See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/339857108

Theories of Stakeholder Management

Article  in  SSRN Electronic Journal · January 2019

DOI: 10.2139/ssrn.3535087

CITATIONS READS

3 17,250

1 author:

Ramakrishnan Ramachandran
Vivin Consultants Chennai India
75 PUBLICATIONS   202 CITATIONS   

SEE PROFILE

Some of the authors of this publication are also working on these related projects:

Supply chain management View project

Stakeholder Management View project

All content following this page was uploaded by Ramakrishnan Ramachandran on 30 March 2020.

The user has requested enhancement of the downloaded file.

(i) Title of submission: Theories of Stakeholder Management
(ii) Name of the author: Dr. R Ramakrishnan,
Chief Consultant, Vivin Consultants Chennai
(iii) Mailing address: J 108 S&P Living Spaces, Kamarajar Street
Aynambakkam Chennai 600095 INDIA
(iv) E-mail address: ramakrish54@gmail.com or consultvivin@gmail.com

(v) Phone number Mobile : +919952669656

Dr Ramakrishnan Ramachandran, a baby boomer, did his PhD in Stakeholder

Management and has been associated in founding 3 B schools in rural Tier 2/3 cities in India.
After working in the Government of India in the Cabinet Secretariat and Indian High
Commission Seychelles for 22 years, he worked in the manufacturing and IT sector for the
next 8 years and has also done consultancy works in the field of Quality for small and
medium industries in India. He joined academics on a full time basis in 2005 to pursue his
passion –teaching’.
Author of books ranging from Total Quality management to Environmental Science
to Ethics, Ramakrishnan Ramachandran has presented over 30 papers on various
management topics. He is continuing his research work on various topics ranging from
Mentoring to Marketing as he tries to give shape to the future managers of India. He can be
contacted at Cell No. +919952669656 and ramakrish54@gmail.com
Dr Ramakrishnan is currently engaged in training corporate clients on TQM, 5S,
TPM, Stakeholder engagement, CSR, CRM, Improving Sales and other consultancy works.
He also conducts workshops for students of MBA/Engineering and other college students on
Soft Skills- Improving Self confidence, Goal Setting, Time Management, How to be
employable etc and giving guest lectures on the current topics in Management like Business
Analytics, Social Forecasting, Crowd Sourcing, IPR etc.

