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Strategic management: a stakeholder approach / R. Edward Freeman Freeman, R. Edward, 1 online resource (xii, pages): digital, PDF file(s). oped in “Strategic Management: A Stakeholder Approach” published by Pitman Publishing . Approach was to publish it as a textbook in strategic management. Darden Graduate School of Business Administration University of Virginia Working Paper No. A Stakeholder Approach to Strategic Management R.
The dilemma is the well-known tradeoff between short-term results and longterm health. The relationship with owners has changed in a second way, perhaps even more fundamental. While the direct results are difficult to measure, suffice it to say that the CEO must worry about more than returns and takeovers in managing the owner relationship.
That dominance has ended. Customers have many more choices today, and their view of U. Our flair for technological innovation has been dampened, as U. The enphasis on trivial differences of product differentiation and packaging has made true innovations such as the laser and transistor almost unable t o be managed in our corporations, and have given way to concerns of image and short-term returns from different customer perceptions.
Combined with a penchant for making backward integration the major investment program, and a reluctance to invest in new manufacturing processes, Hayes and Abernathy claim that it is no wonder that U. While this phenomenon is a complicated one, and not easily understood or reducible to single causes, it should force scholars and managers alike t o rethink the "manager-employee" relationship.
Many have argued that authoritarian management styles must be replaced with a more "human" approach, o r that the concept of "participation" must be explored in practice. In particular, Peters and Waterman have argued that managing the "culture" or "shared values" of employees is more important than understanding strategy and structure.
Their study of companies with "excellent performance" is remarkable in the finding of a managerial style that emphasizes the importance of employees to the company The changing nature of the employee relationship must be understood for each business, and we must act, for low productivity is a warning signal of decline that cannot be ignored.
However, the issue is not so simple as understanding the needs o f employees qua employees. Employees are oftentimes customers, stockholders, and members of special interest groups.
The internal change in this relationship, therefore, must be analyzed in conjunction with the external changes surrounding the organization.
I7 a OPEC is one of many symbols of the changing nature of the businesssupplier relationship. The transnational corporation has evolved t o deal with the world-wide markets in raw materials. Political issues and the politics of control are as important in managing supplier relationships as are price-quality relationships.
Even though OPEC has lost some of its effectiveness recently, as markets have adjusted to higher prices by a decrease in the rate of growth, and as alternative energy sources have become more cost-effective, from a managerial standpoint the locus of control has shifted from the oil companies t o the OPEC nations.
Where are the OPECs of , today? After all, OPEC was formed in and for 13 years gradually usurped power and control from the major oil companies until the "crisis" of These strategic surprises are not confined to the exciting world of international politics and finance.
In the fast growing "silicon chip" industry managers must also cope with "managing with scarcity. How can service levels be maintained with scarce resources? Thus, changes have occurred within the comfortable framework of the firm.
Owners, customers, employees and suppliers are not what they once were, and the implications for management theory and practice are for change to accommodate these shifts.
However, the more difficult assignment is understanding external change-change that affects the very nature of Exhibit 1.
When external change is added to internal change, a redrawing of Exhibit 1. But first, let us examine these external changes more closely. External change is the emergence of new groups, events and issues which cannot be readily understood within the framework of an existing 12 "Managing in Turbulent Times" 13 model or theory. It represents the need for new file folders in our conceptual system, and eventually for a whole new filing system.
It is that dark and dangerous area known as "the environment," which serves as a convenient label for our ignorance, and which is as likely to serve up an OPEC as a Republican President. It is that abstruse area of the corporate plan that forecasts regulatory changes, increases in inflation and interest rates and changes in demographics.
External change produces uncertainty. Exhibit I. It is important to note that the distinction between internal and external change is relative to a particular framework or theory. Using the Production View of Exhibit 1. When enough external changes have occurred so that our current theory no longer gives us valid answers then we must abandon the theory and turn to a new set of concepts which explains both external and internal change.
In short, what we need is a theory or set of concepts which can turn external change into internal change, thereby reducing uncertainty and discomfort. Such an "intellectual" or "conceptual" move serves as a legitimizing force so that such changes can be positively managed. It also allows our scanning' systems to look for broader newer kinds of external change. External change is depicted as a set of arrows from the environment that affect our comfortable relationships with suppliers, owners, customers and employees.
