm.

A Stakeholder Management Model For Ethical Decision Making

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