Stakeholders’ Centrality in ModernCorporations and Their Management
Antonio M. Chiesi
Department of Social and Political Studies
University of Milan
Chiesi for Politeia 2008-05-22/23
Definitions: a stakeholder is…
•any group on which the organization relies in itsfunctioning (Stanford Research Institute 1963)
•a party who affects, or can be affected by, theorganization’s actions (Freeman 1984).
•any actor who has a legitimate interest in the activityof an organization (Clarkson 1999).
•Voluntary or involuntary contributors to the activitiesof an organization, and therefore its potentialbeneficiaries and/or risk bearers (Post, Preston andSachs 2002).
Chiesi for Politeia 2008-05-22/23
Stockholder and Stakeholder approaches
Chiesi for Politeia 2008-05-22/23
Shifting attention from stockholders tostakeholders interests implies a newdefinition of corporate strategy
•From principal-agent approach, according to whichmanagers are appointed by stockholders in order tomaximize their economic return….
•to multi-stakeholder theory, according to whichmanagers, in the name of the firm and for its longterm benefit, have to chose a “principal” stakeholderand pursue the balance of interests between aplurality of stakeholders.
Chiesi for Politeia 2008-05-22/23
Relation between multistakeholder theory and CSR
•1.While in the principal-agent theory, managers have to pursuestockholders’ interests by law, in stakeholder theory theirstrategies can become indefinite, give them to much power andencourage their selfishness. A danger emerges that in a multi-stakeholder environment managers turn from agents tobrokers.
•2. While stockholders’ interests are (relatively) clear andprotected by law, stakeholders’ interests are heterogeneous andnot always protected by law, although legitimate. In order tostate the strategic orientation of a firm: a) its mission should bedeclared, b) principles of stakeholder management should beapplied, c) some basic values should be adopted (i. e. CSR).
•Therefore, while stockholder theory is based on selfishinterests recognized and limited by law, stakeholder theory hasto be derived from values and goes beyond laws (i. e. CSR).
Chiesi for Politeia 2008-05-22/23
A map of stakeholders
Chiesi for Politeia 2008-05-22/23
A more specific inventory of stakeholders
Stakeholder
Global level
National level
Local level
Stockholders
Institutional investors (pension funds, investmentfunds) small shareholders,
Family ownership
Personnel
All employees,transnational trade unions
Domestic employees,Trade unions atcountry level
Employees livingaround the plants, localunions
Publicadministration
International institutions(UN, EU, ILO, …)
National government(taxation and norms)
Local government(reciprocal influence)
Community
Humanity at large andfuture generations(environmentalimplications)
The country (fiscalimplications andcompliance to law)
The organizedcommunity of personsand the environmentaround the factory
Customers,consumers
Transnational movements(Green Peace, NGOs, ..)
Domestic market, national consumersmovements
Suppliers
International division oflabor and subcontracting
Domestic suppliers
Local stable suppliers (i.e. industrial districts)
Chiesi for Politeia 2008-05-22/23
How to manage stakeholder relations(Donaldson & Preston 1995)
•Descriptive approach: mapping them and taking intoaccount their positions,
•Instrumental approach: using stakeholders’ relationsin order to pursue business “as usual”,
•Normative approach: identifying values within anaxiomatic rationality approach (Weber 1922) andaccepting limitations of property rights according to aprinciple of distributive justice.
Normative stakeholders’ management(modified from Clarkson 1999)
•Recognizing them and being informed about their interests(recognition of legitimate conflicts of interests),
•Communicating transparently with them (stakeholderdialogue),
•Adopting decisions taking into account their positions,
•Balancing benefits among different stakeholders (distributivejustice),
•Cooperating with them in order to minimize negativeexternalities and encourage the production of public goods:trust, reputation, transparency, accountability (this means thatalso stakeholders are requested to behave following the samerules of reciprocity)
Theoretical problems in stakeholders’ management
•no rules to settle the trade-off between them,
•no rules to define a hierarchy of interestsamong them,
•Managers should replace profit maximizationfunction with Pareto efficiency for allstakeholders (which is impossible to compute).
•BUT…..
Chiesi for Politeia 2008-05-22/23
..... In practice
These three problems are often by-passed in theactual practices adopted in managing every-dayrelations with stakeholders. Managers try:
•to satisfy dynamically all stakeholders, taking intoaccount the relative intensity of their pressures (ratherthan abstract rules of distributive justice),
•to increase their reputation,
•to improve the image of an organization, in terms ofmorality, accountability, sustainability, transparency,fairness.
Chiesi for Politeia 2008-05-22/23
What is actually done in stakeholders’ management:
•Stakeholders have to gain recognition,
•and to engage in negotiations in order to get a larger share of resourcescoming from the organization (value added, transfers, benefits).
•Managers are encouraged to give priority to long rather than short terminterests,
•and are drawn to take care of social and environmental consequences ofthe organization.
•All parties are drawn to conceive the organization as a collective good,
•are encouraged to comply with practices of accountability, transparency,reliability, fairness in order to gain reciprocal reputation,
•know that unfair practices and moral hazard can destroy the intangibleasset everyone can enjoy: social capital (Coleman 1990, Lin 2001).
Chiesi for Politeia 2008-05-22/23