External change can be understood in terms of the emergence of several new groups and the restructuring of old relationships of lesser importance, who have come to have a stake in the actions or inactions of the corporation. Many of these changes have been around for some time, yet we have been quite slow to incorporate them into our framework for managing the firm. So, events and pressure groups with which we should be familiar become crises because we have not incorporated the idea of their existence into our day-to-day routine.
Governments The recent past has seen an increase in the awareness of the role of government in the business enterprise. So much so, that public officials have been elected on the promise of curtailing this role, and seeking a return to "free enterprise. In addition the Congress and the Courts have always played a major role, at least indirectly, in shaping the strategies and policies of the modern corporation.
Epstein , Lindbloom , McQuaid and many others have debunked the myth of the separation of the business and political arenas. Z0 While business has always had to contend with government in some form or other, current perceptions of its pervasive influence require a closer examination.
Business-Government Relationship; A Simplified Picture or even public relations people whose role was to insure compliance with regulations, or respond to legal challenges, or represent the firm before Congress and state legislatures. However, the explosion in the scope of government in the post World War I1 economy of the U. No longer do most firms rely solely on the abilities of several trade organizations and lobbying groups such as the U.
Chamber of Commerce and the National Association of Manufacturers to manage their relationship with multiple actors in the government. Critics of "laissez faire capitalism" have claimed that business attacks on the ills of government are misfounded, and that if we look closely we will see that regulatory agencies often benefit and protect the industries that are regulated. Furthermore, some critics argue that government intervention in the marketplace has real social benefits that would not have occurred without government action.
Thus, cleaner air and water, safer automobiles and a general increase in the standard of living are attributed in part to government action. The issues here are far from settled and political scientists and policy makers continue to debate cause and effect. I believe that from the managerial standpoint these repartees miss the major issue: how to manage in a world where there are multiple influences from various levels of government, or more properly from governments, and where the corporation and its managers can in turn affect the direction of public policy and government action?
A necessary condition for answering this question is that we understand the interactions that are possible among business and various government actors. Government is not a monolithic entity, and it does not exist in a vacuum. Agencies, Congressional Committees, Presidential Commissions, Staff Members are all susceptible to multiple influences. Each must be responsive to those groups and individuals who can affect it. Exhibit 1. Yet the U. So, many contradictory regulations are written, and it seems as if the bureaucracy has a life of its own.
These organizations are not entirely U. Foreign governments are structures in themselves which we must understand if we are to be successful in other countries. The most often heard complaint is that other governments don't "play fair," meaning that there are different sets of rules for home companies and for foreign companies.
In addition, national policy changes, such as tax and depreciation schedules, capital formation incentives, and the creation of new forms of regulation affect the business community as a whole, even if the marginal effect on a single firm is slight. Hence, today's CEO must spend a good deal of time and resources worrying about proposed public policy legislation from Congress.
State governments offer a different set of issues for management, and these issues vary from region to region. Companies who operate on a national scale often find themselves with numerous sets of regulations. Most national breweries, for example, ship to multiple states from large regional breweries, yet tax and packaging requirements vary from state to state, even to the kind of packaging which is permissible.
State legislatures consider several hundred thousand pieces of legislation every session, and the resources expended just to stay informed, much less to try to actively participate, are enormous. Concerns with jobs and taxes permeate the Northeast, while concerns with how to manage the enormous recent growth permeate the Southwest. Laws which encourage plant location and penalize plant closings are proposed in each legislative session, making it difficult to formulate and implement policy in the traditional piecemeal legislative fashion.
The courts offer yet another source of government influence on business. The old model learned from the grammar school civics books of the separation of executive, legislative and judicial branches of government simply does not apply in today's world; and no amount of tears will bring about that pristine Jeffersonian world.
Local government also gets into the act, as it depends more than other governments directly on the revenue generated by business for its lifeblood. One need only visit the decaying urban areas in the Northeast to see this point. Not only does the tax base erode when business no longer operates, but more importantly, revenue producing jobs are gone and the local economy takes a nosedive.
