The Stakeholder Approach to Business, Society, and Ethics

3.1 Origins of the Stakeholder Concept

The stakeholder concept has become central in understanding business and society rela
tionships. The term stakeholder is a variant of the more familiar and traditional concepts
of stockholders or shareholders—the investors in or owners of businesses. Just as an indi
vidual might own his or her own private house, automobile, or iPhone, a stockholder
owns a portion or a share of one or more businesses. Thus, a shareholder is also a type
of stakeholder. However, shareholders are just one of many legitimate stakeholders that
business and organizations must deal with today to be successful.
To appreciate the concept of stakeholders, it helps to understand the idea of a stake.
A stake is an interest in or a share in an undertaking. If a group plans to go out to
dinner and a movie for the evening, each person in the group has a stake, or interest,
in the group’s decision. No money has been spent yet, but each member sees his or her
interests (preference, taste, priority) in the decision. A stake may also be a claim. A claim
is a demand for something due or believed to be due. We can see clearly that an owner
or a shareholder has an interest in and an ownership of a share of a business.
The idea of a stake can range from simply an interest in an undertaking at one
extreme to a legal claim of ownership at the other. Between these extremes might be a
“need” for something or a “right.” It might be a legal right to certain treatment rather
than a legal claim of ownership, such as that of a shareholder. Legal rights might include
the right to fair treatment (e.g., not to be discriminated against) or the right to privacy
(not to have one’s privacy invaded or abridged). A right also might be thought of as a
moral right, such as that expressed by an employee: “I’ve got a right not to be fired
because I’ve worked here 30 years, and I’ve given this firm the best years of my life.”
Or a consumer might say, “I’ve got a right to a safe product after all I’ve paid for this.”
In short, stakeholders have a stake in the “value” they expect to receive from firms
with which they interact. Harrington and Wicks have contended that stakeholders, in
general, desire utility associated with (1) the actual goods and services companies pro
vide, (2) organizational justice (fair treatment), (3) affiliating with companies that exhibit
practices consistent with the things they value, and (4) getting a good deal from the com
pany based on the opportunity costs they spend compared with value received from
other companies.7 When stakeholders perceive they have shared utility in a relationship,
they will be more cooperative and more inclined to govern themselves, rather than rely
on the government or other institutional bodies.8 Stakeholders, thus, have a significant
stake in the value provided them by firms.

3.1a What Is the Stake in Stakeholder?

It follows, then, that a stakeholder is an individual or a group that has one or more of
the various kinds of stakes in the organization. Just as stakeholders may be affected by
the actions, decisions, policies, or practices of the business firm, these stakeholders may
also affect the organization’s actions, decisions, policies, or practices. With stakeholders,
therefore, there is an actual two-way interaction or exchange of influence. In short, a
stakeholder may be thought of as “any individual or group who can affect or is affected
by the actions, decisions, policies, practices, or goals of the organization.”

3.1b What Is a Stakeholder?

In today’s hypercompetitive, global business environment, any individuals and groups
may be business’s stakeholders. From the business point of view, certain individuals
and groups have more legitimacy in the eyes of the management; that is, they have a
legitimate (authentic, justified), direct interest in, or claim on, the operations of the
firm. The most obvious of these groups are shareholders, employees, and customers.
However, from the point of view of a highly pluralistic society, stakeholders include
not only these groups, but other groups as well. These other groups include the com
munity, competitors, suppliers, special-interest groups, the media, and society, or the
public at large. Regulators, activists, and geographic communities also have been iden
tified as stakeholders.10 Marc Benioff, CEO of Salesforce.com, recently said “My custo
mers are my stakeholders. My partners are my stakeholders. My employees are my
stakeholders. I have other stakeholders, too. I even consider the communities that we
live in are stakeholders. The environment is a stakeholder. We cannot do our business
without that.” 11 And, the list of relevant stakeholders obviously extends beyond these
major groups.
Since sustainability is one of the key themes in this book, special attention is called to
the natural environment as stakeholder. The natural environment, along with the eco
nomic and social environments, was identified in Chapter 2 as central to the triple bot
tom line concept. When the concept of sustainability first became popular, however, it
was the natural environment that was primarily discussed. In keeping with sustainability,
it has been reasoned that the natural environment, nonhuman species, and future gen
erations should be considered among business’s important stakeholders.12 However, one
reason these groups have been neglected is that there has never been a direct spokesper
son for them. Who is to speak for the mountain ranges, the biosphere, the oceans, and
the flora and fauna? The answer is interest groups such as Greenpeace, Friends of the
Earth, and other environmental groups.13 But, these nonprofit organizations and non
governmental organizations (NGOs) are indirect stakeholders and consequently there
has been a failure to fully incorporate their concerns by some organizations. This is
why explicit consideration for the natural environment needs to be emphasized in this
stakeholder chapter.

