Stakeholder Management Tools

Stakeholder Management
Mehran Nejati, PhD

With whom
will we be
partners,
and with
whom just
friends?
Bjorn Stigson
Former president
of World Business
Council for
Sustainable
Development
Photo by Andrea Piacquadio from Pexels

Stakeholder management and engagement
is NOT:
• pretending to listen to your stakeholders
• holding occasional conversations with a
couple of the more tractable activists
who follow your industry
• making a donation to a worthy cause
• issuing press releases to claim credit on
certain issues
Stakeholder management and
engagement starts with:
• active, empathic listening
• trying to understand and accept
the viewpoint of even your worst
enemies and experiencing your
business as they do.
Edith Cowan University
School of Business and Law
“Businesses do not operate in

a social or political vacuum.
In fact, most companies
operate in a swirl of social,
economic, technological, and
political change that produces
both opportunities and threats.”
POST, J. E., LAWRENCE, A. T. & WEBER, J. (2002). Business and

Society: corporate strategy, public policy, ethics. Boston, MA,
McGraw-Hill Irwin.
Photo by shy sol from Pexels

Firms are more likely to achieve
Stakeholder Theory
strategic objectives if they engage
with stakeholders to understand their
perspectives and respond to that.
Photo by rawpixel.com from Pexels

It’s all about shareholders?
• In the traditional view of the firm, the shareholders are the owners of the
company and the firm has a binding duty to put their needs first - to
increase value for them
• Corporations exist to maximise shareholder value (Friedman, 1970)
Stakeholder Theory
• However, Freeman (1984) claims that there are other parties

involved too (e.g. employees, customers, suppliers, investors,
communities, governmental bodies, political groups, trade
associations, trade unions and competitors).
Friedman vs. Freeman
Milton Friedman Edward Freeman

“The social responsibility of “Firms are more likely to achieve
business is to increase its strategic objectives if they
profits” engage with stakeholders to
(Friedman, 1970) understand their perspectives”
(Freeman, 1984)
Friedman vs. Freeman
Milton Friedman Edward Freeman
 
Shareholders Stakeholders
Stakeholder Theory
• A company who understands customers’ needs is more likely to
develop products that meet those needs and sell more, enabling the
firm to meet its business objectives (Zadek, 2007).
• Incorporating stakeholder perspectives into business strategies can
hence be used as a mechanism to inform and improve managerial
decision making (Moon et al., 2003)
Freeman explaining stakeholder theory
Source: https://www.youtube.com/watch?v=bIRUaLcvPe8
Stakeholder Theory and Practice
• Freeman defines a stakeholder as “any group or individual who can affect

or is affected by the firm’s objectives” (Freeman, 1984, p. 46)
• Freeman’s definition is broad (as the number of parties who can affect or
be affected by an organisation is rather large)
• It is unlikely that managers can consider absolutely every possible
stakeholder…
Stakeholder Theory and Practice
• Donaldson & Preston (1995, p. 85) offer a more narrow definition,

defining stakeholders as “persons or groups with legitimate interests in
procedural and/or substantive aspects of corporate activity”
• An entity must have a legitimate claim or stake in the organisation to be
considered a stakeholder (Donaldson & Preston, 1995)
Stakeholders and Sustainability
Five core stakeholder groups of relevance for the management of

business sustainability are:
1. Idea generators and opinion leaders
2. Rule makers and watchdogs
3. Business partners and competitors
4. Investors and risk assessors
5. Consumers and community
These categories may have the potential to mask the individual

attitudes and perspectives of subsets of these groups.
▪ Firms are diverse and so are their stakeholders.
▪ Opposing views within the same stakeholder group is therefore
something firms managing for sustainability should be prepared for.
An example is the ongoing and sometimes heated climate change

discussions that have been seen in Australia since 2007
▪ Idea generators and opinion leaders, e.g. scientists, politicians and
journalists have debated about the validity of climate change science and
to what degree industry should pay to emit through mandatory measures
Fairfield, Harmon and Behson give us some insight into this

dilemma:
“The extent to which an organization implements

specific sustainability practices will be strongly
driven by the importance it places on various
sustainability issues perceived as vital to its
identity and success.”
Factors influencing sustainability implementation
Source: Fairfield et al. Model (2011)