Finally, there is the matter of direct government through citizen initiative. There have been initiatives on the ballots in a number of states which would directly affect business.
These range from bottle deposit bills passed in several states to bills to curtail smoking in public. An arnendment to the Constitution of the U. Needless to say the effect on an individual business can be considerable.
The point of Exhibit 1. Management simply must undertake an organized effort to deal with governments in a strategic fashion, and if the model of the firm is that of Exhibit 1. They will react to events and crises in the short term and will not play their necessary role in the public policy process. However, the major factor has been an external one, that U.
Hence, the denotation as external change. In the s "Made in Japan" meant "junk" or "cheap" or some such derogatory term, while in the s it is perceived to be the hallmark of quality. The effect on the automobile industry has been debilitating. The real competition for OM is hardly the traditional new model from Ford or Chrysler, but rather the market leading behavior of Honda, Nissan, Toyota and Volkswagen.
Nor, is this phenomenon specific to automobiles. There is competition from abroad in almost every "U. The most difficult issue with foreign competition is that they d o not play by the same rules, in terms of 18 "Managing in Turbulent Times" 19 government, culture and other factors. Hence, to know the competition is a gargantuan task which requires an ability to understand other cultures from the ground up, from language to other ways of life.
In part, it is the emergence of foreign competition which makes the necessity to abandon the Managerial View of the firm so urgent. As long as all significant competition is domestic, everyone must play by the same rules. Each competitor bears the burden and shares the benefits of government, a fickle consumer population, environmentalists, etc. There is an "umbrella effect" by which firms in an industry can implicitly or explicitly coordinate their response to various issues.
No one is at a competitive disadvantage, hence everyone can afford to proceed as if the Managerial View were still appropriate. When foreign competitors figure out how to satisfy customers and government with high quality products that are less expensive and meet all requirements, then the umbrella folds. This scenario has already taken place in several businesses. Consumer Advocates Much has happened since the early s when President Kennedy announced the "Consumer Bill of Rights" beginning the modern "consumer movement.
Most executives are familiar with the story of Ralph Nader and General Motors' Corvair, which resulted in national prominence for Nader and the end of a product line for GM. Other activists have taken on other industries from pharmaceuticals and infant formula to utilities, many perhaps spurred by Nader's original success. The consumer movement can be viewed on the one hand as merely a means to publicity and national prominence for aspiring politicians, following Nader's example.
These consumer advocates constantly seek attention and media coverage; they will have to find issues which appeal to both media and the majority of the public. No doubt there are some consumer advocates who fit this mold.
An alternative view of the consumer movement is perhaps better understood using Hirschman's model of exit, voice and 10yalty. Let us consider the customer of a firm, and suppose that for whatever reason, the customer is unhappy with the product. He or she can exit, simply take the business elsewhere and buy from another producer, given that there is a reasonable number of competing firms.
Exit is the paradigm of the "economic" strategy. When enough customers exit, the firm gets the message that its product is no longer viable, that it is not producing at the "efficient frontier. It comes in multiple forms.
Voters exercise voice at the ballot box. Interest groups try to exercise voice by pressuring government or business to act.
Consumer groups may bring suit against a manufacturer, or they may use the political process to initiate change via intervention with regulatory agencies, initiatives, Congressional lobbying, etc. Feedback to the manager when customers use the voice strategy is more immediate and in fact could conceivably be too immediate if the customer has not given the product time to work, or gotten accustomed to its side effects, or whatever quirk it may have.
Hirschman argues that the degree of organizational loyalty will determine the mix of exit and voice that is used. He argues that both exit and voice are necessary for the efficient functioning of the marketplace, for the costs of exit alone may well be too high, because the firm never has a chance to recover. Voice becomes the signal for management that change may be in order. Of course, voice, too, has a cost. The information that voice provides does not come free to the managers who need it.
Voice mechanisms must be assessed in part in terms of whether they are cost effective, and in terms of the available alternatives. Hirschman's model yields an interesting analysis of the consumer movement. We should not view it as adversarial, or to be avoided, but as a rational response. First, the collectivist nature of the approach makes it difficult to incorporate the autonomy of the firm.