***************
 Theories of Stakeholder Management
Abstract
A Business entity cannot exist in vacuum. The following are always present.
 People in the form of shareholders, employees, suppliers, customers, investors,
collaborators, competitors, public agents etc
 The business entity develops its economic activity in a geographical area within
an economic, social and political context.
Stakeholder management is the most visible face of Corporate Social Responsibility
and hence many mistake one for the other even thought there are differences between them.
Though the ideas of both can be seen from time immemorial, both are evolving topics and
hence defy exact definition. The stakeholders approach has become so popular during the last
forty years. Yet there is no clarity for the term “Stakeholder” as it is used by different
researchers to mean many different concepts. There are some who believe that stakeholder
management cannot be even theorized!
Stakeholder theory is required to manage organizations in a highly complex and
turbulent environment as it give a practical, efficient, effective, and ethical way. Stakeholder
theory is about creating more value at its core. But who should share the value that is created
varies from manager’s view. There are narrow models that focus on a small set of
stakeholders like shareholders or customers, while much larger group of relevant stakeholders
are covered in the broader models.
. Good stakeholder management is fundamental for any business to deliver enduring
change. Stakeholder concept is basically a redefinition of the purpose of the Organization. .
In a stakeholder management plan different groups needs to be accommodated. Stakeholder
theory first found expression in Ansoff who defined the firm’s objectives to include, amongst
others, reconciliation of conflicting interests of various stakeholders. Over the years a number
of theories have been put forward in the academic literature to explain social reporting
practices. Of these, the most notables are stakeholder theory, legitimacy theory and political
economy theory
Stakeholder theory describes an interrelationship among the various actors involved in
the firm and offers an alternative purpose of the firm. Stakeholder management is intended to
create methods to manage the different groups and relationships. Organizations need to better
understand their stakeholders and how to strategically manage them. This paper traces the
evolution of stakeholder management and attempt to give an overview of the various theories
and approaches that are associated with stakeholder management.
 Theories of Stakeholder Management
A Business entity cannot exist in vacuum. The following are always present.
 People in the form of shareholders, employees, suppliers, customers,
investors, collaborators, competitors, public agents etc
 The business entity develops its economic activity in a geographical
area within an economic, social and political context.
Stakeholder management is the most visible face of Corporate Social Responsibility
and hence many mistake one for the other even thought there are differences between them.
Though the ideas of both can be seen from time immemorial, both are evolving topics and
hence defy exact definition. The stakeholders approach has become so popular during the last
forty years. Yet there is no clarity for the term “Stakeholder” as it is used by different
researchers to mean many different concepts. There are some who believe that stakeholder
management cannot be even theorized!
All management decisions contain an ethical component. Ethical arguments of
managing for stakeholders are equally important like the practical considerations.
Stakeholder theory is required to manage organizations in a highly complex and turbulent
environment as it give a practical, efficient, effective, and ethical way.
It is possible to distinguish three currents among the large number of articles
dedicated to the social responsibility of companies:
 The ethical moralist current "Business ethics",
 The "Business and Society" current and
 The "Social Issue Management".
Stakeholder theory is about creating more value at its core. But who should share the
value that is created varies from manager’s view. There are narrow models that focus on a
small set of stakeholders like shareholders or customers, while much larger group of relevant
stakeholders are covered in the broader models. Many times people forget that stakeholders
are not generic and are not homogeneous within groups. Stakeholder theorizing is valuable as
a basis of revising and improving concepts of business and management.
The stakeholders approach has become so popular during the last forty years. Yet
there is no clarity for the term “Stakeholder” as it is used by different researchers to mean
many different concepts.
 Roberts and Mahoney (2004)1 found that nearly 65 percent “use the term stakeholder
without reference to any version of stakeholder theory” after examining 125 accounting
studies that used the stakeholder language. There is again no clarity in the purpose and the
character of the organization and the role of managers still is contested in literature
Good stakeholder management is fundamental for any business to deliver enduring
change. Stakeholder concept is basically a redefinition of the purpose of the Organization. .
In a stakeholder management plan different groups needs to be accommodated.
According to Stakeholder theory, business organizations have so many stakeholders
and are dependent upon all of them for its success. Each type of stakeholders has some stake
in the organization. Its purpose is not just economic value creation for shareholders. It needs
to serve the societal needs and its focus is broadened to include social and community.
Friedman and Miles (2006)2 points out the relationship between definitions of
Stakeholders and identification of the stakeholders. The organization itself should be thought
of as grouping of stakeholders and its purpose should be to manage their interests, needs and
viewpoints.
The earliest definition of Stake holder is often credited to Stanford Research Institute
(SRI) in 1963. But the concept of stakeholder seems to be present in the business world even
before.
According to Dodd (1932)3 GEC had identified four main groups which whom they
had to deal as shareholders, employees, customers, and the general public much before.
Preston and Sapienza (1990)4 credits Johnson & Johnson with identification of
customers, employees, managers, and the general public in 1947. Similarly, Sears Company
has ranked in 1950 the four parties in the order of their importance to any business as
“customers, employees, community and stockholders”.
Schilling (2000)5 traces the concept of stakeholder to Mary Follet in 1918, who
sought a new social paradigm based on cooperation rather than on competition, and asserts
that her ideas can deepen our understanding as they provide directions for implementing
Stakeholder management.
1 Roberts, R. W., & Mahoney, L. (2004). Stakeholder conceptions of the corporation: Their meaning and influence in accounting
research. Business Ethics Quarterly, 14(3), 399-431.
2 Friedman, A. L., & Miles, S. (2006). Stakeholders: Theory and practice. Oxford University Press on Demand
3 Dodd Jr, E. M. (1931). For whom are corporate managers trustees. Harv. L. Rev., 45, 1145.
4 Preston, L. E., & Sapienza, H. J. (1990). Stakeholder management and corporate performance. Journal of behavioral Economics, 19(4),
361-375.
5 Schilling, M. A. (2000). Decades ahead of her time: advancing stakeholder theory through the ideas of Mary Parker Follett. Journal of
Management History, 6(5), 224-242.
 According to Follet (1940)6 "A business man should think of his work as one of the
necessary functions of society. ‘Function’ is the best word because it implies you are
responsible for serving your community". She even described three specific contents of
corporate social responsibility for maintenance of standards, for the education of public and
for the development of professional standards". She mentions a number of groups related to
the firm to whom the manager has to pay heed and with whom he has to maintain human
relations as Bankers, Stockholders, Co-managers and directors, Wage earners, Competitors,
the people from whom he buys and Customers
Stakeholder theory first found expression in Ansoff (1965)7 who defined the firm’s
objectives to include, amongst others, reconciliation of conflicting interests of various
stakeholders. Over the years a number of theories have been put forward in the academic
literature to explain social reporting practices. Of these, the most notables are stakeholder
theory, legitimacy theory and political economy theory
R. Edward Freeman (1984)8 outlined and developed the basic features of the
stakeholder concept building on the process work of Ian Mitroff, Richard Mason and James
Emshoff. He traces the effects of stakeholder theorizing in minimum four distinct,
management strands
 An organizing concept in the Corporate Planning literature
 Discernible as informing aspects of Systems Theory;
 From Corporate Social Responsibility (CSR), and
 From Organization Theory.
He asserted that, managers are not just agents of the shareholders. They need to
consider and balance the interests of all stakeholders appropriately as they have moral
obligation to all stakeholders. He categorizes the type of effects that stakeholders have on the
firm or that the firm has on stakeholders as economic, technological, social, political, and
managerial. He delineates the ``stake'' of the various stakeholders as equity, economic or
influencer, and the power that they wield as formal or voting power, economic power or
political power.
Stakeholder theory describes an interrelationship among the various actors involved in
the firm and offers an alternative purpose of the firm. Stakeholder management is intended to
create methods to manage the different groups and relationships. Freeman chose the word

