toward a descriptive stakeholder theory

*• Academy of Management Review2001, Vol. 26. No. 3. 397-414.

TOWARD A DESCRIPTIVE STAKEHOLDERTHEORY: AN ORGANIZATIONAL LIFE

CYCLE APPROACH

I. M. JAWAHARIllinois State University

GARY L. MCLAUGHLINWal-Mart Stores. Inc.

We integrate theory and research from disparate areas to develop a descriptivestalceholder theory. We (1) show that at any given organizational liie cycle stage,certain stakeholders, because of their potential to satisfy critical organizationalneeds, will be more important than others; (2) identify specific stakeholders likely tobecome more or less important as an organization evolves from one stage to the next;and (3) propose that the strategy an organization uses to deal with each stakeholderwill depend on the importance of that stakeholder to the organization relative to otherstakeholders.

In the literature on organizations, scholarshave tended to generate studies that focus ex-clusively on mature organizations (Kimberly &Miles, 1980). This bias is apparent in the study ofcorporate social performance (CSP) as well(Thompson & Hood, 1993). Taking a long-termperspective will permit researchers to studyhow the strategies an organization uses to dealwith multiple stakeholders change as the organ-ization evolves through the stages of formation,growth, maturity, and decline or revival.

In an influential article Clarkson (1995) notesthat a corporation's survival and continuing suc-cess depends upon the ability of its manage-ment to create sufficient wealth, value, or satis-faction for all primary stakeholder groups.Additionally, he argues that "the economic andsocial purpose of the corporation is to create anddistribute increased wealth and value to all itsprimary stakeholder groups, without favoringone group at the expense of others" (1995: 112).Similarly, Jones and Wicks argue that "the inter-ests of all (legitimate) stakeholders have intrin-sic value, and no set of interests is assumed todominate the others" (1999: 207). These norma-tive prescriptions may appropriately describeCSP of organizations in the mature stage. How-ever, organizations in start-up or decline/revival

We gratefully acknowledge the significant help of asso-ciate editor Arthur Brief and three anonymous reviewerswith previous versions of the manuscript.

stages are likely to favor certain stakeholders(see Gioia, 1999), depending on the extent towhich they are dependent on those stakeholdersfor resources critical to organizational survival.

Organizations are unlikely to fulfill all theresponsibilities they have toward each primarystakeholder group. Instead, they are likely tofulfill economic and all noneconomic responsi-bilities of some primary stakeholders but notothers and, over time, to fulfill responsibilitiesrelative to each stakeholder to varying extents.This variation in how organizations deal withdifferent stakeholders, simultaneously and overtime (i.e., across life cycle stages), has not beenaddressed in the extant literature. Changes inthe relative importance of primary stakeholdersover time have not been addressed because ofthe cross-sectional and almost exclusive focusin the literature on mature organizations. By tak-ing a long-term perspective, we attempt to de-scribe how an organization's relationship witheach of the primary stakeholder groups is likelyto vary with the life cycle stage of the organiza-tion.

In this article we integrate theory and re-search on resource dependence theory, prospecttheory, and organizational life cycle models todevelop a descriptive stakeholder theory. Thetheory explains heretofore overlooked but im-portant questions, such as which primary stake-holders are important, why and when they areimportant, and how managers allocate re-

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sources among primary stakeholders. The the-ory is descriptive and contains many testablepropositions, and it has the potential to focusfuture empirical research on stakeholder man-agement. We base this theory on the premisethat organizations face different pressures andthreats at different stages in the organizationallife cycle. Therefore, at different stages differentstakeholders become critical for organizationalsurvival. Consequently, depending on who thecritical stakeholders are at each stage, anorganization is likely to use different strategiesto deal with those critical stakeholders versusother stakeholder groups.

We organize the paper as follows. First, webriefly review the literature on CSP and stake-holder management as a general backdrop. Wetben identify potential stakeholders and de-scribe four possible strategies from tbe litera-ture tbat an organization could use to deal witheach of those stakeholders. Next, we examineresource dependence theory and prospect the-ory, because both of tbese theories have strongimplications for stakeholder management in ourcomprehensive stakeholder theory. Specifically,based on resource dependence theory, we arguethat stakeholders most likely to bave access toresources needed for organizational survivaiwill elicit more attention from organizationaldecision makers than stakeholders who haveless access to such critical resources. Based onprospect theory, we argue that threats (or ab-sence of threats) to organizational survival willinfluence framing of resource allocation deci-sions and, concomitantly, tbe "riskiness" ofstrategies adopted by organizational decisionmakers to deal with stakeholders. Finally, afterbriefly discussing the general stages in an or-ganization's life cycle, for each stage we identifythe critical stakeholders and discuss the strate-gies an organization is likely to adopt to dealwitb critical stakeholders versus those who areless critical to the organization.

A SELECTED REVIEW OF LITERATURE ONCSP AND STAKEHOLDER MANAGEMENT

In a seminal article on CSP, Carroll (1979) ar-gues that economic and noneconomic responsi-bilities are not separate issues but, rather, arepart of corporate social responsibility (CSR).Carroll defines CSR as encompassing "the eco-nomic, legal, ethical, and discretionary expecta-

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ions that society bas of organizations at a given])oint in time" (1979: 500). Borrowing from Wilson1974), Carroll notes that organizations could usehe strategies of reaction, defense, accommoda-ion, and proaction to address their economic,egal, ethical, and discretionary responsibili-ies.

Building on Carroll's work, Wartick and Coch-an (1985) attempted to construct a general

]nodel of CSP. They defined the CSP model asthe underlying interaction among the princi-les of social responsibility, the processes of

iiocial responsiveness, and the policies devel-)ped to address social issues" (1985: 758) and

sihowed that several competing perspectiveseconomic responsibility, public responsibility,locial responsiveness) could be incorporatednto tbeir framework. Tbeir model of CSP con-ains the three components of CSR, corporateocial responsiveness, and social issues man-tgement. In both models the processes of socialesponsiveness are identified as reactive, defen-ive, accommodative, and proactive. In Wood's1991a,b) model, CSP is defined as an organiza-ion's configuration of principles of social re-iponsibility, processes of social responsiveness,ind observable outcomes as they relate to tbeirm's societai reiationships.

In recent years many scholars have proposedhat integrating CSP with stakeholder manage-nent concepts could lead to a better under-standing of business and society reiationshipse.g., Brenner & Cochran, 1991; Clarkson, 1995;)onaldson & Preston, i995; Jones, 1995; Mitchell,Igle, & Wood, 1997; Rowley, 1997). For instance,

C^larkson (1995) has proposed that CSP can)e analyzed and evaluated more effectively byising a framework based on how corporationsnanage their relationships with stakeholdershan by using models and methodologies based>n the concepts of CSR and responsiveness,ikewise. Wood and Jones (1995) argue that

sitakeholder theory holds the key to understand-ing tbe structures and dimensions of business(tnd society relationships. Several authors (e.g.,IJrenner & Cochran, 1991; Jones, 1995) havereated the stakeholder construct as tbe founda-ion for a theory of the firm and as a frameworkor the business and society field.