If firms have no autonomy then it is difficult to understand either the meaning of corporate strategy or the role of management. Second, once problems have been formulated there is no obvious starting or ending point for the analysis. Thus, the value of these approaches to business strategies seems limited to monopolistic markets, such as utilities, where the objectives of the firm and the objectives of the network come into alignment.
However, despite the inherent problems in applying these ideas, the approaches have been helpful in emphasizing the importance of expanding analysis of strategic problems to include all stakeholders. The Corporate Social Responsibility Literature This area of academic research represents a collection of approaches rather than a coherent theoretical grouping.
A broad range of business and social agendas falls under this banner. However, what most of these approaches share is the inclusion of stakeholder groups that have traditionally been omitted from analysis. Indeed, many of these groups were have been ignored because they were assumed to have adversarial relationship with the firm.
Thus, a major contribution of the social responsibility literature was to broaden the scope of stakeholder analysis and to impress on management the importance of building relationships with previously estranged groups. The social activist movement has demonstrated the dangers of developing strategies that ignore the influence of antagonistic groups.
Most of this stakeholder analysis has been carried out at a generic level, independent of the strategies of individual firms. However, because of the influence of several high profile cases of catastrophic damage to corporate reputations, some attempts have been made to incorporate these findings into general strategic business objectives. Many of these corporate social responsibility initiatives have simply ended up characterizing stakeholder relationships as constraints, much in the same way as the corporate planning literature.
This separation effectively isolates certain societal and environmental stakeholder relationship from the other business focused stakeholder relationships. Additionally, there has been some confusion in the corporate responsibility literature around the priorities of stakeholders.
There is one point of view that all stakeholders are equally important, simply because all have moral standing. It is difficult to document this position in the writings of stakeholder theorists, for instance in Freeman , yet this idea that all stakeholders, defined widely, are equally important has been a barrier to further development of this theory. The central task in this process is to manage and integrate the relationships and interests of shareholders, employees, customers, suppliers, communities and other groups in a way that ensures the long-term success of the firm.
A stakeholder approach emphasizes active management of the business environment, relationships and the promotion of shared interests. A Typical Stakeholder Map [Freeman ] A stakeholder approach suggests that we redraw our picture of the firm, along the lines of Figure 1. For good or ill, there are myriad groups who have a stake in the success of the firm. Many traditional views of strategy have ignored some stakeholders, marginalized others and consistently traded-off the interests of others against favored stakeholder groups.
Such an approach may well be appropriate in relatively stable environments. However, in a world of turbulence and accelerating change the limitations of traditional approaches to strategic management become increasingly apparent. The interests of key stakeholders must be integrated into the very purpose of the firm, and stakeholder relationships must be managed in a coherent and strategic fashion.
The stakeholder approach that was developed from this work has several distinct characteristics: First of all, a stakeholder approach is intended to provide a single strategic framework, flexible enough to deal with environmental shifts without requiring managers to regularly adopt new strategic paradigms.
Strategic planning focuses on trying to predict the future environment and then independently developing plans for the firm to exploit its position. In contrast, strategic management actively plots a new direction for the firm and considers how the firm can affect the environment as well as how the environment may affect the firm. To survive in a turbulent environment management must direct a course for the firm, not merely optimize current output.
To successfully change course, management must have the support of those who can affect the firm and understand how the firm will affect others as in the long run they may make a reactive response. The stakeholder framework does not rely on a single over-riding management objective for all decisions. Rather, stakeholder management is a never- ending task of balancing and integrating multiple relationships and multiple objectives.
Fourth, a stakeholder approach encourages management to develop strategies by looking out from the firm and identifying, and investing in, all the relationships that will ensure long-term success. Diverse collections of stakeholders can only cooperate over the long run if, despite their differences, they share a set of core values.
Thus, for a stakeholder approach to be successful it must incorporate values as a key element of the strategic managmenet process. This characteristic helps explain the success and influence of the stakeholder concept within the fields of Business Ethics and Business and Society. Scholars in these fields have added greatly to our understanding of how morality and ethics should play a role in the world of business and stakeholder theory has played a very significant role in this progress.