3.2 Who Are Business’s Stakeholders?

In today’s hypercompetitive, global business environment, any individuals and groups
may be business’s stakeholders. From the business point of view, certain individuals
and groups have more legitimacy in the eyes of the management; that is, they have a
legitimate (authentic, justified), direct interest in, or claim on, the operations of the
firm. The most obvious of these groups are shareholders, employees, and customers.
However, from the point of view of a highly pluralistic society, stakeholders include
not only these groups, but other groups as well. These other groups include the com
munity, competitors, suppliers, special-interest groups, the media, and society, or the
public at large. Regulators, activists, and geographic communities also have been iden
tified as stakeholders.10 Marc Benioff, CEO of Salesforce.com, recently said “My custo
mers are my stakeholders. My partners are my stakeholders. My employees are my
stakeholders. I have other stakeholders, too. I even consider the communities that we
live in are stakeholders. The environment is a stakeholder. We cannot do our business
without that.” 11 And, the list of relevant stakeholders obviously extends beyond these
major groups.
Since sustainability is one of the key themes in this book, special attention is called to
the natural environment as stakeholder. The natural environment, along with the eco
nomic and social environments, was identified in Chapter 2 as central to the triple bot
tom line concept. When the concept of sustainability first became popular, however, it
was the natural environment that was primarily discussed. In keeping with sustainability,
it has been reasoned that the natural environment, nonhuman species, and future gen
erations should be considered among business’s important stakeholders.12 However, one
reason these groups have been neglected is that there has never been a direct spokesper
son for them. Who is to speak for the mountain ranges, the biosphere, the oceans, and
the flora and fauna? The answer is interest groups such as Greenpeace, Friends of the
Earth, and other environmental groups.13 But, these nonprofit organizations and non
governmental organizations (NGOs) are indirect stakeholders and consequently there
has been a failure to fully incorporate their concerns by some organizations. This is
why explicit consideration for the natural environment needs to be emphasized in this
stakeholder chapter.

3.2a Three Views of the Firm: Production, Managerial, and Stakeholder

From an historical perspective, the advancement of the stakeholder concept parallels the
growth and expansion of the business enterprise. In what has been termed the traditional
production view of the firm, owners thought of stakeholders as only those individuals
or groups that supplied resources or bought products or services.14 Later, as we wit
nessed the growth of corporations and the resulting separation of ownership from con
trol, business firms began to see their responsibilities toward other major constituent
groups to be essential if they were to be successful. In addition to suppliers of goods
and users of goods, the owners and employees were acknowledged as stakeholders.
Thus, the managerial view of the firm emerged. Finally, as major internal and external
changes occurred in business and its environment, managers were required to undergo a
radical conceptual shift in how they perceived the firm and its multilateral relationships
with constituent or stakeholder groups. The result was the stakeholder view of the
firm. 15 Figure 3-2 depicts the evolution from the production view to the managerial
view of the firm, and Figure 3-3 illustrates the stakeholder view of the firm. The stake
holder view encompasses numerous different individuals and groups that are embedded
in the firm’s internal and external environments. The diagram in Figure 3-3 is called a
stakeholder map because it charts out a firm’s stakeholders.
In the stakeholder view of the firm, the management must perceive as stakeholders
not only those groups that the management thinks have some stake in the firm but also
those individuals and groups that themselves think or perceive they have a stake in the
firm. This is an essential perspective that the management must take, at least until it
has had a chance to weigh carefully the legitimacy of the claims and the power of vari
ous stakeholders. Of particular note is that each stakeholder group may be thought of
as being composed of subgroups; for example, the government stakeholder group
includes federal, state, and local government subgroups as stakeholders. Similarly,
employees may be classified into subgroups such as women, minorities, older workers,
and union members.