6 Follet, M. P. (1973). Dynamic of Administration: The collected papers of Mary Parker Follet. Elliot M. Fox, y L. Urwick.
7 Ansoff, I. (1965) Corporate Strategy, New York: McGraw-Hill.
8 Freeman, R. E. (1984). Strategic management: A stakeholder approach. Boston: Pitman.
Stakeholder in rhyme with stockholder to look at the economic point of view only. Managers
are not mentioned by him among the stakeholders. Aoki (1984)9 saw them as referees
between investors and employees.
Organizations need to better understand their stakeholders and how to strategically
manage them. For the same, they need to answer three general questions about their
stakeholders (Frooman 199910, Wolfe & Putler 2002)11
 Who are the stakeholders? (This question concerns their attributes)
 What do they want? (This question concerns their ends)
 How are they going to get it? (This question concerns their means)
According to Donaldson & Peterson (1995)12, Stakeholder theory differs from these and
other theories of the firm in fundamental ways. Organization is an entity that accommodate
numerous and diverse participants to accomplish multiple purposes and some of them are not
always entirely congruent. They classified the stakeholder theory in three different ways as:
 Descriptive,
 Normative and
 Instrumental
Descriptive/empirical stakeholder theory: The descriptive aspect of stakeholder
theory is concerned with how managers and stakeholders actually behave and how they view
their actions and roles. It reflects and explains the past, present states of affairs of
organizations and their stakeholders. It is used to describe, specific organizational
characteristics and behavior like the nature of the firm, thinking of the managers about the
firm, what the board members perceive as the interest of the corporate constituencies and also
explain how some corporations actually manage.
Normative stakeholder theory: The fundamental philosophical concepts involved
and it connection forms the normative basis for Stakeholder theory. It attempts to interpret
the function of, and offer guidelines for the organization on the basis of some underlying
moral or philosophical principles. It is used for the identification of moral or philosophical
guidelines for the corporation and its management as well as for used interpreting its various

9 Aoki, M. (1984). The co-operative game theory of the firm. Oxford university press.
10 Frooman, J (Apr 1999), ‘Stakeholder Influence Strategies’, Academy of Management Review, Vol. 24, Issue 2, pp. 191 – 205
11 Wolfe, RA & Putler, DS (Jan-Feb 2002), ‘How Tight are the Ties That Bind Stakeholder Groups?’, Organization Science, Vol. 13, No. 1,
pp. 64 – 80
12 Donaldson, T & Preston, LE (Jan 1995), ‘The Stakeholder Theory of the Corporation: Concepts, Evidence and Implications’, Academy
of Management Review, Vol. 20, Issue 1, pp. 65 – 91
functions. According to Friedman and Miles (2006)13, it contains theories of how managers
or stakeholders should act and should view the purpose of organization, based on some
ethical principle.
Instrumental stakeholder theory: The instrumental stakeholder theory stipulates
how managers should act if they want to flavor and work for their own interests. Own interest
is assumed as the interest of the organization like profit maximization or maximization of
shareholder value. It is used to identify connections between stakeholder management and
the achievement of commonly desired corporate objectives of profitability. This is done in
conjunction with descriptive/empirical data, when it is available.
According to Harrison, Bosse, & Phillips, (2010)14, descriptive theory is one of the
most controversial in the academic world. At the same time, according to Barnard (1968) 15it
is the one that tries to understand how much firm value should be distributed among the
major stakeholders to satisfy them and assure their long term collaboration. Asher, Mahoney,
& Mahoney (2005) 16opines that the normative and instrumental stakeholder theory enrich the
strategic management research
The theory’s descriptive accuracy is supported by its instrumental and predictive
value. This view of justifying the integration of descriptive, instrumental and normative
aspects of stakeholder theory of the firm is also supported by Goodpaster who sees
stakeholder theory expressed in a firm’s operational context (Goodpaster and Holloran
1994)17. Goodpaster identifies the three levels in the stakeholder theory as
 The strategic level, of achieving the company’s economic goals but without
any moral content by “taking into account the non-owner stakeholders’
interests.
 The multiple-trustee approach that attributes a fiduciary responsibility to the
company’s managers on a moral level, towards all of the stakeholders alike.
 The “new synthesis” that distinguishes between certain fiduciary
responsibilities towards owners and other restricted, non-fiduciary
responsibilities towards other stakeholders.