However, despite its association with business ethics as a separate discipline, a stakeholder approach remains a powerful and under-exploited theory of business strategy. Good stakeholder management develops integrated business strategies that are viable for stakeholders over the long run. While individual stakeholders may lose out on some individual decisions, all stakeholders remain supporters of the firm. We propose that as the business world becomes ever more turbulent, interconnected and as the boundaries between firms, industries and our public and private lives become blurred, a stakeholder approach has more and more to tell us about both values and value creation.
Fifth, the stakeholder approach is both a prescriptive and descriptive approach, rather than purely empirical and descriptive. It calls for an approach to strategic management which integrates economic, political, and moral analysis. Such an approach has implications for research in the discipline as well as practical results for managers. The purpose of a stakeholder approach to strategic management is to actively plan a new direction for the firm.
It builds on concrete facts and analysis, and thus is descriptive, but it has to go beyond such description to recommend a direction for the firm, given its stakeholder environment.
Stakeholder management suggests that stakeholder relationships can be created and influenced, not just taken as given. Strategic management is a process where management imaginatively plans how its actions might affect stakeholders and thus help to create the future environment.
As such what is important is developing an understanding of the real, concrete stakeholders who are specific to the firm, and the circumstances in which it finds itself. It is only through this level of understanding that management can create options and strategies that have the support of all stakeholders. And it is only with this support that management can ensure the long-term survival of the firm. Good strategic management, according to this approach, emerges from the specifics rather than descending from the general and theoretical.
Finally stakeholder management calls for an integrated approach to strategic decision making. Rather than set strategy stakeholder by stakeholder, managers must find ways to satisfy multiple stakeholders simultaneously.
Successful strategies integrate the perspectives of all stakeholders rather than offsetting one against another. This approach does not naively suggest that, by delving into the details, management can turn all constraints and trade-offs into a series of win-win situations.
All stakeholders will not benefit all the time. Obviously, even with a detailed understanding of concrete stakeholder relationships, most strategies will distribute both benefits and harms between different groups of stakeholders. Win-win situations are not guaranteed.
Indeed, it is just as important for management to develop strategies that distribute harms in a way that ensures the long-term support of all the stakeholders.
Yet, over time stakeholder interests must be managed in the same direction. Indeed the number of citations using the word stakeholder has increased enormously as suggested by Donaldson and Preston Most of the research on the stakeholder concept has taken place in four sub-fields:, normative theories of business; corporate governance and organizational theory; corporate social responsibility and performance; and, strategic management.
A Stakeholder Approach to Normative Theories of Business A stakeholder approach emphasizes the importance of investing in the relationships with those who have a stake in the firm. The stability of these relationships depends on the sharing of, at least, a core of principles or values.
Thus, stakeholder theory allows managers to incorporating personal values into the formulation and implementation of strategic plans. An example of this is the concept of an enterprise strategy. While these issues are important in their own right, enterprise level strategy is a differently concept. Donaldson and Preston  argued that stakeholder theories could be categorized from descriptive, instrumental or normative points of view.
A descriptive theory would simply illustrate that firms have stakeholders, an instrumental theory would show that firms who consider their stakeholders devise successful strategies; a normative theory would describe why firms should give consideration to their stakeholders.
Thus, the search for a normative justification for stakeholder takes the theory beyond strategic issues and into the realm of philosophical foundations. Evan and Freeman  developed a justification of a stakeholder approach based on Kantian principles. This framework has been further developed by Norman Bowie into a fully fledged ethical theory of business.
From a different perspective Phillips  has grounded a stakeholder approach in the principle of fairness. When groups of individuals enter voluntarily into cooperative agreements they create an obligation to act fairly.
As such, normal business transactions create a moral obligation for firms to treat stakeholders fairly and thus to consider their interests when making strategic decisions. Others [Wicks, Freeman and Gilbert , Burton and Dunn, ] have tried to justify a stakeholder approach through the ethics of care. Contrasting the traditional emphasis on an individual rights-based approach to business, an ethics of care emphasizes the primacy of the network of relationships that create the business enterprise.