The concept of stakeholder management wasntroduced in tbe strategic management litera-ure by Freeman (1984). Recently, Donaldson and

]>reston (1995) presented a taxonomy of stake-

2001 Jawahai and McLaughlin 399

holder theory types—normative, instrumental,and descriptive/empirical—and used the taxon-omy to guide their discussion of the stakeholderliterature. Much of the literature in stakeholdermanagement is from the normative realm,which concerns how managers should deal withcorporate stakeholders. One of the central tenetsof normative stakeholder theory is that firmsshould attend to the interests of all their stake-holders—not just their stockholders. A commontheme among these scholars is that firms shouldtreat stakeholders as "ends" (e.g., Boatright,1994; Clarkson, 1995; Evan & Freeman, 1983;Goodpaster, 1991). In general, scholars havingnormative perspectives prescribe how all stake-holders should be treated on the basis of someunderlying moral or philosophical principles.The implication is that moral principles shoulddrive stakeholder relations—an implication notsupported by empirical research (Berman,Wicks, Kotha, & Jones, 1999).

Instrumental theory links "means" and "ends"and contains such statements as "Certain out-comes (corporate performance) are more likely iffirms/managers behave in certain ways (strate-gically manage stakeholders)." A fundamentalassumption is that the ultimate objective of cor-porate decisions is marketplace success, andstakeholder management is a means to thatend. Synthesizing ethics and economics, Jones(1995) presents the most well-articulated instru-mental theory. He makes a case for the generalproposition that if firms contract (through theirmanagers) with their stakeholders on the basisof mutual trust and cooperation, they will have acompetitive advantage over firms that do not. Ingeneral, instrumental stakeholder theorists stopshort of exploring specific links between cause(stakeholder management) and effect (corporateperformance) in detail, but such linkage is cer-tainly implicit (Donaldson & Preston, 1995). Thisis most apparent in the research linking mea-sures of CSP (e.g.. Fortune Reputational Index,KLD ratings) with financial performance (e.g.,ROI, ROA, and so forth).

Although there are only a few instrumentalstakeholder theories, the bulk of the research onCSP/stakeholder management is implicitlybased on the instrumental perspective. Re-search linking CSP with corporate performanceis not based on theory, because the reasons forexpecting a relationship are not clearly articu-lated. Moreover, scholars have reported incon-

sistent results (see Donaldson & Preston, 1995:77, and Griffin & Mahon, 1997: 6). In a majority ofthe studies in which researchers have found arelationship, positive correlations have been re-ported between overall CSP (as opposed to CSPtoward the different stakeholders) measuredacross industries (as opposed to within indus-tries) and various measures of financial perfor-mance. In the rest, researchers have attemptedto justify post hoc why certain stakeholders in-fluence corporate performance.

In contrast to the normative and instrumentalperspectives, very little descriptive theory or re-search, which describes how organizations in-teract with stakeholders, exists in the extantstakeholder management literature (Berman etal., 1999). Brenner and Cochran (1991) were thefirst to propose a descriptive stakeholder theoryof the firm. According to them, "The stakeholdertheory of the firm posits that the nature of anorganization's stakeholders, their values, theirrelative influence on decisions and the nature ofthe situation are all relevant information for pre-dicting organizational behavior" (1991: 462; cf.Jones & Wicks, 1999: 208). Although Brenner andCochran argue that "values which are highlyweighted should be favored in actual choicesituations" (1991: 462), they stop short of bothsubstantive prediction and description of themechanisms through which the predicted be-havior might occur (cf. Jones & Wicks, 1999: 208).

In another attempt at descriptive theory, Jonesproposes that "managers behave as if stake-holders mattered because of the intrinsic justiceof their (stakeholders') claims on the firm"(Jones, 1994: 100). Researchers have investigatedclaims of this type and found some support forthem (e.g., Clarkson, 1995). As Jones and Wicksnote, "Claims of this type do not fully exploit thepossibilities for stakeholder-based descriptivetheory" (1999: 208).

Recently, Mitchell et al. (1997) attempted todevelop a descriptive stakeholder theory. Theirpropositions about stakeholder identificationand stakeholders' salience to corporate manag-ers are based upon the moral legitimacy of astakeholder's claim, the stakeholder's power toinfluence the firm, and the urgency of the stake-holder's issue. The central thesis of their theoryis that stakeholder salience will be positivelyrelated to the cumulative number of stakeholderattributes of power, legitimacy, and urgency.

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Because the stakeholder theory we propose isdescriptive, we should consider extant descrip-tive stakeholder theory. For instance, Brennerand Cochran's (1991) central proposition is sobroad it is not falsifiable. Jones' (1994) claim isfalsifiable; a single claim, however, falls shortof a descriptive theory. And Mitchell et al.'s(1997) model is limited to describing attributesthat contribute to the salience of stakeholders; itdoes not specifically identify stakeholders whowill be salient to management but states onlythat stakeholders who possess more attributeswill be perceived as more salient than thosewho possess fewer attributes. The Mitchell et al.model does not address an issue central tostakeholder management: how an organiza-tion's management deals with stakeholders whovary in terms of salience.

In this article we offer a new and more com-prehensive stakeholder theory in which we de-scribe which stakeholders will be important (orsalient), when they will be important, and howfirms will deal with stakeholders who vary interms of importance. Additionally, and in con-trast to the (implicit) focus of much of the organ-izational literature on mature organizations, ourproposed theory addresses the aforementionedconcerns within the context of each stage of theorganizational life cycle.

STAKEHOLDERS AND STAKEHOLDERMANAGEMENT STRATEGIES

According to Freeman's now-classic defini-tion, "A stakeholder in an organization is anygroup or individual who can affect or is affectedby the achievement of the organization's objec-tives" (Freeman, i984: 46). Although debate con-tinues over whether to broaden or narrow thedefinition (see Mitchell et al., 1997), most re-searchers have used a variation of Freeman'sdefinition of a stakeholder (e.g., Clarkson, 1995;Frooman, 1999; Rowley, 1997).

According to Clarkson (1995),

Primary stakeholder groups typicaliy are com-prised of shareholders and investors, employees,customers, and suppliers, together with what isdefined as the public stakeholder group: the gov-ernment and communities that provide infra-structures and markets, whose laws and regula-tions must be obeyed, and to whom taxesand other obligations may be due (Clarkson,1995: 106).

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Cohen (1995) and Donaldson and Preston (1995)lave added both trade associations and envi-ronmental groups to Clarkson's (1995) list of pri-mary stakeholders (see also Freeman, 1984).Several researchers have highlighted the high.evel of interdependence between the corpora-tion and its primary stakeholder groups (e.g.,Donaldson & Preston, 1995; Freeman, 1984). Fornstance, Clarkson (1995) has noted that without:he continuing participation of primary stake-lolders, an organization cannot survive as ajoing concern.

Several scholars have suggested that an or-janization could adopt different approaches toieal with each primary stakeholder group, in-cluding proaction, accommodation, defense,ind reaction (Carroll, 1979; Clarkson, 1988, 1991,995; Gatewood & Carroll, 1981; Wartick & Coch-

ran, 1985). For instance, Carroll (1979) proposed:hat organizations could use the aforementionedpproaches to address their economic, legal,thical, and discretionary responsibilities.

i/Vartick and Cochran (1985), following Carroll1979), used the terms leactive, defensive, ac-

i:onimodative, and proactive to characterize cor-porate strategy toward social responsiveness.Clarkson (1991, 1995) developed the HDAP scale:o measure the strategies of reaction, defense,accommodation, and proaction and has success-iully used the scale to describe strategies usedoy organizations to deal with stakeholders.

