Lecture 3: Stakeholder Management Flashcards
Neo-classical economic theory
The purpose of organizations is to make profits in their accountability to themselves and to shareholders, and by doing so, the business contributes to wealth for itself and for society at large
The organization is the centre of the economy: investors, suppliers and employees are contributing inputs (investments, resources, labour)
Power lies with the organization as the other parties depend on them, and everyone only have financial interests in the company
Socio-economic theory
“who counts” extends to groups besides shareholders, who are considered more important for the continuity of the organization and the welfare of society
All persons who hold legitimate interests in an organization
The relationship is not linear, but of interdependency, as they are mutually dependent on each other
Instrumental vs. Normative reasons
Instrumental reasons for organizations to engage with stakeholders (economic objectives), is stakeholder management might increase revenues and reduce cost and risk, and reputational buffers are created for crises or potential damaging litigation
Normative reasons (social objectives): individual / group “rights”, “social contracts”, morality etc., because stakeholders are groups with legitimate interests, so each group merits consideration for its own sake and not merely because of its ability to further the interes of some other group, such as the shareholders
Stakeholder definition (Edward Freeman)
A stakeholder is any group or individual who can affect or is affected by the achievement of the organization’s purpose and objectives
Stake defintion
An interest or a share in an understand that can range from simply an interest in an undertaking at one extreme to a legal claim of ownership at the other extreme
Can be moral interest, economic interest etc
Freeman’s three types of stakes (equity, economic/market, influencer stakes)
Equity stakes: someone who has direct ownership of the organization, such as shareholders, directors, minor interest owners
Economic/market stakes: have an economic interest, but not ownership, such as employees, customers, suppliers, competitors
Influencer stakes: neither have ownership nor economic interest, but have interests as consumer advocates, environmental groups, trade organizations, government agencies
Clarkson’s primary and secondary stakeholder groups
Primary: have financial interest, without whose participation the organization would not survive
Secondary stakeholder group: generally influence or affect, but are not engaged in financial transactions, not essential for its survival in economic terms
Charkham’s contractual and community stakeholders
Contractual stakeholders: have legal relationships with the organization for the exchange of goods and services, e.g. customers, employees, suppliers
Community stakeholders: non-contractual relationship, have impact though their relationship is less defined, e.g. government, regulatory agencies, media
Stakeholder Salience Model
Salience: how visible / prominent a stakeholder is to an organization based on the stakeholder possessing one or more of three attributes: power, legitimacy, urgency
the more salient or prominent stakeholders have priority and therefore need to be actively communicated with. Lesser or hardly salient stakeholders have less priority and it is less important for an organization to communicate with them on an ongoing basis.
Decides who needs to be communicated with when - e.g. dominant and definitive stakeholders need to be communicated with on an ongoing basis, e.g. through corporate newsletters, events, intranets - but they rarely communicate with latent stakeholders
Seven types of stakeholders (salience model)
Dormant Stakeholders (Latent Stakeholder) They have power to impose their will, but they do not have a legitimate relationship or urgent claim, so their power remains dormant. E.g. could be potential customers have little to no interaction with the organization
Discretionary Stakeholders (Latent Stakeholder) Possess legitimate claims, but have no power nor urgent claims. E.g. a recipient of corporate charity
Demanding Stakeholders (Latent Stakeholder) Have urgent claims, but neither power nor legitimacy. E.g. a single demonstrator who camps near a company's site can be embarassing, but his claims are often not considered because he lacks power and legitimacy
Dominant Stakeholders (Expectant Stakeholder) Have power and legitimate claims, which give them a strong influence. E.g. employees, customers, owners, investors
Dangerous Stakeholders (Expectant Stakeholder) Have power and urgent claims, but lack legitimacy. E.g. groups performing employee sabotage
Dependent Stakeholders (Expectant Stakeholder) Have urgent legitimate claims, but rely on others for the power to carry it out. E.g. local residents of a community, who rely on lobby groups and the media
Definitive Stakeholder
Have legitimacy, power and urgency. Because they have all three, they are very powerful and need to be communicated with. Shareholders can turn from dominant stakeholders to definitive stakeholders if they feel like their legitimate interest is not being served
Dormant Stakeholders (Latent Stakeholder)
They have power to impose their will, but they do not have a legitimate relationship or urgent claim, so their power remains dormant. E.g. could be potential customers have little to no interaction with the organization
Discretionary Stakeholders (Latent Stakeholder)
Possess legitimate claims, but have no power nor urgent claims. E.g. a recipient of corporate charity
Demanding Stakeholders (Latent Stakeholder)
Have urgent claims, but neither power nor legitimacy. E.g. a single demonstrator who camps near a company’s site can be embarassing, but his claims are often not considered because he lacks power and legitimacy
Dominant Stakeholders (Expectant Stakeholder)
Have power and legitimate claims, which give them a strong influence. E.g. employees, customers, owners, investors
Dangerous Stakeholders (Expectant Stakeholder)
Have power and urgent claims, but lack legitimacy. E.g. groups performing employee sabotage