This approach advocates the use of a stakeholder approach because of the need to formulate strategy in the context of the relationships that surround it, rather than with the firm as a lone actor. Finally, Donaldson and Dunfee  have developed a justification for a stakeholder approach that is based on social contract theory. Recently, Kochan and Rubenstein  have developed a normative stakeholder theory based on an extensive study of the Saturn automotive manufacturer.
They conclude that stakeholder firms will emerge when the stakeholders hold critical assets, expose these assets to risk and have both influence and voice.
A Stakeholder Approach to Corporate Governance and Organizational Theory This stream of stakeholder research has grown out of the contrast between the traditional view that it is the fiduciary duty of management to protect the interests of the shareholder and the stakeholder view that management should make decisions for the benefit of all stakeholders.
Many other stakeholders have stakes that are, to a degree, firm specific. Furthermore, shareholders have a more liquid market the stock market for exit than most other stakeholders. Thus, asset specificity alone does not grant a prime responsibility towards stockholders at the expense of all others.
Goodpaster  outlined an apparent paradox that accompanies the stakeholder approach. Management appears to have a contractual duty to manage the firm in the interests of the stockholders and at the same time management seems to have a moral duty to take other stakeholders into account. This stakeholder paradox has been attacked by Boatright  and Marens and Wicks  and defended by Goodpaster and Holloran .
Others have explored the legal standing of the fiduciary duty of management towards stockholders, Orts , Blair . Many of these debates are on-going, with some advocating fundamental changes to corporate governance and with others rejecting the relevance of the whole debate to a stakeholder approach. From this perspective stakeholder theory can be used as a counterpoint to traditional shareholder-based theory. While it is generally accepted that stakeholder theory could constitute good management practice, its main value for these theorists is to expose the traditional model as being morally untenable or at least too accommodating to immoral behaviour.
This literature has historically consisted of fractured collection of viewpoints that share an opposition to the dominant neoclassical positive approach to business.
Because of its accommodating framework the stakeholder concept provided an opportunity to develop an overarching theory that could link together such concepts as agency theory, transactions costs, human relationships, ethics and even the environment.
Mitchell, Agle and Wood addressed this issue by developing a framework for stakeholder identification. The critical question is whether there is such a thing as an illegitimate stakeholder, and if so how legitimacy should be defined.
Agle, Mitchell and Sonnenfield  have taken an opposite approach. Rather than try and theoretically define stakeholder legitimacy, they have conducted an empirical study to identify which stakeholders managers actually consider to be legitimate.
This claim infers that firms that practice stakeholder management would out perform firms that do not practice stakeholder management.
This has been referred to as 'the myopic institutions theory. On further investigation they found that firms that demonstrated a high level of corporate social performance CSP tends to lead to an increase in the number of institutions that invest in the stock [Graves and Waddock, ].
At a more practitioner level Ogden and Watson  have carried out a detailed case study into corporate and stakeholder management in the UK water industry. At present most conclusions in this area are somewhat tentative as the precision of techniques and data sources continue to be developed.
A Stakeholder Approach to Strategic Management Harrison and St John have been the leaders in developing an integrated approach with many of the conceptual frameworks of mainstream strategy theory. Stakeholder management is built on a partnering mentality that involves communicating, negotiating, contracting, managing relationships and motivating. These different aspects of stakeholder management are held together by the enterprise strategy which defines what the firm stands for.
Ethics are a part of these processes, first, because unethical behaviour can have high costs and second, because codes of ethics provide the consistency and trust required for profitable cooperation. Harrison and St John are able to combine traditional and stakeholder approaches because they use the stakeholder approach as an overarching framework within which traditional approaches can operate as strategic tools. For example, they divide the environment into the operating environment and the broader environment.
Prioritizing stakeholders is more than a complex task of assessing the strength of their stake on the basis of economic or political power. Thus, a stakeholder approach.
Stakeholders must not only be understood in the present, they must also be managed over the long run. Harrison and St John distinguish between two basic postures for managing stakeholders: buffering and bridging. Buffering is the traditional approach for most external stakeholder groups and it is aimed at containing the effects of stakeholders on the firm.