13.op.cit. 2
14 Harrison, J. S., Bosse, D. A., & Phillips, R. A. (2010). Managing for stakeholders, stakeholder utility functions, and competitive
advantage. Strategic management journal, 31(1), 58-74.
15 Barnard, C. I. (1968). The functions of the executive (Vol. 11). Harvard university press.
16 Asher CC., Mahoney JM. & Mahoney JT. (2005). Towards a property rights foundation for a stakeholder theory of the firm. Journal of
Management and Governance, 9(1): 5-32.
17 Goodpaster, K., et al. 1994. In defence of a paradox. Business Ethics Quarterly (4):423-430.
 Goodpaster’s “new synthesis” of fiduciary and non-fiduciary stakeholder
responsibilities of managers gives stakeholder management its fundamental normative base.
It may be very problematic to address these diverse interests with scarcity of resources and
when there are conflicting of interests (Greenley & Foxall (1998)18, Scott & Lane (2000)19.
According to Donaldson & Peterson all the three major aspects of stakeholder theory,
the deterministic/empirical, instrumental and normative/ethical ones are nested within each
other and all stakeholders have an intrinsic value to managers.
Organizations should then try to address those needs of most of their deserving
stakeholders if not all (Boatright (2002)20, Greenley & Foxall (1998)21, Schneiderman &
Rose, (1996)22.
Thus, organizations need to balance their own needs and values with diverse and often
conflicting needs of their different stakeholders (Greenley & Foxall 1998).
Stakeholder theory has been defended using a wide variety of theoretical
perspectives.
 Contract theory: Donaldson & Dunfee (1999)23 takes Social contract theory
as the basis for stakeholder relationships, similar to the logic that explains
the relationship of managers and stockholders in economic theory. Jones
(1995)24 suggests the property right of contracts at the heart of stakeholder
theory
 Kantianism: Evan & Freeman, (1993)25 states that main Six stakeholders
(stockholders, managers, employees, suppliers, customers, and the local
community) has a right not to be treated as a means to end .

18 Greenley, GE & Foxall, GR (Feb 1998), ‘External Moderation of Associations among Stakeholder Orientations and Company
Performance’, International Journal of Research in Marketing, Vol. 15, Issue 1, pp. 51 – 69
19 Scott, SG & Lane, VR (2000), ‘A Stakeholder Approach to Organizational Identity’, Academy of Management Review, Vol. 25, No. 1,
pp. 43 – 62
20 Boatright, JR (Sep 2002), ‘Contractors as Stakeholders: Reconciling Stakeholder Theory with the Nexus-Of-Contracts Firm’, Journal of
Banking & Finance, Vol. 26, Issue 9, pp. 1837 – 1852
21 Greenley, GE & Foxall, GR (Feb 1998), ‘External Moderation of Associations among Stakeholder Orientations and Company
Performance’, International Journal of Research in Marketing, Vol. 15, Issue 1, pp. 51 – 69
22 Schneiderman, B & Rose, A (Feb 19 96), ‘Social Impact Statements: Engaging Public Participation in Information Technology Design’,
Proceedings of the Symposium on Computers and the Quality of Life, pp. 90 – 96
23 Donaldson, T., & Dunfee, T. W. (1994). Toward a unified conception of business ethics: Integrative social contracts theory. Academy of
management review, 19(2), 252-284.
24 Jones, T. M. (1995). Instrumental stakeholder theory: A synthesis of ethics and economics. Academy of management review, 20(2), 404-
437.
25 Evan, W.M., and Freeman, R. E. (1993). Astakeholder theory of the modern corporation: Kantian capitalism. In Beauchamp, T.L. and
Bowie, N.E. (eds.) Ethical Theory and Business. Englewood Cliffs, N.J.: Prentice-Hall, 97-106.
  The doctrine of fair contracts: Freeman, 1994)26 the purpose of the firm is
the liberal idea of fairness that ensures a basic equality among stakeholders
 The principle of fairness: Phillips, (2003)27 invokes John Rawl’s principle
of fairness its six qualifications for the stakeholders.
 The principle of the common good (Argandoña, 1998)28,
 Feminist ethics (Wicks, Gilbert & Freeman, 1994)29, and
 Pragmatism (Wicks & Freeman, 1998)30; Freeman, Harrison, Wicks,
Parmar & deColle, 2010)31
According to Hillman & Keim (2001)32, Stakeholder theory is different corporate
social responsibility (CSR) theory. CSR and stakeholder theorists disagree as to both the
nature and limits of business responsibilities owed to society.
According to CSR scholars companies are expected to have ethical and moral
obligations to society though not required (Carroll 2004). Stakeholder theorists have argued
that though there are normative, ethical elements to stakeholder theory these are separate and
distinct and beyond its managerial, social science applications, (Freeman 1984, 1994, 2002;
Jones and Wicks 1999).
A business entity can try to maximize profits for its shareholders only if
 The supplier supply the required materials in the right quantity for the right
price at the right time
 The employees transform the materials into useful products.
 The customer purchase these products and so on
 If the govt. enacts rules allowing such production and sale
According to Jensen (1989), firms should completely neglect stakeholders for wealth
maximization. He also argues that shareholders should be given the most importance in
managerial decisions because they “are the only constituency of the corporation with a long-
term interest in its survival
26 Freeman, R.E. (1994). The politics of stakeholder theory. Business Ethics Quarterly, 4, 409-21.
27 Phillips, R.A. (2003). Stakeholder theory and organizational ethics. San Francisco, BerrettKoehler Publishers.
28 Argandoña, A. (1998). The stakeholder theory and the common good. Journal of Business Ethics 17 (9): 1093-102
29 Wicks, A.C., Gilbert, D.R. and Freeman, R. E. (1994). A feminist reinterpretation of the stakeholder concept. Business Ethics Quarterly
4(4): 475-497
30 Wicks, A.C. and Freeman, R.E. (1998). Organization studies and the new pragmatism: Positivism, anti-positivism, and the search for
ethics. Organization Science, 9. 123-140.
31 Parmar, B. L., Freeman, R. E., Harrison, J. S., Wicks, A. C., Purnell, L., & De Colle, S. (2010). Stakeholder theory: The state of the
art. The academy of management annals, 4(1), 403-445.
32 Hillman, A. J., & Keim, G. D. (2001). Shareholder value, stakeholder management, and social issues: what's the bottom line?. Strategic
management journal, 22(2), 125-139.
 The nominal shareholders today are large institutions investing as agents of others.
Many of them are generally not investing their own capital, and thus are not “principals” as
agency theory suggests.
According to Ramakrishnan (2017)33 the number of shareholders in the 50’s when
Milton Friedman came with the maxim that the business of business is business, was very
small and hence they could be affected by the fortunes of the company. They also were
shareholders for a limited number of companies only. Now the scenario has changed
especially in India
On the one hand we have companies like Reliance in India whose AGM are
conducted in a cricket stadium as the number of shareholders is very large. And the
percentage of shareholding by each individual shareholder has reduced. On the other hand,
with the improvements in information technology, it may be noted that the volume of
transactions of shares transferred have become quite large. The average time of keeping a
share has now reduced to few minutes or days or weeks rather than months and years. That
means the shareholders are loyal to the company to that much of time only. Further many of
the shareholders will be having shares of the competitors as well, as their main objective in
investing on shares is to maximize their return from the investment.
On the other hand most of the employees work for the organization for few years.
Similarly most of the suppliers are with the organization at least for few months/ years. Same
is the case with customers; the organization is likely to operate from the same locality for
many years thereby affecting the community.
Murphy et al. (2005) 34 state that it is commonsense to consider the five stakeholder
groups as being indispensable in the functioning of a sustainable business. The business is
financed by Shareholders, is allowed to exist by the Community, has Suppliers providing
materials and services for Employees to create goods and services, which Customers
purchase in preference to competitors’ goods and services.
Corporations don't operate in a universe composed solely of shareholders. Hence
these groups of people or stakeholders are equally important for the organization for its very
survival and growth. If business needs the cooperation and collaboration of these groups who
have some stake in the organization, organization need to manage them properly.