According to these scholars (e.g., Carroll, 1979;Clarkson, 1991; Wartick & Cochran, 1985), proac-ion involves doing a great deal to address astakeholder's issues, including anticipating andactively addressing specific concerns or leadingan industry effort to do so. Relative to proaction,he strategy of accommodation is a less active

iproach of dealing with a stakeholder's issues.'he defense strategy involves doing only theinimum legally required to address a stake-

older's issues. And the strategy of reaction in-volves either fighting against addressing aI stakeholder's issues or completely withdrawingand ignoring the stakeholder.

Clarkson (1995) adds a posture or strategy el-ement to this framework in order to aid in defin-ng the level of responsibility accepted for man-

aging stakeholder issues. The responsibilityDosture or strategy for proaction is to anticipate: esponsibility, for accommodation to accept re-isponsibility, for defense to admit responsibilityout fight it, and for reaction to deny responsibil-

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ity. For instance, the strategy used by DigitalEquipment Corporation to deal with suppliers isa good example of proactive attention to astakeholder. Digital Equipment involves suppli-ers on its product planning teams (Bleakley,1995). Hewlett Packard uses a similar approachto deal with suppliers (Burt, 1989), and Xeroxshares blueprints with suppliers and involvesthem in designing parts (Burt, 1989). Proactionthus involves attempts to enhance the interestsof a particular stakeholder. Accommodation in-volves accepting responsibility but, at the sametime, bargaining to obtain concessions. For in-stance, to avert a strike by the United AutoWorkers in 1987, General Motors (GM) evidenceduse of the accommodation strategy, promisingjob security to union members contingent uponproductivity gains to be developed by labor-management committees (Zellner & Berstein,1987). The defense strategy involves defendingagainst demands to do more than the minimumlegally required. An example of this strategy isValero Energy Corporation's argument that be-cause it is in full compliance with U.S. EPA reg-ulations, claims of damages by communitystakeholders are groundless (Elder, 2000). Fi-nally, Ford IVIotor Company's refusal to recallPinto on the assumption that each explosionwas an isolated incident (Auto Week, 1989) andExxon's refusal to continue its oil-spill cleanupefforts beyond September 15, 1989, regardless ofwhether or not the cleanup was completed(Egan, 1989), are two examples of the use ofreaction strategy to deal with affected stake-holders.

The strategies of proaction, accommodation,defense, and reaction are legally defensible, al-though the latter two may be less satisfactory tostakeholders than proaction and accommoda-tion. When the strategies of proaction, accom-modation, defense, and reaction are consideredindividually, the most resources (managementattention and financial commitment) are likelyto be necessary for proaction and the least forreaction. For instance, proactively addressingemployee compensation concerns by payingpremium wages and providing stock optionsand profit sharing is likely to require more re-sources than engaging in the defensive strategy(doing only the minimum legally required) ofonly assuring payment of wages and providingmandatory benefits. Likewise, proactively in-vesting in training and development is likely to

require more resources than using a reactivestrategy—that is, denying responsibility fortraining and development.

In the next section we describe resource de-pendence theory and propose that the strategiesan organization uses to deal with differentstakeholders will be influenced by the extent towhich the organization is dependent on thosestakeholders for resources critical to the organi-zation.

RESOURCE DEPENDENCE THEORY

We believe that resource dependence theory(Pfeffer & Salancik, 1978) can be used to explainthe relative importance of primary stakeholdergroups to an organization. In this theory an or-ganization is conceptualized as being depen-dent on resources in its environment for its sur-vival. The extent to which an organization isdependent upon external organizations andstakeholders depends on the importance of aparticular resource to the organization, the de-gree to which those who control the resourcehave monopoly over the resource, and the dis-cretion they have over its allocation (Frooman,1999; Mitchell et al., 1997; Pfeffer & Salancik,1978). Because of resource dependencies, man-agers do not have unbridled strategic choice, asAndrews (1971) and Child (1972) originally pro-posed, but must make strategic choices withinconstraints (Hrebeniak & Joyce, 1985; Pfeffer &Salancik, 1978). These strategic choices will beaimed, at least in part, at managing externaldependencies both to guarantee the survival ofthe organization and to secure, if possible, moreindependence and freedom from external con-straints (Pfeffer, 1982: 192; see also Oliver, 1991).An organization could manage these externaldependencies by adapting to its environment,by altering constraints through interlocking di-rectorships and joint ventures, or by changingthe legality of its environment through the use ofpolitical action (Pfeffer & Salancik, 1978).

Hypotheses derived from resource depen-dence theory have been supported in studies ofsocial service agencies (Aldrich, 1976), univer-sity administrative structure (Tolbert, 1985), andorganizational failure (Sheppard, 1995). In adominant stream of research, scholars have in-vestigated the relationship between board size(number of directors) and financial performance.According to resource dependence theory, larger

402 Academy of Managi

boards are likely to be more effective thansmaller boards at forming external links to se-cure critical resources (Goodstein, Gautam, &Boeker, 1994; Pfeffer & Salancik, 1978: 172). Al-though in a preponderance of studies evidencein support of resource dependence theory hasbeen reported (e.g., Birnbaum, 1984; Pfeffer, 1972,1973), Yermack (1996) found that board smallnesswas associated with higher market evaluationsas well as higher returns on assets and returnson sales. However, in a recent meta-analysis of131 samples (N = 20,620), Dalton, Daily, Johnson,and EUstrand (1999) reported a corrected meancorrelation of .16 between board size and finan-cial performance.

One of the basic tenets of resource depen-dence theory is that organizations will be con-cerned with, pay more attention to, and dealwith sources of critical resources to ensure con-tinued survival. This tenet, which is central toour thesis, has received ample empirical sup-port (e.g., Aldrich, 1976; Pfeffer, 1972; Sheppard,1995; Tolbert, 1985).

In summary, resource dependence theory in-dicates that "organizations must attend to thedemands of those in its environment that pro-vide resources necessary and important for itscontinued survival. . . organizations will (andshould) respond more to the demands of thoseorganizations or groups in the environment thatcontrol critical resources" (Pfeffer, 1982: 193). Ex-tending this theory to stakeholders seems tosuggest that organizations will pay more atten-tion to and be more concerned with issues ofstakeholder groups who control resources criti-cal to the survival of an organization (Agle,Mitchell, & Sonnenfeld, 1999; Kreiner & Bhambri,1991). This dependence of firms on stakeholdersfor resources translates into power for the stake-holder group(s) involved (Mitchell et al., 1997)and gives those stakeholders leverage overfirms (Frooman, 1999). Power is often a functionof the organization's dependence on the stake-holder. Generally, the more dependent the or-ganization, the more powerful the stakeholder(Frooman, 1999). For instance, in a study involv-ing insurance companies, Kreiner and Bhambri(1991) found that organizations were more con-cerned with and gave high priority to publicpolicy issues generated by critical stakeholders.In a more recent study, in which data providedby CEOs of eighty large U.S. firms were used,Agle et al. (1999) found that the degree to which

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op managers give priority to stakeholders isEiubstantially influenced by the power attributedo those stakeholders.

Clearly, given that organizations have finiteesources in terms of time and money, organiza-ions are unlikely to proactively address issues

(ind concerns of all stakeholders all the time,"heory (Pfeffer & Salancik, 1978) and researche.g., Kreiner & Bhambri, 1991) on resource de-

])endence indicate that organizations will paymore attention to stakeholders who control re-;ources critical to the organization than totakeholders who do not control such criticalesources. We argue that the different levels of

(ittention devoted to the different stakeholderswill be manifested in the form of different strat-(sgies (i.e., reaction, defense, accommodation,(ind proaction) used to deal with those stake-liolders.

