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StrategyUnderstanding Stakeholders

Stakeholders and Corporate Governance Systems

• Learning Objectives:– To explore the term stakeholder and their influence on

organisations.– To review the different corporate governance systems

and their relationship with stakeholder theory.

Stakeholders

• Any person, or group of persons, with an interest in how a business operates (e.g. products, methods of operation)

Types of Stakeholders• Stockholder Position (Friedman, 1970)

– A business exists primarily for their owners (usually shareholders). As such any business behaviour that lowers potential profit will harm the business.

• Stakeholder Position

– Businesses are citizens of society. If we wish to maintain our position in society we must accept our responsibilities.

Types of Stakeholder• Narrow and Wide Stakeholder

– Evan and Freeman (1993)– Narrow stakeholders are those who are most affected by

an organisations actions, eg shareholders, management, employees, suppliers and customers.

– Wide stakeholders are those less affected although whom must be considered, eg government, less dependent customers, the wider community etc.

Types of Stakeholder• Primary and Secondary Stakeholders

– Clarkson (1995)– A Primary stakeholder is one with whom without their

continuing participation the organisation cannot survive, eg unlike Friedman (1970) those who influence an organisation (government, customers and suppliers)

– Secondary stakeholders are those who without participation the organisation is likely to survive, eg the community and even possibly management.

Types of Stakeholder– There are also stakeholder groups.– Johnson, Whittington and Scholes (2011) break these into

four categories; economic stakeholders, socio-political stakeholders, technological stakeholders and community stakeholders.Economic Stakeholders

Suppliers, Distributers, Competitors, Shareholders

Socio-Political StakeholdersPolicy makers, regulators, government etc

Technological StakeholdersStandards agencies, owners or competitive technologies etc

Community StakeholdersThose who live close to your organisation

Stakeholder Mapping• Johnson, Whittington and Scholes (2011) suggest a

stakeholder map should be completed to identify an organisations stakeholders, their expectations and the power they have over the organisation.

Stakeholder Mapping• As part of the strategic analysis process, an

organisation should ascertain:

– How likely each stakeholder group is likely to impress its expectations on the company

– Whether they have the means and power to do so.

– The likely impact of stakeholder expectations on future strategies

The stakeholder map

Source: Campbell D, Stonehouse G, Houston B (2002). Business Strategy - An Introduction. 2nd ed., p 28.

Low

High

Least influential

Most influential

Stakeholder interest

Stak

ehol

der p

ower

Low

High

Interest relates to the extent to which the stakeholder is likely to impose their expectations on the organisation.Power relates to the influence the stakeholder has within the organisation

Power Interest Matrix- Mendelow, 1991

Power Interest Matrix- Mendelow, 1991

• Seg D key consideration during formulation and evaluation of new strategies.

• Seg C can be most difficult. Lack of interest now. However, a specific event could reposition them in D! Need to assess reaction to future strategy.

• A & B can be important allies.

Stakeholder Mapping• Stakeholder Mapping can aid the following:

– Determine strategy– Identify the key blockers and facilitators of

strategy– Maintain the interest of key stakeholders through

involvement

Some general aims of Corporate Governance

Encourage accountability and openness Avoid conflicts of interest (between

different groups and managers e.g. M&A) Enhance separate ownership and control Open selection procedures of Senior

Directors / Managers Raise standards of Corporate Conduct Reduce abuses of power.

Benefits of a Strong Ethical Performance

• Direct correlation between strong ethical stance and long-term profitability (Martinson, 1998)

• A high level of CSR indicates an awareness of external influences, and might therefore better manage conflict and risk and provide sustainability

• Organisations enjoy high levels of esteem if have a positive social/ethical stance

• In the long-term organisations have to be acceptable to majority of stakeholders

• A positive social responsibility will be reflected in the culture of the organisation (motivated workforce, satisfied customers)

• Can significantly help competitive advantage.

Directed Reading• Atkinson A A, Waterhouse J H & Wells R B (1997). A stakeholder

approach to strategic performance measurement. Sloan Management Review. Spring.

• Donaldson T & Preston L E (1995). The stakeholder theory of the corporation: concepts, evidence, and implications. Academy of Management Review. Vol. 20(1).

• Freeman R E (1984). Strategic Management: A Stakeholder Approach. Pitman, Boston, MA.

• Mitchell R K, Agle B R, Wood D J (1997). Toward a theory of stakeholder identification and salience: defining the principle of who and what really counts. Academy of Management Review. Vol. 22(4).

• Rowley T J (1997). Moving beyond dyadic ties: a network theory of stakeholder influences. Academy of Management Review. Vol. 22(4).