External Influences
• Demand for sustainable practice by various stakeholders

• Fear of competitors’ sustainability practices (e.g. Cadbury & Mars)
Foundational Enablers
• Top management support

• Values relating to sustainability ingrained in the business
• Business strategy with a central focus on sustainability
Decision Drivers
• Environmental/ operational issues such as reducing pollution

• External stakeholder/ marketplace issues such as enhancing customer satisfaction
• Workforce issues such as attracting and retaining diverse top talent
• Reputation/ innovation/ compliance issues Source: Fairfield et al. Model (2011)
Internal Inhibitors
• Lack of awareness and understanding about sustainability

• Lack of standardised metrics or performance benchmarks
• Lack of specific ideas on what to do and when to do it
• Lack of a clear and strong business case for sustainability Source: Fairfield et al. Model (2011)
Frameworks for Categorising Stakeholders
Stakeholder
Valence
Stakeholder
Salience
Stakeholder Salience
• Stakeholder salience refers to the relative importance of

different stakeholders - it concerns ‘who and what really counts’
in stakeholder management (Freeman, 1984).
• Firms are more likely to listen and respond to the stronger and
more aggressive stakeholders over those who are considered
weaker and with less authority (Mitchell, Agle & Wood, 1997) .
• Different types of stakeholders can have different levels of

influence on an organisation (Mitchell, Agle & Wood, 1997).
Stakeholder salience framework developed by

Mitchell et al. (1997) 
Stakeholder Salience Framework
• Mitchell et al.’s (1997) stakeholder salience framework identifies

stakeholders based on:
Power to influence the firm Access to means
Legitimacy of the stakeholder’s Whether the stakeholder’s actions are

relationships with the firm perceived to be legitimate and appropriate
Urgency of the stakeholder’s claim on Degree to which stakeholder’s claims call for
the firm (time sensitivity & criticality) immediate attention by the organisation
• The more power, legitimacy and urgency a stakeholder is perceived to

have, the higher its salience.
• Stakeholder salience is hence the degree to which managers give
priority to competing stakeholder claims.
• By considering the different combinations of the salience dimensions,
stakeholders can be categorised according to type (Mitchell et al., 1997).
Dormant stakeholders
• Possess power, but their claims are not considered legitimate
• Lack urgency, so do not require the firm’s immediate attention
• Generally have little contact with the firm
• e.g. news journalists
Discretionary stakeholders
• Can make legitimate claims on the firm, but have little power
• Their claims are not considered urgent
• Little need to engage with these stakeholders
• e.g. recipients of the firm’s philanthropy such as beneficiaries
of a charitable donations/corporate giving
Demanding stakeholders
• Have urgent claims against the firm, but they have no power nor legitimacy
• No more than a bothersome irritant
• e.g. people with unjustified grudges, serial complainers
Dominant stakeholders
• Possess power and legitimacy, so they have influence on
the firm
• However, claims are not considered urgent
• e.g. boards of directors, HR department, and public
relations who are impacted by the firm’s operations
Dangerous stakeholders
• Possess power and urgency but their claims against the
firm are not considered legitimate
• e.g. Activists, NGOs and Opinion Leaders
Dependent stakeholders
• Lack power but they have urgent and legitimate claims
against the firm
• e.g. local community stakeholders who suffer the impacts
of environmental degradation caused by the firm, such as
local residents impacted by the BP oil spill
• Advocacy of their interests by dominant or dormant
stakeholders can make them definitive stakeholders
Definitive stakeholders
• Possess all three attributes; they are powerful, legitimate
and their claims against the firm are urgent
• Definite stakeholders are often dominant stakeholders with
an urgent issue or dependent groups with powerful legal
support
• Those classified as dangerous could gain legitimacy e.g.
democratic legitimacy achieved by a nationalist party
Greenpeace
What type of stakeholder is Greenpeace

to Nestle?
▪ Do they have power (i.e. access to means)?
▪ Are their claims legitimate (i.e. are their
actions perceived to be desirable and
appropriate)?
▪ Are their claims urgent? (i.e. do their claims
call for immediate attention)?
Greenpeace Video about KitKat
Source: https://www.youtube.com/watch?v=1BCA8dQfGi0
Stakeholder Valence
Stakeholders can also be categorised based on whether the business-

