Summary of Articles Week 2:
BSS ARTIKEL WEEK 2.1
This is a classic text in stakeholder theory. The key takeaway is to learn the basics of the
framework shown on the 22nd page and how to apply it to different cases.
Stakeholder theory has been a popular heuristic for describing the management
environment for years, but it has not attained full theoretical status.
- Our aim in this article is to contribute to a theory of stakeholder identification and
salience based on stakeholders possessing one or more of three relationship
attributes: power, legitimacy, and urgency.
We will see stakeholders identified as primary or secondary stakeholders; as owners and
nonowners of the firm; as owners of capital or owners of less tangible assets; as actors or
those acted upon; as those existing in a voluntary or an involuntary relationship with the firm;
as rights-holders, contractors, or moral claimants; as resource providers to or dependents of
the firm; as risk-takers or influencers; and as legal principles to whom agent-managers bear
a fiduciary duty.
In this article we suggest that the question of stakeholder salience-the degree to which
managers give priority to competing stakeholder claims-goes beyond the question of
stakeholder identification, because the dynamics inherent in each relationship involve
complex considerations that are not readily explained by the stakeholder framework as it
currently stands.
We begin our analysis with Freeman's definition of stakeholder-"any group or individual
who can affect or is affected by the achievement of the organization's objectives"
We then propose that classes of stakeholders can be identified by their possession or
attributed possession of one, two, or all three of the following attributes:
(1) the stakeholder's power to influence the firm,
(2) the legitimacy of the stakeholder's relationship with the firm, and
(3) the urgency of the stakeholder's claim on the firm.
Building upon this typology, we further propose a theory of stakeholder salience. In this
theory we suggest a dynamic model, based upon the identification typology, that permits the
explicit recognition of situational uniqueness and managerial perception to explain how
managers prioritize stakeholder relationships.
We argue that to achieve certain ends, or because of perceptual factors, managers do pay
certain kinds of attention to certain kinds of stakeholders.
,The stakeholder approach broadens management's vision of its roles and responsibilities
beyond the profit maximization function to include interests and claims of non-stock holding
groups.
Stakeholder theory, in contrast, attempts to articulate a fundamental question in a
systematic way: which groups are stakeholders deserving or requiring management
attention, and which are not?
Persons, groups, neighborhoods, organizations, institutions, societies, and even the natural
environment are generally thought to qualify as actual or potential stakeholders.
Freeman's now-classic definition is this: "A stakeholder in an organization is (by definition)
any group or individual who can affect or is affected by the achievement of the organization's
objectives"
As we see from the preceding discussion of the stakeholder literature, one can extract just a
few attributes to identify different classes of stakeholders that are salient to managers in
certain respects.
The central problem agency theory addresses is how principals can control the behavior of
their agents to achieve their, rather than the agent's, interests. The power of agents to act in
ways divergent from the interests of principals may be limited by use of incentives or
monitoring (Jensen & Meckling, 1976), so that managers are expected to attend to those
stakeholders having the power to reward and/or punish them.
Resource dependence theory suggests that power accrues to those who control resources
needed by the organization, creating power differentials among parties (Pfeffer, 1981), and it
confirms that the possession of resource power makes a stakeholder important to managers.
Transaction cost theory proposes that the power accruing to economic actors with small
numbers bargaining advantages will affect the nature of firm governance and structure
(Williamson, 1975, 1985).
- That is, stakeholders outside the firm boundary who participate in a very small
competitive set can increase transaction costs to levels that justify their absorption
into the firm, where the costs of hierarchy are lower than the transaction costs of
market failure-a clear indication of their significance to managers (Jones & Hill,
1988).
These three organizational theories teach us why power is a crucial variable in a theory of
stakeholder-manager relations.
, Under institutional theory, "illegitimacy" results in isomorphic pressures on organizations
that operate outside of accepted norms (DiMaggio & Powell, 1983).
Under population ecology theory, lack of legitimacy results in organizational mortality
(Carroll & Hannan, 1989). According to these two theories, legitimacy figures heavily in
helping us to identify stakeholders that merit managerial attention.
A final attribute that profoundly influences managerial perception and attention, although not
the primary feature of any particular organizational theory, is implicit in each.
Agency theory treats this attribute in terms of its contribution to cost, as does
transaction cost theory.
Behavioral theory (Cyert & March, 1963) treats it as a consequence of unmet
"aspirations."
Institutional, resource dependence, and population ecology theories treat it in terms of
outside pressures on the firm. This attribute is urgency, the degree to which stakeholder
claims call for immediate attention.
In summary, it is clear that no individual organizational theory offers systematic answers to
questions about stakeholder identification and salience, although most such theories have
much to tell us about the role of power or legitimacy (but not both) in stakeholder-manager
relations.
Power = "the probability that one actor within a social relationship would be in a position to
carry out his own will despite resistance" (
Pfeffer rephrases Dahl's (1957) definition of power as "a relationship among social actors in
which one social actor, A, can get another social actor, B, to do something that B would not
otherwise have done". It is the ability of those who possess power to bring about the
outcomes they desire' "
Therefore, a party to a relationship has power, to the extent it has or can gain access to
coercive, utilitarian, or normative means, to impose its will in the relationship.
Legitimacy = loosely referring to socially accepted and expected structures or behaviors,
often is coupled implicitly with that of power when people attempt to evaluate the nature of
relationships in society.
Despite this common linkage, we accept Weber's (1947) proposal that legitimacy and
power are distinct attributes that can combine to create authority (defined by Weber as the
legitimate use of power) but that can exist independently as well. An entity may have
legitimate standing in society, or it may have a legitimate claim on the firm, but unless it has
either power to enforce its will in the relationship or a perception that its claim is urgent, it will
not achieve salience for the firm's managers.
