This document discusses stakeholder theory and management. It defines stakeholders as individuals or groups with interests in an organization, such as shareholders, employees, customers, and suppliers. There are often conflicting interests between stakeholders that companies must balance. Stakeholder management involves identifying stakeholder interests, assessing their importance based on power, legitimacy, and urgency, and developing strategies like involvement, monitoring, defense, or collaboration depending on their potential for threat or cooperation. The document outlines several theoretical models for conceptualizing stakeholder relationships and their implications for corporate social responsibility.

1. LECTURE 3: Stakeholder Management

2. From Shareholder Value To Stakeholder Thinking
• Stakeholder thinking has emerged over the last 25 years as a popular way
of framing corporate behavior.
• A socially responsible firm is one whose managerial staff balances a
multiplicity of interests. Instead of striving only for larger profits for its
stockholders, a responsible enterprise also takes into account employees,
suppliers, dealers, local communities, and the nation.
• More recently, many developments have contributed to increasing
demands that companies broaden the distribution of business benefits to a
wider set of stakeholders, not only shareholders.

3. From Shareholder Value To Stakeholder Thinking
Cont..
• Henry Mintzberg criticized the focus on shareholder value, noting that
even though shareholders need a fair return on their investment in order
for the capital markets to work, an unbalanced focus on shareholder value
creates a wedge between shareholders and other stakeholders and is
therefore ‘bad for business and bad for capitalism’.
• Companies also seek to contribute to the societies in which they operate.
• Overall, then, a significant degree of pressure has come to bear on
organizations to take account of a much wider range of actors than simply
their owners or shareholders.

4. What Are Stakeholders?
• Stakeholders comprise individuals, or sometimes groups, with similar
interest in a particular organization.
• For example, shareholders are mainly interested in gaining adequate
return on their investment. A variety of groups, including shareholders,
employees, customers and suppliers, are typically identified as
stakeholders.
• It should also be noted that the same individual or group may have
multiple interests in an organization and therefore belong to various
stakeholder clusters.
• Stakeholder groups can be categorized in many ways. A distinction is
often made between internal and external stakeholders, distinguishing
those who form the organization from those who just interact with it.
However this distinction simply locates the groups involved and tells us
little about the nature that the stakeholders have in the company.

5. Conflicting Interest And Stakeholder Importance
• There are inevitable situations where the interests of stakeholders conflict.
• A conflict may exist when employees ask for a salary increase and other
benefits while shareholders put pressure on the management to cut cost of
production and labour.
• Companies thus need prioritize stakeholders often because of resource
limitations.

6. Stakeholder Importance
• A more sophisticated way to determine the importance of stakeholders
involves:
– Power of a stakeholder to influence an organization. Stakeholders derive their
power from a mix of sources depending on their resources and relationships.
Investors and governments, for example, derive their power from legal or
contractual arrangements that allow them to have some degree of influence.
Other stakeholders including customers and suppliers, have economic power
over corporate performance, stakeholders may also have political power to
express and put forward their interest.
– Legitimacy of the stakeholder relationship with the company. Legitimacy
pertains to the perception that the stakeholder's goals and activities are in line
with generally accepted values and norms in society.
– Urgency of the stakeholder's claim on the company. Urgency calls for
immediate attention on the basis of two conditions: (1) time sensitivity- the
degree to which a delay in dealing with the claim is intolerable to the
stakeholder; and (2) criticality- the importance of the claim or relationship
with the company to the stakeholder.

7. Stakeholder Theory
• Stakeholder theory posits the company as a hub of relationships between
diverse actors.
• These relationships were initially portrayed as a two-way influence
between the company and a range of stakeholder groups, although it was
recognized that stakeholders are interconnected and that coalitions of
stakeholder groups may emerge to help or oppose a company on a
particular issue.
• Researchers have viewed stakeholder relationships as more complex and
interrelated, rather than just a collection of one-to-one relationships
between the company and its various stakeholders.
• Managers should take into account the interests of all stakeholders
because of the intrinsic value that each stakeholder possesses.
• Stakeholders have legitimate interests in companies for their own sake,
rather than because they can further the achievement of some
organizational goals.

8. Stakeholder Theory As An Alternative Theory Of
The Firm
• Conventionally, companies have been viewed as organization that
managers control for the benefit of the owners
• As a black boxers that transform inputs provided by investors, employees
and suppliers into outputs for the benefit of customers.
• However, stakeholder theory has been seen as an alternative to this theory
of the firm.
• In stakeholder theory, companies are presented as organizations through
which diversity of actors accomplish multiple and sometimes conflicting
purposes.

9. Approach to strategic management
• Stakeholder theory has also been advanced as an approach to strategic
management.
• Stakeholder theory takes into account the social and political environment
in which companies operate.
• Strategic threats and opportunities arise from the claims and expectations
placed on the company by various social and political actors.
• Stakeholder theory can be seen as a substitute for PEST (political,
economic, social and technological) analysis and other frameworks that
provide structure for the examination of the strategic threats and
opportunities arising from the external environment.

10. Framework of Corporate Social Responsibility
• Stakeholder theory has been advanced as an increasingly popular way of
conceptualizing corporate social responsibility.
• There is a natural fit between the concepts of corporate social
responsibility and stakeholders, because the stakeholder concept provides
a way to frame and assess society's values and expectations of business.
• Corporate social responsibility can therefore be more easily analyzed
through relationships that companies have to their constituent groups than
in direct terms of issues or values.