33 Ramachandran, Ramakrishnan, Do Shareholders Come First? (January 5, 2017). Available at

SSRN: https://ssrn.com/abstract=3025922 or http://dx.doi.org/10.2139/ssrn.3025922
34 Murphy, B; Maguiness. ,P ;Pescott, C. ;Wislang, S .;Ma, J. and Wang, R.(2005). “Stakeholders perceptions presage holistic stakeholder
relationship marketing performance”, European Journal of Marketing, Vol.39 No. 9/10 ,pp 1049-1059
 Taking these factors, how can one say that the only objective of business is profit
maximization for those “floating” shareholders without taking into consideration of the
efforts of other stakeholders without whose support the organization would not have survived
at all?
There is a false belief that environment has no owner. Profit maximization cannot
be at the cost of the owners of the environment in which the business operates. Hence
protection of environment has precedence above the profit maximization.
Again profits cannot be earned by the exploitation of employees. If such profits are available
only by employee exploitation like child labor etc, such projects needs to be dumped
Corporations must, in their pursuit of profit, should not harm various stakeholders.
Instead they should go proactively to improve the working and living standards of their
employees and contribute to the communities in which they operate and preserve and protect
the environment. The Indian Joint family system can be seen as good example for this
concept
According to Mintzberg (1994)35 organizational decision-making happens through
formal and informal bargaining among the various stakeholders. Over time, the objectives of
the organization evolve and change as coalition membership is altered, as the interaction
among members change, and as the goals are fulfilled or not fulfilled
Graves and Waddock (2000)36 in their article have highlighted the importance of
stakeholder relations in ‘built to last’ companies. The values-driven visionary companies
sustain positive relationships with those stakeholders who matter most to the successful
realization of the vision. They create high morale and productive employees by providing
them a good working environment. The trust of the customers is won by providing products
or services that meet or exceed their expectations. Working with the communities the
problems are resolved mutually and amicably at the starting stage itself.
Scholars have noted that operating with integrity with respect to important
stakeholders appears to be vital for organizations not only to successful financial performance
as well as to its reputation to its overall quality of management.