PROSPECT THEORY

Prospect theory (Kahneman & Tversky,979)—a behavioral decision theory—nicely

complements resource dependence theory in ex-]3laining how and why an organization's man-igement allocates different levels of attention to

different stakeholders. Central to prospect the-)ry is the hypothetical value function depictinghe relationship between the actual value of anjption and the psychological value of that op-ion. The hypothetical value function suggestshat an individual's estimate of the psychologi-

cal value of an option differs systematically1 rom the actual value of that option. This differ-

nce is attributed to the reference point individ-lals use to evaluate options. A typical reference]joint is the status quo—one's current posi-ion—or it could be an aspiration—the level of

1 benefit one hopes to achieve (Kahneman & Tver-sky, 1984).

Kahneman and Tversky (1979) posit that theeference point determines whether the out-

comes are evaluated in terms of gains or losses.Y loss or postponement of a gain is framed as

(I loss. The avoidance or postponement of a losss framed as a gain. Because most subjects have

(in S-shaped value function that is concave inhe domain of gains and convex in the domain ofosses, losses relative to the reference pointoom larger than gains such that one unit of losss weighted more than an equal amount of gain.IJonsequently, individuals are risk seeking in

2001 Jawahai and McLaughlin 403

the loss domain but risk averse in the gain do-main.

In studies investigating this framing hypoth-esis, researchers have demonstrated that dis-crete choices between a risky and riskless (cer-tain) option of equal expected value indeeddepend on whether the options are described inpositive terms (e.g., lives saved) or in negativeterms (e.g., lives lost). In their classic study Tver-sky and Kahneman (1981) demonstrated a choicereversal in which the majority of the subjectswho were given the positively framed version ofthe "Asian disease problem" (a certain option ofsaving one-third of the lives versus a one-thirdchance of saving all lives and a two-thirdschance of saving no lives) selected the optionwith the certain outcome, whereas the majorityof subjects who were given the negativelyframed version (a certain loss of two-thirds ofthe lives versus a one-third chance of losing nolives and a two-thirds chance of losing all lives)selected the risky option. After an exhaustivereview of the research on framing effects. Levin,Schneider, and Gaeth concluded that

overall, evidence for the effect of framing on riskychoice reveals a relatively consistent tendencyfor people to be more likely to take risks whenoptions focus attention on the chance of avoidinglosses than when options focus on the chance torealize gains. The opposite pattern, wherein risktaking is more common for the positive than thenegative frame, is rare (1998: 153).

In a recent meta-analysis conducted with 157single effect sizes, Kuhberger (1998) reported anoverall effect size of d = .5, providing strongsupport for the framing effects hypothesized inprospect theory.

However, arguments and results purported tocontradict prospect theory have also been pre-sented. For instance, Staw, Sandelands, andDutton (1981) presented the threat-rigidity hy-pothesis, positing that entities faced withthreats will become rigid and more likely re-spond in a conservative manner. Based on sucharguments, several authors have proposed thatempirical results of risk taking for opportunitiesand risk aversion for threats contradict prospecttheory's prediction of risk aversion for gains andrisk seeking for losses (e.g., Hollenbeck, Ilgen,Phillips, & Hedlund, 1994).

Such an interpretation is inaccurate for tworeasons. First, the constructs "threat" and "op-portunity" are distinct from Kahneman and

Tversky's gain domain and loss domain. Threatsand opportunities refer to individual percep-tions, whereas loss and gain refer to decision-making perspectives. Indeed, Highhouse andYuce (1996) have presented evidence to showthat threat/opportunity perceptions can have ef-fects on risk independent of loss and gain per-spectives. Second, the framing manipulation instudies that purport to contradict predictions ofprospect theory is of the outcome salience/attribute framing type, which is different fromthe reference point/risky choice framing under-lying prospect theory (see Levin et al., 1998, for adetailed discussion). For instance, Kuhberger(1998) argues that Staw et al.'s (1981) threat-rigidity hypothesis applies only to studies inwhich the salience of outcome is manipulated(e.g., Hollenbeck et al., 1994) and has little to dowith prospect theory.

Although in some studies researchers havefailed to find framing effects as predicted inprospect theory (e.g.. Smart & Vertinsky, 1977), instudies that purport to have found results oppos-ing predictions of prospect theory, researchershave inappropriately invoked prospect theory(Kuhberger, 1998; Levin et al., 1998) to explainresults. In summary, a preponderance of re-search has shown that individuals are riskaverse for gains of high probability, choosing acertain option over a risky option, and are riskseeking for losses of high probability, choosinga risky option over a certain option (Tversky &Kahneman, 1992).

Labels such as thieat and opportunity typi-cally used by strategic decision makers to clas-sify environmental events (Christensen, An-drews, Bowen, Hamermesh, & Porter, 1982;Dutton & Jackson, 1987) could serve as referencepoints and influence how the decision questionis framed—that is, as a loss or as a gain. Pros-pect theorists posit that in the context of gains,individuals will be risk averse and choose theoption with a certain outcome over a risky op-tion, whereas in the context of losses, individu-als will be risk seeking and choose the riskyoption over the option with a certain outcome.

Actively addressing the interests and issuesof all primary stakeholders would be a "certain"option—an option certain to elicit a continuousflow of resources needed by the organization tosurvive and prosper. Theoretically, then, an or-ganization's most risk-averse approach for deal-ing with stakeholders would be to address all


stakeholder groups and their issues in a proac-tive or accommodative manner. Proaction andaccommodation involve anticipating and ac-cepting responsibility, respectively; both in-volve addressing stakeholder issues to enhancethe interests of stakeholders. In contrast to thedefense or reaction strategy, proaction and ac-commodation are the most risk-averse manage-ment strategies, because such strategies aremore likely to satisfy stakeholders. Satisfyingstakeholders is likely to prevent potential prob-lems, such as unfavorable publicity, disruptiveemployee actions, and lawsuits that could im-pede the flow of resources needed by the organ-ization (Frooman, 1999; Mitchell et al., 1997).

The "riskiest" option would be to ignore theinterests and issues of all stakeholders. Becauseorganizations are dependent on other organiza-tions and stakeholders for resources, this wouldnot be a viable strategy—not practical becausean organization cannot exist in a vacuum (Pfef-fer & Salancik, 1978) but, rather, is dependent onstakeholders for resources. Some of these stake-holders may control resources critical for sur-vival. Issues of these stakeholders have to beaddressed more actively than issues of stake-holders who do not control such critical re-sources. Stakeholders who are critical for sur-vival have to be dealt with in a proactivemanner or, at the very least, accommodated. Thestrategies of defense and/or reaction, however,could be used to deal with the less critical stake-holders. The defense strategy involves defend-ing against the demands of stakeholders, andthe reaction strategy involves denying any re-sponsibility for stakeholder issues. Both of thesestrategies are likely to be less satisfactory tostakeholders than the strategies of proactionand accommodation. Actively addressing the in-terests and issues of some but not all stakehold-ers would be a "risky" option, because stake-holders whose interests were not addressedsatisfactorily might either directly or throughother stakeholders hinder the supply of re-sources needed by the organization (Frooman,1999; Mitchell et al., 1997).

