7 - From stakeholder management to social strategy

Summary

A stakeholder in an organization is (by its definition) any group or individual who can affect or is affected by the achievement of the organization’s objective.

Freeman, Strategic Management: A Stakeholder Approach, (1984: 25)

The social strategy decision

Thanks to Professor Freeman’s considerable efforts, the term stakeholder is now a standard part of the business lexicon. Unfortunately, despite Freeman’s insistence that shareholders and stakeholders are on the same side, the term stakeholder is used most often in an adversarial context: shareholders and their CEO hired guns are pitted against the stakeholders – i.e., everybody else. Freeman’s core argument – that in the long term the firm’s success depends on satisfying legitimate non-economic as well as economic stakeholders – has not convinced microeconomists and strategic management scholars. Legitimacy is the crux of the issue. In a series of Academy of Management Review articles, Thomas Jones (Jones, 1995; Jones and Wicks, 1999; Jones et al., 2007) has made a laudable effort to reconcile normative and instrumental stakeholder management theory by demonstrating that both are necessary and possible. In his most recent paper, he builds on Phillips’ (2003) work on normative and derivative legitimacy to defend, via the former, meeting the ethical demands of stakeholders, and, by the latter, acceding to the demands of powerful stakeholders that may harm the organization and/or other legitimate stakeholders (Jones et al., 2007: 142).

Nonetheless, there still remains the quarter-century-old problem of stakeholder theory when it comes to navigating conflicting normative (ethical) and instrumental objectives. In response, Jones et al. (2007) define a typology of organizational ethical cultures and provide propositions on how each type will respond to stakeholder groups under different conditions of stakeholder salience. The model is descriptive, predicts when a particular type of ethical culture will pay attention to specific types of stakeholders, but it cannot claim to advance the prospect of firm ethical behavior or of stakeholders benefiting from firm responsiveness to their needs. As has often been the case in stakeholder research, the authors suggest that creating trust through ethical behavior will redound to the firm’s benefit. However, they cannot make an economic case for ethical stakeholder management, nor explain how stakeholder management creates competitive advantage and economic value.