Stakeholder Theory: Impact and Prospects

Stakeholder Theory: Impact and Prospects edited by Robert A. Phillips provides a great education in history to those of us who have been using the term “stakeholder” but who have little idea of its origins.

Honoring the twenty-fifth anniversary of R. Edward Freeman’s Strategic Management: A Stakeholder Approach, Phillips assembles a collection of commentaries and critiques by some of the most influential scholars of
stakeholder theory, with concluding remarks from Freeman himself.

The book starts by delving into citations and moves quickly to address three mischaracterizations of the original work:

1. The assumption that Freeman approves of CSR – sees CSR as actually marginalizing ethics, rather than embedding it in the fabric of management.
2. The assumption that Freeman is about society – he delimits the network of those actually involved in a firm’s value creation activities.
3. The assumption that Freeman is a normative work – He advocates having an understanding of stakeholders, not assigning them rights.

Thomas Jones sees a wrong turn in concentrating on company policies and specific actions rather than the content and nature of the relationships themselves, identifying features that make them work better such as knowledge sharing. He then examines studies involving relationships between firms and suppliers, buyers and sellers, alliances, knowledge sharing and employees. The primary lesson he draws is that good stakeholder managers will have to abandon their ‘policies and actions’ perspective and will need to adopt data collection and analysis techniques.

Edwin Hartman writes that a firm should seek win-win situations with stakeholders where feasible. Where relations have characteristics of the prisoner’s dilemma or the commons, standard negotiations may not get you there. Sometimes a trade-off is the best option. “Stakeholders can and should unite behind a conception of honest competition.”

Patricia Werhane delves into the stakeholder graphic frames our perceptions and narrows our foci. She take us on a fascinating journey from the “traditional” map, more complex model, from the viewpoint of an internal stakeholder manager, the “challenging environment,” “shareholder systems networks,” stakeholders at a specific company, a names and faces approach, a political approach, systems model and an alliance model. I found it a useful exercise and think other readers will too in trying different frameworks to see what comes into focus.

One of the more interesting essays included is the concluding one by R. Edward Freeman who argues that  business as markets has become too predominant a metaphor. He sees “business as creating value for stakeholders” as a compelling alternative point of view to help focus on sustainability embedded within the social fabric. “Get the stakeholder issues right, and the need for CSR vanishes.”

Freeman sees a deeply anti-humanist view in much of business strategy and a deeply anti-business view in CSR. What we need are new measures of the total performance of business, just as Billy Beane introduced new measures of performance in baseball. (Michael Lewis’ Moneyball, 2003)

For instance, it might turn out that an overall measure of employee engagement and one of customer satisfaction are better indicators of performance than profitability.

Stakeholder Theory is a book written by and for other stakeholder theorists… an insider’s game that looks back at the last twenty five years and lays out some of the issues worth pursuing for the ncxt quarter century. Those seeking to understand how the field developed will be intrigued.