In summary, actively addressing the issues ofall stakeholders would be a "certain" option il-lustrative of risk aversion. Using the strategiesof proaction or accommodation to address is-sues of some stakeholders but using the strate-gies of defense or reaction to address the issuesof other stakeholders would be a "risky" option.

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illustrative of risk seeking. Based on prospecttheory and resource dependence theory, we pro-])ose two theorems.

Theorem 1: In the absence of threats toorganizational survival, a gain framewill be adopted, and the organizationwill pursue a risk-averse strategy andactively address all stakeholders' is-sues.

Theorem 2: In the presence of threatsto organizational survival, a lossframe will be adopted, and the organ-ization will pursue a risky strategy.The risky strategy will involve ac-tively addressing issues of only thosestakeholders who are relevant to theimmediate loss threat while at thesame time defending or denying anyresponsibility for issues of other stake-holders, taking, of course, the risk as-sociated with such neglect.

ORGANIZATIONAL LIFE CYCLE

Models of life cycle stages are not new in theiterature on organizations (Chandler, 1962).Ilhandler introduced stages to a life cycle modeln which he noted that as stages changed, so didirms' strategies and structures. Organizationalife cycle models vary widely in a number ofeatures, including the actual number of stages.

:Jased on a study of 181 periods of history fromhree dozen firms. Miller and Friesen (1980) sug-jested a rough sequential ordering of stages:

'. iirth, growth, maturity, and revival. Using Millermd Friesen's (1984) data, Drazin and Kazanjian1990) reanalyzed the life cycle progression hy-jothesis and found support for a four-stagenodel. Also, in a number of studies, researcherslave used the four-stage niodel (see Baird &S4eshoulam, 1988). In general, the life cycle of aypical organization consists of four identifiable)ut overlapping phases of start-up, emergingjrowth, maturity, and revival.

Theory and research indicate that the behav-or of organizations can be predicted by means)f organizational life cycle models (see Milli-nan. Von Glinow, & Nathan, 1991). For instance,smith, Mitchell, and Summer (1985) found thatpriorities of top management varied with or-janizations' life cycle stages. Cameron and her;olleagues have established a link between life


cycle stages and criteria for evaluating organi-zational effectiveness. For instance, in one studyQuinn and Cameron (1983) developed a model toshow that criteria used to evaluate effectivenessvary with the stage of the organization in theorganizational life cycle. In another study Cam-eron and Whetten (1981) used eighteen simu-lated organizations to demonstrate that the cri-teria for effectiveness varied with the stage ofthe organization. Here we show that the relativeimportance of stakeholders to an organizationwill vary with the life cycle stage of the organi-zation.

Theory and research suggest that the pres-sures, threats, and opportunities in the externaland internal environment of an organizationvary with the life cycle stages (see Anderson &Zeithaml, 1984; Dodge, Fullerton, & Robbins,1994; Dodge & Robbins, 1992). For instance.Dodge and Robbins (1992) analyzed 364 smallbusiness case reports to identify the relativefrequency of major problem categories over thelife cycle and found that small businesses con-tend with different problems in the variousstages of the organization's life cycle. In anotherstudy Dodge et al, (1994) found that firms in theearly stages of the life cycle were more con-cerned with potential obstacles to the attain-ment of capital requirements than those in thelater stages. In another study involving 105firms, Kazanjian (1988) found that problems per-ceived as dominant by managers varied withthe life cycle stage of the organization. Althougha few specific hypotheses tested in these studiesdid not receive empirical support, in general,the aforementioned studies individually andcollectively demonstrate that the threats and op-portunities vary with the life cycle stages oforganizations.

Because threats and opportunities vary withlife cycle stages, organizations are likely tohave different needs, in terms of resources, indifferent stages of the organizational life cycle.From the perspective of prospect theory, theseneeds in the light of organizational resourceshave the potential to serve as reference pointsfor making resource allocation decisions. Insome life cycle stages, certain needs are likelyto be so critical that if they are not fulfilled, theorganization is unlikely to survive. If fulfillmentof such critical life cycle-specific needs is se-verely threatened or is forecasted to be severelythreatened, then the decision maker is likely to

adopt a loss frame and to interact with stake-holders whose participation is most essentialfor meeting those critical needs in a proactiveor, at the very least, accommodative manner.The strategy of proaction involves anticipatingand accepting responsibility and, therefore, canonly be used when threats are forecasted. If athreat currently exists, then it will be too late forproaction, and firms can at best only use accom-modation. The strategy of defense or reaction islikely to be used in interacting with the otherstakeholders whose participation is not essen-tial for meeting those critical needs. Alterna-tively, in other life cycle stages, needs are un-likely to rise to such a level as to threatenorganizational survival. In the absence of suchcritical life cycle-specific needs, the decisionmaker is likely to adopt a gain frame, pursue arisk-averse strategy, and actively address con-cerns and issues of all stakeholders.

A DESCRIPTIVE STAKEHOLDER THEORY

In this section we integrate organizational lifecycle theory, resource dependence theory,prospect theory, and stakeholder managementstrategies to present a descriptive stakeholdertheory. We (1) show that at any given organiza-tional life cycle stage, certain stakeholders,because of their potential to satisfy critical or-ganizational needs, will be more important thanothers; (2) identify specific stakeholders likely tobecome more or less important as an organiza-tion evolves from one stage to the next; and(3) propose that the strategy an organizationuses to deal with each stakeholder will dependon the importance of that stakeholder to the organ-ization relative to other stakeholders.

Because an organization is dependent on itsenvironment for resources (Pfeffer & Salancik,1978), the importance of a stakeholder will de-pend on the needs of the organization and theextent to which the organization is dependenton that stakeholder, relative to other stakehold-ers, for meeting its needs. Therefore, at anygiven time, some stakeholders will be more im-portant than others. Because the needs of anorganization change over time, the relative im-portance of stakeholders will also change as theorganization evolves through the stages of start-up, growth, maturity, and transition. We alsoidentify the particular stakeholders who arelikely to become more or less important. Organ-


izations do not simply respond to each stake-holder individually; they respond, rather, to theinteraction of multiple influences from the entirestakeholder set (Rowley, 1997). We believe that,depending on the relative importance of thestakeholders, an organization will use differentstrategies to deal with different stakeholders.The theory we present here identifies the partic-ular strategy a firm might use to deal with eachof the primary stakeholders in each stage of theorganizational life cycle. Identifying the relativeimportance of stakeholders and describingstrategies an organization might use to dealwith those stakeholders is or should be the es-sence of any viable descriptive stakeholder the-ory. This paper is the first to advance such acomprehensive descriptive stakeholder theory.

Start-up Stage

The start-up stage is the period in which de-veloping and implementing a business plan, ob-taining initial financing, and entering the mar-ketplace are dominant concerns. In this stagethe most critical needs, which have the potentialto threaten organizational survival, are start-upfunds, cash flow, and customer acceptance(Dodge et al., 1994; Dodge & Robbins, 1992). Forinstance, using data provided by 105 firms,Kazanjian (1988) found that securing financialresources was perceived as a crucial problem inthe start-up stage. In another study, conductedwith data collected from 364 firms. Dodge andRobbins (1992) found that finance and marketingproblems were perceived as crucial for organi-zational survival. The specific marketing prob-lems identified were establishing customer con-tact and assessing and defining target markets;finance problems were undercapitalization andlocating financial resources. These findings aresupportive of the argument that the viability ofthe firm and subsequent movement to the nextstage depend upon securing financial resourcesand gaining customer acceptance for productsand/or services.