35 Mintzberg, H. 1994. The rise and fall of strategic planning. First ed. New York Moore, G. T., et al., eds. 1976. Environmental Knowing.
Edited by P. A. Stroudsberg.
36 Graves, Samuel, B. and Sandra, A. Waddock (2000), ‘Beyond Build to Last… Stakeholder Relations in “Built to Last” Companies’,
Business & Society Review, 105 (4), 393–418.
 Berger and Luckmann (1966)37 and Tsoukas (1994)38 see Organizations as a socially
constructed, emergent, process. An increasing concern with corporate accountability is
expected of socially responsible organizations (Shrivastava (1995)39, Kernisky (1997)40;
Schultz (1996) 41.
Based on the existing literature, Berman et al (1999)42 derived two distinct
stakeholder management models. (1) Strategic stakeholder management model - firms are
interested in stakeholders either due to the perceived benefit they can have in terms of
improved financial performance (2) The intrinsic stakeholder commitment model- Here the
firms are interest on the stakeholder is based not for maximizing profits but based on
normative, moral commitments.
The first element whereby stakeholders can affect the firm is related to the first model
of Berman et al (1999) and the second element where stakeholders are affected by the firm’s
activities is related to the second model. Empirical testing by Berman et al (1999) of both
models supported only the first, i.e. firms are motivated towards adopting stakeholder
management practices because of their positive impact on the ultimate bottom line profit
figure
Relationships with stakeholders are considered extremely important. Demonstrated
instances of this include the Honda Motor worldwide driver/rider education and traffic safety
programmes. Another ideal is the promotion of ’eco-technology’ through the establishment of
the Honda Foundation. The concept of ’eco-technology’ advocates that the aim of technology
should not merely be to increase profit and efficiency and that technological progress should
be in harmony with humanity and nature.
Reink Goodijk (2003)43 has made a few observations. He states that sensible, intelligent
management recognizes the importance of investing in relationship management and
stakeholder involvement. Relationship management and stakeholder involvement presume an

37 Berger, Peter L. and Thomas Luckmann 1966 The social construction of reality: A treatise in the sociology of knowledge. London:
Penguin Books
38 Tsoukas, Haridimos 1994 New thinking in organizational behaviour. Oxford: Butterworth-Heinemann
39 Shrivastava, Paul 995 ‘The role of corporations in achieving ecological sustainability.’ Academy of Management Review, 20/4: 936-960.
40 Kernisky, Debra A. 1997 ‘Proactive crisis management and ethical discourse: Dow Chemical’s issues management bulletins 1979-1990.’
Journal of Business Ethics, 16/8:843-853.
41 Schultz, Pamela D. 1996 ‘The morally accountable corporation: A postmodern approach to organizational responsibility.’ Journal of
Business Communication, 33/2: 165-178.
42 Berman, S.L., Wicks, A.C., Kotha, S. and Jones, T.M. (1999) ‘Does stakeholder orientation matter? the relationship between stakeholder
management models and firm financial performance’, Academy of Management Journal, 42(5): 488-506.
43 Goodijk, Rienk (2003), ‘Partnership at Corporate Level: The Meaning of the Stakeholder Model’, Journal of Change Management, 3(3),
225–42.
open eye for and views on all kinds of signals, developments and problems, trying to balance
all different interests and answer the questions
There are two ways in which companies see to CSR—one that avows an ethical business
practice of the corporation, and the other that is purely driven by inspired philanthropy of
organizations. Most companies used to view business ethics till a decade ago mainly not to be
in the wrong side of the law in terms of compliance. But today the situation is different.
Most companies now realize they can succeed only when they earn the respect and
confidence of their customers. Like never before, corporations are being asked, encouraged
and prodded to improve their business practices to emphasize legal and ethical behaviour as
they are held increasingly accountable for their actions.
While corporate philanthropy is generally defined as an engagement with the community
at any level and usually means giving back to the community in some sense (whether it is
through funding, volunteering, or any kind of donation or personal involvement), CSR is
involved in more internally focused activities in terms of human resources policy, ethical
business practices, environmental regulatory compliance and so on.
The firm’s performance is frequently described as a joint function of product and market.
While product remains largely fundamental, market is influenced by a wide spectrum of
business strategies and, hence, is less predictable. Changes in business have stressed upon the
application of a wide range of approaches. These are characterized by harnessing the product
with increased levels of satisfaction among consumers. Contemporary roles of corporates in
building civil society has increasingly become a global paradigm due to the emergence of
new business models and evolving norms of corporate governance.
Increasing competition in business has crafted a few new indicators to calculate success.
One such new indicator is the ‘World’s Most Respected Companies’ (Jackson 1998)44, which
emerged out of the World Economic Forum in 2003. This factor is reminiscent of the
thinking that ‘respect’ is earned through competitive strategies and, thus, is a benchmark for
competitors. It suggests that respect guarantees perceptible benefits like elevated profit,
prominent profile through increased loyalty of stakeholders, and creation of a matchless
competitive advantage.
The competence of reaching out to the community helps businesses appreciate the fact
that there is profit in their stakeholder initiatives. The advantages are twice compounded—
when a community views a business as actively reaching out to its members, participating in

