Stakeholder Theory
There are two branches of stakeholder theory, namely:
I. The ethical branch of Stakeholder Theory
The moral (and normative) perspective of Stakeholder Theory argues that all stakeholders have the right to be treated fairly by an organization, and that issues of stakeholder power are not directly relevant.
Stakeholder definition according to Freeman and Reed (1983):
Any identifable group or individual who can affect the achievement of an organization’s objectives, or it is affected by the achievement of an organization’s objectives.
Clarkson (1995) sought to divide stakeholders into primary and secondary stakeholders. A primary stakeholder was defined as ‘one without whose continuing participation the corporation cannot survive as a going concern’.
Secondary stakeholders were defined as those who influence to affect, or are influenced or affected by, the corporation, but they are not engaged in transactions with the corporation and are not essential for its survival.
In considering the notion of rights to information, we can briefly consider Gray, Owen and Adam’s perspective of accountability as used within their accountability model.
Gray, Owen and Adam defined accountability as:
The duty to provide an account (by no means necessarily a financial account) or reckoning of those actions for which one is held responsible.
It would involve two responsibilities or duties:
A neo-classical economic theory of the firm prescribes that the purpose of organizations is to make profits in their accountability to themselves and shareholders, and that only in doing so can business contribute to wealth for itself as well as society at large. The socio- economic theory suggests in contrast that the notion of accountability in fact looms larger: to other groups outside shareholders, for the continuity of the organization and the welfare of society.
Stakeholder management assumes that all persons or groups with legitimate interests participating in an enterprise do so to obtain benefits and there is no prima facie priority of one set of interests and bene- fits over another. Hence, the arrows between the firm and its stakeholder constituents run in both directions.All those groups which have a legitimate stake in the organi- zation, whether purely financial, market-based or otherwise are recognized, and the relationship of the organization with these groups is not linear but one of inter- dependency. In other words, instead of considering organizations as immune to govern- ment or public opinion, the stakeholder management model recognizes the mutual dependencies between organizations and various stake-holding groups – groups that are themselves affected by the operations of the organization, but can equally affect the organization, its operations and performance.
The stakeholder concept provides a drastically different view of the nature of the relationship of an organization with such non-market parties as governments, communities and special interest groups.These non-market groups are first of all credited as forces that need to be reckoned with; and the relationship of the orga- nization with these non-market groups, as well as with market groups, is characterized by institutional meaning. In this institutional or socio-economic view, an organization is seen as being part of a larger social system that includes market and non-market parties, and as dependent upon that system’s support for its continued existence.
Framing accountability through the concept of legitimacy also means that organizations engage with stake- holders not just for instrumental reasons where it leads to increases in revenues and reductions in costs and risks (as transactions are triggered from stakeholders or as a reputational buffer is created for crises or potentially damaging litigation) but also for normative reasons. Instrumental justification points to evidence of the connection between stakeholder management and corporate performance. Normative justification appeals to underlying concepts such as individual or group ‘rights’,‘social contracts’, morality, and so on.
Instrumental or normative motives for engaging with stakeholders, however, often converge in practice, as social and economic objectives are not mutually exclu- sive9 and as ‘doing good’ with one stakeholder group delivers reputational returns and easily carries over and impacts on the views of other stakeholder groups.
Cornelissen, J. (2004). Corporate communications: Theory and practice. London: Sage.
There are two branches of stakeholder theory, namely:
- Ethical (moral) or normative branch and;
- Positive (managerial) branch.
I. The ethical branch of Stakeholder Theory
The moral (and normative) perspective of Stakeholder Theory argues that all stakeholders have the right to be treated fairly by an organization, and that issues of stakeholder power are not directly relevant.
Stakeholder definition according to Freeman and Reed (1983):
Any identifable group or individual who can affect the achievement of an organization’s objectives, or it is affected by the achievement of an organization’s objectives.
Clarkson (1995) sought to divide stakeholders into primary and secondary stakeholders. A primary stakeholder was defined as ‘one without whose continuing participation the corporation cannot survive as a going concern’.
Secondary stakeholders were defined as those who influence to affect, or are influenced or affected by, the corporation, but they are not engaged in transactions with the corporation and are not essential for its survival.
In considering the notion of rights to information, we can briefly consider Gray, Owen and Adam’s perspective of accountability as used within their accountability model.
Gray, Owen and Adam defined accountability as:
The duty to provide an account (by no means necessarily a financial account) or reckoning of those actions for which one is held responsible.
It would involve two responsibilities or duties:
- The responsibility to undertake certain actions; and
- The responsibility to provide an account of those actions.
A neo-classical economic theory of the firm prescribes that the purpose of organizations is to make profits in their accountability to themselves and shareholders, and that only in doing so can business contribute to wealth for itself as well as society at large. The socio- economic theory suggests in contrast that the notion of accountability in fact looms larger: to other groups outside shareholders, for the continuity of the organization and the welfare of society.
Stakeholder management assumes that all persons or groups with legitimate interests participating in an enterprise do so to obtain benefits and there is no prima facie priority of one set of interests and bene- fits over another. Hence, the arrows between the firm and its stakeholder constituents run in both directions.All those groups which have a legitimate stake in the organi- zation, whether purely financial, market-based or otherwise are recognized, and the relationship of the organization with these groups is not linear but one of inter- dependency. In other words, instead of considering organizations as immune to govern- ment or public opinion, the stakeholder management model recognizes the mutual dependencies between organizations and various stake-holding groups – groups that are themselves affected by the operations of the organization, but can equally affect the organization, its operations and performance.
The stakeholder concept provides a drastically different view of the nature of the relationship of an organization with such non-market parties as governments, communities and special interest groups.These non-market groups are first of all credited as forces that need to be reckoned with; and the relationship of the orga- nization with these non-market groups, as well as with market groups, is characterized by institutional meaning. In this institutional or socio-economic view, an organization is seen as being part of a larger social system that includes market and non-market parties, and as dependent upon that system’s support for its continued existence.
Framing accountability through the concept of legitimacy also means that organizations engage with stake- holders not just for instrumental reasons where it leads to increases in revenues and reductions in costs and risks (as transactions are triggered from stakeholders or as a reputational buffer is created for crises or potentially damaging litigation) but also for normative reasons. Instrumental justification points to evidence of the connection between stakeholder management and corporate performance. Normative justification appeals to underlying concepts such as individual or group ‘rights’,‘social contracts’, morality, and so on.
Instrumental or normative motives for engaging with stakeholders, however, often converge in practice, as social and economic objectives are not mutually exclu- sive9 and as ‘doing good’ with one stakeholder group delivers reputational returns and easily carries over and impacts on the views of other stakeholder groups.
Cornelissen, J. (2004). Corporate communications: Theory and practice. London: Sage.