The threat of organizational failure willserve as the reference point; resource alloca-tion decisions are likely to be framed as lossesor potential losses and a risk-seeking strategyadopted. As discussed earlier (see the discus-sion of prospect theory), decision makers whoare evaluating options in the loss frame willchoose a risky strategy over a riskless (certain)

iment Review July

Strategy. The risk-seeking strategy involves

!

he choice of the risky option: actively ad-Iressing the issues and interests of someitakeholders while simultaneously defending

(igainst or denying responsibility for issues ofother stakeholders. We invoke resource depen-

ence theory to propose that issues of stake-olders who control resources critical to atart-up organization will be addressed ac-ively, whereas issues of stakeholders onhom the start-up organization is not depen-

dent for survival will not be actively ad-dressed.

Relative to other stakeholders, shareholderscmd creditors are likely to be the primary sup-pliers of critical start-up funds, and customersthe primary source of revenues. Consequently,shareholders, creditors, and customers arelikely to have the most potential to influenceorganizational survival. Therefore, based on re-source dependence theory, we propose that or-ganizations will be proactive in attracting bothstockholders and creditors and in addressingtheir issues. Proactive attention to customersc:nd their issues might also be expected, be-cause they represent the source of continuingcash flow. Enticing adequately trained appli-cants to join the start-up venture as employeesi3 likely to at least require a competitive com-pensation package, along with the assurancettiat future compensation will be tied moreclosely with organizational profits. Similarly, toensure timely supply of quality materials and,c t the same time, obtain price discounts, man-cgement might be expected to attempt to nego-t ate flexible contractual arrangements withsuppliers. Such flexible contractual arrange-rients might take the form of management'sriaking an exclusive commitment to a supplierfor a specific duration in order to obtain a steadysupply of an item (or items), with pricing contin-cent upon the quantity of item(s) actually pur-chased.

Although employees and suppliers, as stake-holders, are important for survival, most likelyt: ley will only be accommodated because of thet: emendous resources (time and financial com-nitment) already expended to proactively ad-cress the concerns and issues of stockholder,creditor, and customer groups. Actively address-i:ig issues of suppliers of capital and materialresources, customers, and employees is oftenelmphasized in the literature as critical for


avoiding failure of start-up organizations (Rous-sel, 2000).

Given the loss frame and risk-seeking strat-egy expected during start-up, the organizationwill pursue a risky strategy to deal with theremaining stakeholders, unless, of course, thestart-up requirements indicate a critical need(e.g., obtaining a grant, permit, and so on) forsuch stakeholders (e.g., government). There-fore, a start-up firm is likely to pursue a de-fensive strategy to deal with government andcommunity stakeholder groups, only satisfy-ing the minimum requirements at the latestpossible date, primarily to avoid any reprisal,legal or otherwise. This expectation is consis-tent with the "not-too-uncommon" reports ofstart-up firms facing cash-flow problems thatdefer tax remittances as much as possible toensure survival.

Because of the loss frame and the concernsof the more important stakeholders, a start-upfirm will use a reaction strategy to deal withtrade associations and environmental groups.These stakeholders will be ignored, unless, ofcourse, the trade association or environmentalgroups have something very valuable to offerto the firm, such as permits, endorsements, orcritical information. In summary, we proposethe following.

Proposition 1: During the stait-upstage, resource aiiocafion decisionswill be framed in the context of losses,and a risk-seeking strategy of defenseor reaction will be pursued to dealwith stakeholders not critical fororganizational survival. Specifically,a corpoiation will assume the risk ofusing the strategy of reaction to dealwith trade associations and environ-mental groups and the strategy of de-fense to deal with government andcommunity stakeholders. However,the corporation will use the strategy ofproaction to deal with stockholders,creditors, and customers and the strat-egy of accommodation to deal withemployees and suppliers, since thesestakeholders are critical for survival.

Emerging Growth Stage

The emerging growth stage follows thestart-up stage. By this stage, the firm has

achieved a degree of success; the previouslydominant concern for survival has largely beenovercome, and the firm is actively seeking andengaged in expansion opportunities. Typicalproblems faced as sales activity steadily in-creases are stabilizing production and product(and/or service) reliability, matching demand in-creases, maintaining cash flow, and formalizingorganizational structure (Dodge & Robbins,1992). The emerging growth stage is the periodin which significant new investment is likelyand the number of employees, customers, andgeographic contact is expanded. Although theseneeds may be significant, they are unlikely to becritical enough to seriously threaten organiza-tional survival. This assertion is consistent withHrebiniak and Joyce's (1985) position that firmsin the growth stage find their environment nei-ther threatening nor constraining. In the ab-sence of critical needs, and given initial suc-cess, resource allocation decisions are likely tobe framed from the gain domain and a risk-averse strategy adopted.

As described earlier, a risk-averse strategyinvolves the choice of a certain option—that is,an option most likely to ensure continued supplyof resources needed by the organization. Exer-cise of this option will be manifested in the formof addressing the issues of all stakeholders in aproactive or accommodative manner. Based onresource dependence theory, we suggest thatthe choice between proactive and accommoda-tive strategy will, of course, depend on the rel-ative importance of stakeholders in terms oftheir ability to meet the needs of an emergingorganization.

During this highest growth period, organiza-tions fine-tune themselves into a clockwork op-eration and tend to develop a bureaucraticstructure (Modis, 1994). Upon movement into thisrapid growth and expansion stage, the firm'sattention to stockholder issues may be reducedto accommodation. Stockholder equity is al-ready committed, and, generally, the stock mar-ket is very generous to companies during thisperiod. However, if expansion were to be fundedwith equity instead of debt, the assumption ofaccommodation for stockholders would be inap-propriate, and in such cases stockholders wouldbe dealt with in a proactive manner. Creditorissues, however, could be expected to continuereceiving proactive attention, since creditorswould most likely be the source of funding for

408 Academy of Manage >ment Review

growth and expansion. In many cases invest-ment bankers would also be a source of profes-sional guidance. Proactive attention is likely tobe devoted to employee and supplier stakehold-ers in order to address the need to build a qual-ity workforce and products and to obtain re-sources to accommodate such rapid growth andexpansion.

Demand usually exceeds supply during rapidgrowth, and, consequently, attention to cus-tomer issues may be reduced to accommodation.Also, during the growth stage, an organizationmay become proactively involved with relevanttrade associations in order to learn as much aspossible about potential opportunities andthreats. To minimize potential risks, the firm willaccept responsibility for government, environ-mental, and community stakeholders, and theirconcerns will be accommodated. Therefore, weoffer the following proposition.

Proposition 2: During the emerginggrowth stage, resource allocation de-cisions will be framed in the context ofgains, and a risk-averse strategy willbe pursued to deal with stakeholders.Specifically, issues of creditors, em-ployees, suppliers, and trade associa-tions will be addressed proactively,and concerns of stockholders, custom-ers, governments, communities, andenvironmental groups will be accom-modated.

Mature Stage

The mature stage is the relatively flat periodthat follows the rapid growth period. As an or-ganization enters the mature stage, managersoften regard the company and themselves assuccessful, respected leaders and role models.Although the rate of growth has slowed, thisstage is often characterized by the overconfi-dence of success, tempered, of course, with theuncertainty oi the search for a new direction thatcould potentially lead the organization throughanother period of rapid growth (Modis, 1994). Themature stage is often attended by strong cashflows, without particularly attractive investmentopportunities. In light of the leadership image,overconfidence, excess cash, and the absence ofcritical needs, resource allocation decisions arelikely to be framed from a gain domain, and arisk-averse strategy is likely to be pursued.