It includes activities such as market research, public relations, and planning. Buffering raises the barriers between the firm and its external stakeholders. In contrast bridging involves forming strategic partnership. This approach requires recognizing common goals and lowering the barriers around the organization. Partnering is proactive and builds on interdependence. It is about creating and enlarging common goals rather than just adapting to stakeholder initiatives.
They propose a framework for determining the importance of developing partnering tactics and when it is appropriate to rely on more traditional methods. John With this framework as a guide they have been able to identify a wide range of partnering tactics that can be used by management to manage their critical stakeholders and develop critical strategies.
Once strategic management is divided into this false dichotomy, stakeholder theory can be mischaracterized as anti-capitalist, anti-profit and anti-business efficiency. However, the premise of the stakeholder approach that it is necessary for all firms would suggest that we should find many firms, rather than a radical few, using a stakeholder approach. Collins and Porras attempted to explain the sustained success of firms across many industries by contrasting them with less successful peers.
They proposed that a necessary condition of long-term financial success is a strong set of core values that permeates the organization. More importantly they found that the stakeholder approach in practice predates the formal articulation of stakeholder theory in academia.
Thus, Collins and Porrit provide both empirical support for the success of a stakeholder approach and they confirm that the academic theory grew out of management practice rather than vice versa. In The Stakeholder Strategy [Svendsen, ] Svendsen investigates firms who are building collaborative stakeholder relationship as part of their business strategy. However, companies that have a strong set of values and that can communicate their business goals clearly will maintain stakeholders support when the results are not in their favor.
Their research illustrates the history, the rationale and the practical implementation of stakeholder ideas. They develop, and illustrate the use of, positively reinforcing cycles of inclusion that help build stronger and more cooperative stakeholder relationships. They also emphasize the need to redescribe the world of business in ways beyond, but not necessarily in contradiction to, the profit maximization view.
There are two main theoretical issues that stand out from the rest. The Separation Thesis states that we cannot usefully analyze the world of business as if it is separate from the world of ethics or politics. Our personal values are embedded in all our actions, therefore unless our theories take this into account, they will do a poor job of explaining our world. The separation thesis was formulated because of the widespread adoption of a stakeholder approach within business ethics and because of the continued neglect of a stakeholder approach in the area of strategic management.
This distortion has resulted in stakeholder theory being seen as an ethical rather than a business theory. This categorization serves to isolate ethical issues from the mainstream business theories and to isolate a stakeholder approach from mainstream business strategy. Second, Wicks and Freeman have recently called for a pragmatist perspective to the study of management.
A stakeholder approach grew out of a practical study of management problems.
A pragmatic approach to strategic management would focus academic research on the detailed study of concrete business situations. Over time general theories might emerge, but not through abstract theory development. Those who have called for a pragmatic approach to stakeholder theory have been seeking to combine a post-modern anti-foundationalist approach to theorizing with a Rortian desire to reform and redescribe the human enterprise [Wicks and Freeman].
The post-modernist seeks to abandon the quest for Truth that began in the Enlightenment. These theorists argue that there is no truth about the world of business to be found.
There are no irrefutable foundations for business theory or economics. The frameworks and laws that we use to describe business are simply ideas that have achieved a broad level of agreement among informed practitioners.
To search for higher levels of abstraction, that would provide a foundation for these laws as Truth, is a distraction to the progress of business strategy. To the contrary, the priority for business theorist should be to study the world of business and develop new ways to describe value creation and trade. New descriptions of bad or harmful business practices will inspire us to challenge existing practices, norms and attitudes. New ways of describing excellent ways of creating value will provide hope and stimulate change and innovation.
This approach would encourage researchers to challenge the language and metaphors of existing theories of business and economics. Rather, researchers should expect a multitude of theories and frameworks that describe different approaches and different aspects of business.
There will still be good and bad theories of business strategy, but the value of the theory will depend on its ability to help mangers make sense of their world, rather on the basis of theoretical elegance. What would pragmatism mean for a stakeholder approach? First, it would mean the end of separate streams of business ethics and business strategy research.
Second, it would mean an end to the search for normative or foundational roots for stakeholder theory.