44 Jackson, Tony (1998), ‘World’s Most Respected Companies’ Financial Times and Pricewaterhousecoopers, 30 November.
reconstructing the community, addressing the issues and problems, minimizing
environmental impact and perpetuating moral integrity, then the community’s confidence in
the brand as well as loyalty to it starts growing.
Consequently, shareholders and consumers are more contented, which helps in acquiring
a competitive advantage for the company. Today companies have turned CSR and the good
corporate governance framework into a profitable corporate strategy. It is a win–win
solution—what is good for the community must be good for the company’s bottom line as
well. The potential of corporate social responsibility lies in the ‘triple bottom line’ benefits:
profit for the economic bottom line, social bottom line and environmental bottom line.
In the past several years globalization has laid down the foundation of a competitive and
open economy, creating great opportunity for businesses to become omnipotent; conversely,
it poses a great threat to the sustainability of such businesses, particularly in a situation
characterized by intensifying fury and remonstration against companies around the world. As
companies move into markets of developing countries, they are often faced with social and
environmental challenges that must be tackled effectively and strategically if the investment
is to succeed.
Awareness about the importance and impact of corporate decisions upon society and
environment is very high with stakeholders today. The stakeholders can reward or punish
corporations. This motivates the corporations to involve and partner the stakeholders in their
decision making. Thus stakeholder approach can help corporations to change their corporate
behavior for good. This includes:
 Stronger financial performance and profitability (e.g. through eco-efficiency),
 Improved accountability to and assessments from the investment community,
 Enhanced employee commitment,
 Decreased vulnerability through stronger relationships with communities, and
 Improved reputation and branding.
The purpose of the corporation is to create wealth, but its legitimacy -- its social
charter or license to operate -- depends on its ability to meet the expectations of a large group
of constituents. The connection between wealth and responsibility has been acknowledged for
more than a century and, if the corporation is to survive it must adapt to social change. . Thus
Stakeholder management defined as managing relationships with stakeholders for mutual
benefit is critical to corporate success.
***********************
 REFERENCE
Ansoff, I. (1965) Corporate Strategy, New York: McGraw-Hill.

Aoki, M. (1984). The co-operative game theory of the firm. Oxford university press.

Argandoña, A. (1998). The stakeholder theory and the common good. Journal of Business Ethics 17
(9): 1093-102

Asher CC., Mahoney JM. & Mahoney JT. (2005). Towards a property rights foundation for a
stakeholder theory of the firm. Journal of Management and Governance, 9(1): 5-32.

Barnard, C. I. (1968). The functions of the executive (Vol. 11). Harvard university press.

Berger, Peter L. and Thomas Luckmann 1966 The social construction of reality: A treatise in the
sociology of knowledge. London: Penguin Books

Berman, S.L., Wicks, A.C., Kotha, S. and Jones, T.M. (1999) ‘Does stakeholder orientation matter?
the relationship between stakeholder management models and firm financial performance’, Academy
of Management Journal, 42(5): 488-506.

Boatright, JR (Sep 2002), ‘Contractors as Stakeholders: Reconciling Stakeholder Theory with the
Nexus-Of-Contracts Firm’, Journal of Banking & Finance, Vol. 26, Issue 9, pp. 1837 – 1852

Dodd Jr, E. M. (1931). For whom are corporate managers trustees. Harv. L. Rev., 45, 1145.

Donaldson, T & Preston, LE (Jan 1995), ‘The Stakeholder Theory of the Corporation: Concepts,
Evidence and Implications’, Academy of Management Review, Vol. 20, Issue 1, pp. 65 – 91

Donaldson, T., & Dunfee, T. W. (1994). Toward a unified conception of business ethics: Integrative
social contracts theory. Academy of management review, 19(2), 252-284.

Evan, W.M., and Freeman, R. E. (1993). Astakeholder theory of the modern corporation: Kantian
capitalism. In Beauchamp, T.L. and Bowie, N.E. (eds.) Ethical Theory and Business. Englewood
Cliffs, N.J.: Prentice-Hall, 97-106.

Follet, M. P. (1973). Dynamic of Administration: The collected papers of Mary Parker Follet. Elliot
M. Fox, y L. Urwick.

Freeman, R. E. (1984). Strategic management: A stakeholder approach. Boston: Pitman.

Freeman, R.E. (1994). The politics of stakeholder theory. Business Ethics Quarterly, 4, 409-21.

Friedman, A. L., & Miles, S. (2006). Stakeholders: Theory and practice. Oxford University Press on
Demand

Frooman, J (Apr 1999), ‘Stakeholder Influence Strategies’, Academy of Management Review, Vol.
24, Issue 2, pp. 191 – 205

Goodijk, Rienk (2003), ‘Partnership at Corporate Level: The Meaning of the Stakeholder Model’,
Journal of Change Management, 3(3), 225–42.

Goodpaster, K., et al. 1994. In defence of a paradox. Business Ethics Quarterly (4):423-430.
Graves, Samuel, B. and Sandra, A. Waddock (2000), ‘Beyond Build to Last… Stakeholder Relations
in “Built to Last” Companies’, Business & Society Review, 105 (4), 393–418.