July

In the mature stage most stakeholders will bedealt with in a proactive manner. For example,(smployees will be dealt with in a proactivemanner, and substantial investments in training(tnd development activities are likely in thissitage. Incentive programs to enhance productiv-ity are likely to be implemented, and innovationis likely to be encouraged and supported to fa-cilitate the search for new direction. Commu-nity, trade association, government, environ-iaental, and supplier stakeholders will also beCEddressed proactively because of the availabil-ity of excess cash and management's motivationto live up to the leadership self-image. As theI lature stage progresses, stock prices are likelyto decline because of the reduced rate of growth.Ilecause stock prices decline owing to the re-c.uced potential for future earnings, proactivec ttention to shareholders' concerns may be es-£ ential for lengthening the tenure of the organi-2ation's top management. However, because ofexcess cash and the relative ease with whichnature organizations can raise capital (Dodge€ t al., 1994), attention to creditors will be reducedf :om proaction to accommodation. Creditors willbe accommodated to the extent they are neededt D maintain as strong a credit rating as possiblef Dr outstanding debt.

Our assertion—in the mature stage a firm islikely to deal with all primary stakeholders(with the exception of creditors) in a proactivemanner—is consistent with theoretical argu-ments (e.g.. Burke, Logsdon, Mitchell, Reiner, &Vogel, 1986; McGuire, Schneeweiss, & Sundgren,1988) and empirical findings. For instance. Burkeet al. (1986) propose that larger firms attractmore attention from external constituents andneed to respond more openly to stakeholder de-mands. Given that firms are likely to be larger inthe mature stage than in any other stage, Burkeet al.'s proposal may be interpreted as support-ive of our theoretical position that most, if notall, stakeholders will be dealt with proactivelyin the mature stage. In a sample of Fortune 500firms, Stanwick and Stanwick (1998) found thatlarger firms have higher levels of profitabilityand CSP as measured by the Fortune Reputa-tional Index. Similar findings have been re-ported by others (e.g., Fombrun & Shanley, 1990).From the slack theory's perspective, availabilityof slack resources provides opportunities for or-ganizations to invest in social performancedomains (see McGuire et al., 1988). Because of


excess cash, organizations in the mature stageare likely to actively address issues of all stake-holders. For instance, in a recent study con-ducted with Standard and Poors 500 organiza-tions, Waddock and Graves (1997) reported thata multidimensional index of CSP was positivelyrelated to financial performance of the previousyear. Based on the aforementioned theoreticalproposals and empirical findings supportive ofour arguments, we propose the following.

Proposition 3: During (he maturestage, resource allocation decisionswill be framed in the context of gains,and a risk-averse strategy of proactionwill be used to deal with all stake-holders, except for creditors, who willbe accommodated.

Decline/Transition Stage

As an organization begins to slip from themature stage into the stage of decline or transi-tion, management is likely to reassess the strat-egies currently in use to deal with the differentstakeholder groups. In this stage the demand foran organization's traditional products and/orservices will be reduced, prompting manage-ment to consider such strategies as mergers,downsizing, and layoffs to ensure organization-al survival. Since this is a survival stage, corpo-rate decisions that pertain to CSP generally willbe framed from the context of losses, and a risk-seeking strategy will be used to deal with stake-holders other than those most needed for organ-izational survival.

In the decline/transition stage, customer is-sues may be given proactive attention in aneffort to build a new market or rebuild marketshare. Scholars have argued that technical effi-ciency is important when the rate of growthslows (e.g., Adizes, 1979). Indeed, in a field studySmith et al. (1985) found that regaining technicalefficiency was an important concern of top-levelmanagers. Similarly, Kazanjian (1988) found thatfirms were especially concerned with develop-ing second-generation or completely new prod-ucts to spur growth. Creditors also will be ad-dressed proactively in order to obtain morefunding, because most likely the excess cashfrom the mature stage will now be depleted. Forinstance, studies have shown that organiza-tions' munificence or slack decreases as growth

slows (Ford, 1980). Shareholders' concerns willbe addressed proactively, if not to stabilize stockprices at the very least to lengthen top manage-ment tenure. Lengthening tenure by garneringpolitical support has been reported as a highpriority for top-level managers of firms in ad-vanced stages (Smith et al., 1985).

Attention to employees and suppliers mostlikely will be reduced to accommodation, andthe organization, in an effort to cut costs andstabilize stock prices, will entertain and some-times implement extreme cost-cutting mea-sures, including downsizing, outsourcing, or re-ducing the diversity of operations. For instance,when Chrysler found itself in the revival/transition stage, it bargained for and obtained awage concession from employees. That is,Chrysler's strategy to deal with employeesshifted from proaction to accommodation.

Just as in the start-up phase, unless govern-ment, community, trade association, and envi-ronmental stakeholder groups are needed forsurvival, organizations are likely to pursue adefensive strategy toward governments andcommunities, and they may ignore trade associ-ations and environmental groups. This assertionis consistent with arguments put forth by otherscholars. For instance, Meznar, Chrisman, andCarroll (1991) argue that start-up firms and firmson the verge of bankruptcy often resort to a clas-sical strategy. A firm employing the classicalstrategy concerns itself with nothing other thaneconomic performance and focuses primarily oneconomic stakeholders. Decisions are made,given legal constraints, entirely on the basis ofhow they will affect the bottom line. Meznar etal. add that "since a failed firm will add novalue to society, a classical strategy may bewarranted and preferred over the demise of thefirm" (1991: 59). According to these authors,"Greyhound Bus Lines, as it downsized and re-negotiated contracts in order to survive in an eradominated by planes and automobiles, illus-trates the economically oriented 'classical' strat-egy" (Meznar et al., 1991: 59-60).

Chrysler did address governmental concernsproactively, but only because the governmentwas a source of funding—and funding was es-sential for Chrysler's survival. Nevertheless, theChrysler example confirms that as the threat tosurvival becomes dominant in the decline/transition stage, firms proactively managestakeholders important for survival. Relative to

410 Academy of Management Review July

organizations like Chrysler, most other organi-zations are less important to the economy and,consequently, are unlikely to attract as muchattention as Chrysler did from the government.Because of resources expended to deal with im-portant stakeholders like stockholders, credi-tors, customers, employees, and suppliers, andbecause of the lack of attention from govern-ment stakeholder groups, organizations in thedecline/transition stage are likely to use thestrategy of defense to deal with the governmentstakeholder group. Therefore, we offer the fol-lowing proposition.

Proposition 4: During the decline/transition stage, resource allocationdecisions will be framed in the contextof losses, and a risk-seeking strategyof defense or reaction will be used todeal with stakeholders not critical fororganizational survival. Specifically,the strategy of reaction will be used todeal with trade associations and envi-ronmental groups and the strategy ofdefense to deal with government andcommunity. However, the strategy ofproaction will be used to deal withstockholders, creditors, and customers,and the strategy of accommodationwill be used to deal with employeesand suppliers, since these stakehold-ers are critical for survival.