stakeholder relationship is considered positive, negative or neutral
(Banarjee & Bonnefous, 2011).
▪ Supportive stakeholders (positive)
▪ Obstructive stakeholders (negative)
▪ Passive stakeholders (neutral)
Negative
Positive
Stakeholder Valence
• For some companies the practice of business sustainability results in
a ‘win-win’ situation - these firms are ‘doing well by doing good’.
• When the collective weight of supportive (positive) stakeholders is

greater than the obstructive (negative) stakeholders, the overall
influence of stakeholders enables the firm to maintain its existing
sustainability strategy.
Stakeholder Valence
Sometimes the number of passive stakeholders might be greater than either

the supportive or obstructive stakeholders.
There could be a scope to sway this larger mass of passive stakeholders to
take a new position (supportive or obstructive), leading to a change in the
stakeholder influence of the firm.
Strategic Role of Stakeholder Valence

• Stakeholder valence can also be used by a company’s supportive or obstructive
stakeholders to sway the passive stakeholders to take up a less neutral perspective
▪ In 2011, ABC’s Four Corners showed a graphic documentary about the treatment and
slaughter of Australian cattle in Indonesia.
▪ The public became aware that the export of live cattle was a long-standing issue for animal
welfare groups (they had been arguing for a ban on live export for years)
▪ Before the documentary there was a significant number of neutral or passive stakeholders;
after the documentary the government announced a temporary ban on the export of live cattle
to Indonesia.
▪ The documentary was hence used as a tactic by obstructive stakeholders to sway
passive stakeholders.
• How might a corporation use stakeholder valence in its stakeholder

management strategies to achieve better business outcomes?
▪ Stakeholder valence is whether stakeholders are in favour, against or neutral

towards a businesses activity.
▪ Depending on how large these groups are, businesses need to manage their
stakeholders and their opinions by either reinforcing positive stakeholders,
containing negative stakeholders or stabilising neutral stakeholders.
▪ Passive stakeholders can also be changed into positive stakeholders through
their business activities. However, businesses should be aware that negative
stakeholders could also sway passive stakeholders.

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Stakeholder Management

Mehran Nejati, PhD

Photo by Andrea Piacquadio from Pexels

“Businesses do not operate in

POST, J. E., LAWRENCE, A. T. & WEBER, J. (2002). Business and

Photo by shy sol from Pexels

Photo by rawpixel.com from Pexels

It’s all about shareholders?

• However, Freeman (1984) claims that there are other parties

Friedman vs. Freeman

Milton Friedman Edward Freeman

Friedman vs. Freeman

Milton Friedman Edward Freeman

Freeman explaining stakeholder theory

Stakeholder Theory and Practice

• Freeman defines a stakeholder as “any group or individual who can affect

Stakeholder Theory and Practice

• Donaldson & Preston (1995, p. 85) offer a more narrow definition,

Stakeholders and Sustainability

Five core stakeholder groups of relevance for the management of

Stakeholders and Sustainability

These categories may have the potential to mask the individual

Stakeholders and Sustainability

An example is the ongoing and sometimes heated climate change

Fairfield, Harmon and Behson give us some insight into this

“The extent to which an organization implements

Factors influencing sustainability implementation

Source: Fairfield et al. Model (2011)

• Demand for sustainable practice by various stakeholders

• Top management support

• Environmental/ operational issues such as reducing pollution

• Lack of awareness and understanding about sustainability

Frameworks for Categorising Stakeholders

• Stakeholder salience refers to the relative importance of

• Different types of stakeholders can have different levels of

Stakeholder salience framework developed by

Stakeholder Salience Framework

• Mitchell et al.’s (1997) stakeholder salience framework identifies

Legitimacy of the stakeholder’s Whether the stakeholder’s actions are

• The more power, legitimacy and urgency a stakeholder is perceived to

What type of stakeholder is Greenpeace

Greenpeace Video about KitKat

Stakeholders can also be categorised based on whether the business-

• When the collective weight of supportive (positive) stakeholders is

Sometimes the number of passive stakeholders might be greater than either

Strategic Role of Stakeholder Valence

Strategic Role of Stakeholder Valence

• How might a corporation use stakeholder valence in its stakeholder

Strategic Role of Stakeholder Valence

▪ Stakeholder valence is whether stakeholders are in favour, against or neutral

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