Greenley, GE & Foxall, GR (Feb 1998), ‘External Moderation of Associations among Stakeholder
Orientations and Company Performance’, International Journal of Research in Marketing, Vol. 15,
Issue 1, pp. 51 – 69

Greenley, GE & Foxall, GR (Feb 1998), ‘External Moderation of Associations among Stakeholder
Orientations and Company Performance’, International Journal of Research in Marketing, Vol. 15,
Issue 1, pp. 51 – 69

Harrison, J. S., Bosse, D. A., & Phillips, R. A. (2010). Managing for stakeholders, stakeholder utility
functions, and competitive advantage. Strategic management journal, 31(1), 58-74.

Hillman, A. J., & Keim, G. D. (2001). Shareholder value, stakeholder management, and social issues:
what's the bottom line? Strategic management journal, 22(2), 125-139.

Jackson, Tony (1998), ‘World’s Most Respected Companies’ Financial Times and
Pricewaterhousecoopers, 30 November.

Jones, T. M. (1995). Instrumental stakeholder theory: A synthesis of ethics and economics. Academy
of management review, 20(2), 404-437.

Kernisky, Debra A. 1997 ‘Proactive crisis management and ethical discourse: Dow Chemical’s issues
management bulletins 1979-1990.’ Journal of Business Ethics, 16/8:843-853.

Mintzberg, H. 1994. The rise and fall of strategic planning. First ed. New York Moore, G. T., et al.,
eds. 1976. Environmental Knowing. Edited by P. A. Stroudsberg.

Murphy, B; Maguiness. , P; Pescott, C.; Wislang, S.; Ma, J. and Wang, R. (2005). “Stakeholders
perceptions presage holistic stakeholder relationship marketing performance”, European Journal of
Marketing, Vol.39 No. 9/10, pp 1049-1059

Parmar, B. L., Freeman, R. E., Harrison, J. S., Wicks, A. C., Purnell, L., & De Colle, S. (2010).
Stakeholder theory: The state of the art. The academy of management annals, 4(1), 403-445.

Phillips, R.A. (2003). Stakeholder theory and organizational ethics. San Francisco, BerrettKoehler
Publishers.

Preston, L. E., & Sapienza, H. J. (1990). Stakeholder management and corporate performance. Journal
of behavioral Economics, 19(4), 361-375.

Ramachandran, R. (2008). Significant Changes in the Business in the Last 30 Year due to Corporate
Social Responsibility. DSA Corporate Social Responsibility Study Group at the Magdalene College,
Cambridge University y UK.

Ramakrishnan (2009) Stakeholder management- A critical study on the challenges and opportunities=
Doctoral Thesis Alagappa University India available at http://hdl.handle.net/10603/54311

Ramakrishnan, Dr. (2008). Towards Better Stakeholder Management. Corporate Social

Responsibility: Development with Equity.

Ramakrishnan, Dr. "Stakeholder Management–A Critical Study on the Opportunities and Challenges
from India." In 23rd AIMS Annual Management Education Convention, pp. 26-27. 2011.
 Ramachandran, Ramakrishnan, Do Shareholders Come First? (January 5, 2017). Available at SSRN:
https://ssrn.com/abstract=3025922 or http://dx.doi.org/10.2139/ssrn.3025922

Roberts, R. W., & Mahoney, L. (2004). Stakeholder conceptions of the corporation: Their meaning
and influence in accounting research. Business Ethics Quarterly, 14(3), 399-431.

Schilling, M. A. (2000). Decades ahead of her time: advancing stakeholder theory through the ideas of
Mary Parker Follett. Journal of Management History, 6(5), 224-242.

Schneiderman, B & Rose, A (Feb 19 96), ‘Social Impact Statements: Engaging Public Participation in
Information Technology Design’, Proceedings of the Symposium on Computers and the Quality of
Life, pp. 90 – 96

Schultz, Pamela D. 1996 ‘The morally accountable corporation: A postmodern approach to

organizational responsibility.’ Journal of Business Communication, 33/2: 165-178.

Scott, SG & Lane, VR (2000), ‘A Stakeholder Approach to Organizational Identity’, Academy of

Management Review, Vol. 25, No. 1, pp. 43 – 62

Shrivastava, Paul 995 ‘The role of corporations in achieving ecological sustainability.’ Academy of
Management Review, 20/4: 936-960.

Tsoukas, Haridimos 1994 New thinking in organizational behaviour. Oxford: Butterworth-Heinemann

Wicks, A.C. and Freeman, R.E. (1998). Organization studies and the new pragmatism: Positivism,
anti-positivism, and the search for ethics. Organization Science, 9. 123-140.

Wicks, A.C., Gilbert, D.R. and Freeman, R. E. (1994). A feminist reinterpretation of the stakeholder
concept. Business Ethics Quarterly 4(4): 475-497

Wolfe, RA & Putler, DS (Jan-Feb 2002), ‘How Tight are the Ties That Bind Stakeholder Groups?’
Organization Science, Vol. 13, No. 1, pp. 64 – 80

*****************

View publication stats