DISCUSSION

Stakeholder management is fundamentally apragmatic concept (Donaldson, 1999). Organiza-tions have finite resources, and managers musteffectively deal with many pressures in theircompetitive environments, in addition to thoseexerted by stakeholders. Finite resources andbusiness concerns are likely to substantially in-fluence corporate decisions, including those re-lating to CSP. Indeed, Carroll (1979), Shrivastava(1995), and others (e.g., Gioia, 1999) have all em-phasized the primacy of economic responsibilityover noneconomic responsibilities. Results of arecent study provide indirect suppoirt for sucharguments. For instance, in a study that in-volved CEOs, Agle et al. (1999) found that topmanagers attributed more importance to stake-holders who contributed to the traditional pro-duction function—shareholders, employees, and

customers—than to government and communitystakeholder groups.

In this article we integrated theory and re-search from disparate areas to present a de-scriptive stakeholder theory. The theory isfounded upon the premise that organizationalneeds vary with life cycle stages. The particularstakeholder or stakeholders with potential tomeet those needs will be perceived as critical toorganizational well-being, and their concernsand issues will be addressed proactively, or atleast accommodated. Stakeholder strategies ofdefense and reaction will be used to deal withother stakeholders, depending on the extent towhich the organization relies on those stake-holders.

Rowley (1997) argues that firms do not respondto each stakeholder individually but, instead,address the simultaneous demands of multiplestakeholders. Our theory goes a step further toshow that organizations are likely not only touse different strategies to deal with differentstakeholders at a given time but to use differentstrategies to deal with the same stakeholderover time. For instance, according to our stake-holder theory, in the start-up stage stockholders,creditors, and customers will be addressed pro-actively, and employees and suppliers will beaccommodated. However, a start-up organiza-tion will use the strategy of defense to interactwith government and community stakeholdersand the strategy of reaction to deal with tradeassociations and environmental stakeholdergroups. As noted before, the strategy an organi-zation uses to deal with a stakeholder will varywith the life cycle stage of the organization. Forinstance, employees will be accommodated inthe start-up stage, addressed proactively in thegrowth and mature stages, and then only ac-commodated in the decline/transition stage.

In contrast to Brenner and Cochran's (1991)model, our stakeholder theory is falsifiable, andit is much more comprehensive than earlier at-tempts to develop descriptive stakeholder mod-els (e.g., Jones, 1994; Mitchell et al., 1997). Forinstance, it is more comprehensive than Mitchellet al.'s (1997) model because we not only identifythe critical stakeholders but also detail thestrategies most likely to be pursued by manage-ment to deal with those critical vis-d-vis otherstakeholders in each stage of the organizationallife cycle. Identifying the relative importance ofstakeholders and describing strategies an or-


ganization might use to deal with those stake-holders is or should be the essence of any viabledescriptive stakeholder theory. This paper is thefirst to advance such a comprehensive descrip-tive stakeholder theory. The explicitly statedtheorems and propositions present a wealth ofresearch opportunities that have at least themodest potential to elevate our stakeholder the-ory into the ranks of major theories of the organ-ization.

LIMITATIONS AND RESEARCH IMPLICATIONS

The stakeholder theory presented here con-tains several propositions that can be testedusing the methodology devised and used byClarkson (see Clarkson, 1988, 1991, 1995). A com-prehensive test of our theory will require cate-gorizing organizations into one of the life cyclestages, measuring organizational decision mak-ers' perceptions of threats and their framing ofresource allocation decisions, and using Clark-son's RDAP scale to discern strategies used todeal with stakeholders. Such a comprehensivetest will involve multiple levels of analysis andthe use of multiple methods of data collection.

The stakeholder theory we present ignores in-dividual differences. Managers' beliefs, values,and ideologies are likely to influence the strat-egies the managers use to deal with differentstakeholders. For instance, Greer and Downey(1982) report that managers' values relative tosocial regulation influenced their reaction tostakeholders covered by those statutes. Simi-larly, top managers' beliefs regarding the role ofcorporations in society have been shown to in-fluence insurance firms' responses to socialpressures (Miles, 1987). Our theory does not ex-plicitly address the politics involved in the de-cision-making process (Cohen, March, & Olsen,1972). Clearly, politics are likely to be most evi-dent in decisions that pertain to the allocation ofscarce resources (Pfeffer & Salancik, 1978). Forinstance, functional managers, in order to in-crease their power, may exaggerate threats fromtheir stakeholders, leading top managers toform an inaccurate picture of demands on theorganization. Such acts of self-interest maycause the organization to be out of sync with thepredictions of our stakeholder theory.

This stakeholder theory was developed to spe-cifically describe the CSP of strategic businessunits as they evolve from one stage to the next.

Larger, diversified organizations with multipledivisions may have the resources to activelyaddress stakeholders of divisions that are in thestart-up or revival stages. In future researchscholars should investigate this possibility todelineate potential boundary conditions. Be-cause the incidence of certain kinds of threats ismuch more common in some life cycle stagesthan in others, we have focused attention onthreats specific to life cycle stages. However, werealize that organizations may face threats in-dependent of life cycle stages (e.g., governmentintervention in the form of regulation/deregula-tion, technological innovation) that could causeorganizations to be out of sync with cycle-specific predictions. Even in such cases, our fun-damental argument that an organization willuse proaction, accommodation, defense, and re-action strategies to deal with stakeholders, de-pending on the extent to which those stakehold-ers have the ability to fulfill the "critical"business needs of the organization, is likely tohold.

Our stakeholder theory may be limited to tra-ditional businesses. The recent phenomenon ofdot.com companies appears to defy traditionalbusiness models. Investors provide funding fordot.com companies, even when such companiesacknowledge bleak prospects for profits in theshort to midterm. In contrast to traditional organ-izations, because of the ease with which dot.combusinesses can raise capital, such companiesmay not actively address the issues of creditorsand investors in the start-up stage. Instead, thekey concern for dot.com business start-ups ap-pears to be attracting talented employees withthe technical expertise to develop the product/service. As electronic commerce matures, it willbe interesting to observe if the forces that drivedot.com companies shift toward and moreclosely align with the models and conceptsrelevant to traditional business organ-izations.

The descriptive stakeholder theory we presentdoes not explicitly address how CSP may varywith the industry of the organization. For in-stance, during the start-up stage, environmen-tal, government, and community groups arelikely to be among the critical stakeholders for ahazardous waste disposal company but not fora financial institution. Consequently, whereas adisposal company in the start-up stage will pro-actively address issues of environmental, gov-


ernment, and community groups, a financial in-stitution is unlikely to do so. Also, Waddock andGraves (1997) note that the average level of CSPvaries with industry. However, research alsoshows that firms in the same industry mightexhibit different responses to similar institu-tional pressures (Bhambri & Sonnenfeld, 1988;Miles, 1987). In future research scholars shouldexamine such industry differences and also in-vestigate the influence of individual differencesand organizational politics on an organization'sstakeholder management strategies.

The complexity of organizations and organ-izational phenomena guarantees that theoriesand models, especially universal ones, cannotgive a complete representation. Our attempt todevelop a descriptive stakeholder theory fromthe contingency perspective and stretch thebounds of current thinking on stakeholdermanagement is the primary contribution ofthis article.

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L M. Jawahar is an assistant professor of management at Illinois State University. Hereceived his Ph.D. in human resource management and organizational behavior fromOklahoma State University. His current research interests include performance ap-praisal, organizational justice, and social issues in management, particularly stake-holder theory and practice.

Gary L. McLaughlin is the senior director for International Tax at Wal-Mart Stores, Inc.He received his MBA from the University of Arkansas. His interests include stake-holder management and the management of global cross-functional teams.

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