11. Theoretical Models Of Stakeholder Management
• Stakeholder management involves the process by which managers
reconcile objectives of a company with the claims and expectations of
various stakeholder groups.
• Three overall types of focus have been outlined, as explained in the
following sub-sections
– Focus on the generic, approach towards a stakeholder
– Focus on the relationship
– Focus on the stakeholder network

12. Focus on the generic approach towards a
stakeholder
• Savage et al. (1991) argued that strategies for managing for managing
stakeholders should be based two assessments:
– the stakeholder's potential to threaten the organization
– the stakeholder's potential to cooperate with the organization.
These assessments depend on at least four factors that have an impact on the
level of threat or cooperation posed by stakeholders; possession of resources
needed by the company; relative power of the stakeholder; willingness of the
stakeholder to take action; and the likelihood of the stakeholder to form
coalition with other stakeholders increases its likelihood of forming an
alliance with the company has the opposite effect.

13. Focus on the generic approach towards a
stakeholder Cont….
• Based on the assessment of the stakeholder's potential for threat and
cooperation, four separate strategies for managing stakeholders can be
identified.
– Involvement concerns the inclusion of stakeholders into decision making and
other activities in organizations. Companies can, for example, involve their
suppliers in the development of new production processes
– Monitoring refers to the consideration of particular stakeholder groups when
important decisions are being made. Such stakeholders typically include issue-
specific organizations that have a limited interest in the company. The objective of
monitoring is to ensure that the interest of stakeholders do not at any stage conflict
with those of the organization.
– Defense involves attempts to decrease the power that the stakeholder has over the
company. For example, companies may seek to establish exclusive relationships
with suppliers in order to fight off a competitor.
– Collaboration refers of partnerships and other collaborative ventures established
between the organization and its stakeholders. Such partnership projects are
discussed in more detail below.

14. The Generic Approach
Mixed blessing stakeholder
Collaborate
Supportive stakeholder
Involve
Non-supportive stakeholder
Defend
Marginal stakeholder
Monitor
Stakeholder’s
potential for
cooperation
High
Low
Stakeholder’s potential for threat to organisation
Savage et al. (1991)
High Low

15. Focus on the relationship
• Friedman & Miles (2002) suggested that strategic taken by organizations
and their stakeholders depend on two variables that characterize
relationships between them:
– the compatibility of their interest
– the nature of the connections between them
The interest of companies and their shareholders can be said to be compatible
because top management will have to manage the organisation in the interest
o the shareholders.
Secondary, the connection between organisations and their stakeholders vary
from necessary to contingent. If both parties recognise a formal relationship
exists, then is necessary but if it is not recognized, or only exists momentarily
in special circumstances the relationship is contingent.

16. Nature of Relationship
Defend:
Shareholders
Top management
Partners
Form relation:
The general public
Companies connected
through trade
associations
Compromise:
Trade unions
Customers
Suppliers
Some NGO’s
Eliminate:
Some NGO’s
Aggrieved/criminal
members of the public
Connections between stakeholders
Necessary Contingent
Compatible
Incompatible
Shareholder
interest

17. Focus on the stakeholder network
• A third approach is provided by Rowley (1997), who argued that
individual stakeholder relationships cannot be used to explain corporate
responses to stakeholder pressures because companies respond to the
entire network of stakeholder relationships. He posited that the way in
which companies respond to stakeholder pressures depends on the
variation of two factors:
– The centrality of the company in the stakeholder network and
– The density of this network surrounding the organization
Centrality refers to the number of contacts the company has to actors in the
stakeholder network. The company is able to resist stakeholder pressure
when contact to actors is many. Network density is the ties that exist
among stakeholders. Larger ties means stakeholders have the ability to
constrain companies activities.

18. Role in stakeholder network
Compromiser subordinate
Commander solitarian
Centrality of the company in the stakeholder network
High Low
High
Low
Density of the
stakeholder
network

19. Stakeholder Management In Practice
• Stakeholder encompasses the identification and analysis of stakeholder
groups as well as the development of organizational policies and practices
that are aimed at addressing the expectations of these groups.
• Stakeholder management can be regarded as a set of techniques that
organizations can use to better understand and manage stakeholder
concerns. Three of such techniques are described in this section: (1)
stakeholder mapping; (2) surveys and stakeholder dialogue; and (3)
partnership projects between companies and non-governmental
organizations. The first two of these involve the identification and
assessment of stakeholder concerns and interest, while the third is an
increasingly common way of responding to stakeholder pressures.

20. Implications On Corporate Social Responsibility
• Issues management and stakeholder management can be seen as
alternative approaches to how society's values and expectations are
framed.
• Stakeholder management, in contrast places more emphasis on relations to
stakeholders and it is stakeholders who represent and express society's
values and expectations of business.
• Over time, the focus has shifted from issues management to stakeholder
management, which has become increasingly popular among business and
society scholars following the publication in 1984 of Freeman's book on
the stakeholder approach to strategic management.

21. Implications On Corporate Social Responsibility
• Indeed, the role of stakeholders has been considered so central in the
development of issues that some researchers believe that the main
challenge for issues management is ' to bring a more coordinated,
proactive, and sustained approach to the management of an organization's
relationship with its stakeholders.
• Issues management and stakeholder theory as complementary rather than
alternative ways of identifying and addressing society's values and
expectations.
• In many public sector organizations, careful attention is paid to key
stakeholders, such as funding bodies or elected representatives, so that the
main issues are directed in terms of the interest and needs of these groups.