3.2b Primary and Secondary Stakeholders

A useful way to categorize stakeholders is to think of them as primary and secondary as
well as social and nonsocial; thus, stakeholders may be thought of as follows:
Primary social stakeholders include: Secondary social stakeholders include:
•Shareholders and investors •Government and regulators
•Employees and managers Civic institutions
• Customers •Social pressure/activist groups
• Local communities •Media and academic commentators
• Suppliers and other business •Trade bodies
partners •Competitors

Primary social stakeholders have a direct stake in the organization and its success
and, therefore, are most influential. Secondary social stakeholders may be extremely
influential as well, especially in affecting reputation and public standing, but their stake
in the organization is more indirect or derived. Therefore, a firm’s responsibility toward
secondary stakeholders may be less but is not avoidable. These groups quite often repre
sent legitimate public concerns or wield significant power, and this makes it impossible
for them to be ignored.17
Primary nonsocial stakeholders also exist and these might include the natural environment, future
generations, and nonhuman species. Secondary nonsocial stakeholders
might include those who represent or speak for the primary nonsocial stakeholders. They
might include environmental interest groups or animal welfare organizations. The secondary social
and nonsocial stakeholders have also been termed nonmarket players
(NMPs) by strategy experts, and they may include activists, environmentalists, and
NGOs. Often they are hostile to the firm because they hold competing ideologies such
as conflicting beliefs and attitudes regarding social, ecological, ethical, or political issues.
This often puts them on a collision course with company managements.

Primary nonsocial stakeholders Secondary nonsocial stakeholders

include: include:
• Natural environment • Environmental interest groups (e.g., Friends of
• Future generations the Earth, Greenpeace, Rainforest Alliance)
• Nonhuman species • Animal welfare organizations (e.g., People for
the Ethical Treatment of Animals—PETA, Mercy
for Animals, American Society for the
Prevention of Cruelty to Animals—ASPCA.

The terms primary and secondary may be defined differently depending on the situation. Secondary
stakeholders can quickly become primary, for example. This often occurs
through the media or special-interest groups when a claim’s urgency (as in a boycott or
demonstration) takes precedence over its legitimacy. In today’s business environment,
the media and social media have the power to instantaneously transform a stakeholder’s
status within minutes or hours. Thus, it may be useful to think of primary and secondary
classes of stakeholders for discussion purposes, but we should understand how easily and
quickly those categories can shift.

3.2c Important Stakeholder Attributes: Legitimacy, Power, Urgency

How do managers decide which stakeholders deserve their attention? Stakeholders have
attributes such as legitimacy, power, and urgency. A typology of stakeholders has been
developed based on these three attributes.19 When these three attributes are superim
posed, as depicted in Figure 3-4, seven stakeholder categories may be created.
The three attributes of legitimacy, power, and urgency help us see how stakeholders
may be thought of and analyzed in terms of their characteristics. The stakeholders are
more or less salient depending on these factors. Legitimacy refers to the perceived valid
ity or appropriateness of a stakeholder’s claim to a stake. Therefore, owners, employees,
and customers represent a high degree of legitimacy due to their explicit, formal, and
direct relationships with a company. Stakeholders that are more distant from the firm,
such as social activist groups, NGOs, competitors, or the media, might be thought to
have less legitimacy.
Power refers to the ability or capacity of the stakeholder(s) to produce an effect—to
get something done that otherwise may not be done. Therefore, whether one has legiti
macy or not, power means that the stakeholder could affect the business. For example,
with the help of the media, a large, vocal, activist group such as the People for the Ethi
cal Treatment of Animals (PETA) could wield extraordinary power over a business firm.
In recent years, PETA has been successful in influencing the practices and policies of
virtually all the fast-food restaurants regarding their suppliers’ treatment of chickens and
cattle.
Though not referring to it as power, several researchers have highlighted the impor
tance of stakeholder “pressure” in implementing CSR in companies. They have defined
stakeholder pressure as “the ability and capacity of stakeholders to affect an organization
by influencing its organizational decisions.” 20 This sounds very much like the concept of
power, but they assert that the pressure they are referring to occurs regardless of the

3.3 Stakeholder Approaches: Strategic, Multifiduciary, and Synthesis

3.4 Three Values of the Stakeholder Model
3.4a Descriptive Value
3.4b Instrumental Value
3.4c Normative Value
3.5 Stakeholder Management: Five Key Questions
3.5a Who Are the Organization’s Stakeholders?
3.5b What Are Our Stakeholders’ Stakes?
3.5c What Opportunities and Challenges Do Our Stakeholders Present?
3.5d What Responsibilities Does a Firm Have toward Its Stakeholders?
3.5e What Strategies or Actions Should Management Take?
3.6 Effective Stakeholder Management
3.6a Stakeholder Thinking
3.6b Developing a Stakeholder Culture
3.6c Stakeholder Management Capability
3.6d Stakeholder Engagement
3.6e The Stakeholder Corporation
3.6f Principles of Stakeholder Management
3.7 Strategic Steps toward Global Stakeholder Management
3.7a Implementation