Stakeholders’ Centrality in Modern
Corporations and Their Management
Antonio M. Chiesi
Department of Social and Political Studies
University of Milan
Chiesi for Politeia 2008-05-22/23
Definitions: a stakeholder is…
• any group on which the organization relies in its
functioning (Stanford Research Institute 1963)
• a party who affects, or can be affected by, the
organization’s actions (Freeman 1984).
• any actor who has a legitimate interest in the activity
of an organization (Clarkson 1999).
• Voluntary or involuntary contributors to the activities
of an organization, and therefore its potential
beneficiaries and/or risk bearers (Post, Preston and
Sachs 2002).
Chiesi for Politeia 2008-05-22/23
Stockholder and Stakeholder approaches
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Shifting attention from stockholders to
stakeholders interests implies a new
definition of corporate strategy
• From principal-agent approach, according to which
managers are appointed by stockholders in order to
maximize their economic return….
• to multi-stakeholder theory, according to which
managers, in the name of the firm and for its long
term benefit, have to chose a “principal” stakeholder
and pursue the balance of interests between a
plurality of stakeholders.
Chiesi for Politeia 2008-05-22/23
Relation between multistakeholder theory and CSR
• 1.While in the principal-agent theory, managers have to pursue
stockholders’ interests by law, in stakeholder theory their
strategies can become indefinite, give them to much power and
encourage their selfishness. A danger emerges that in a multistakeholder environment managers turn from agents to
brokers.
• 2. While stockholders’ interests are (relatively) clear and
protected by law, stakeholders’ interests are heterogeneous and
not always protected by law, although legitimate. In order to
state the strategic orientation of a firm: a) its mission should be
declared, b) principles of stakeholder management should be
applied, c) some basic values should be adopted (i. e. CSR).
• Therefore, while stockholder theory is based on selfish
interests recognized and limited by law, stakeholder theory has
to be derived from values and goes beyond laws (i. e. CSR).
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A map of stakeholders
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A more specific inventory of stakeholders
Stakeholder Global level
National level Local level
Stockholders
Institutional investors (pension funds, investment
funds) small shareholders,
Personnel
All employees,
transnational trade unions
International institutions
Public
administration (UN, EU, ILO, …)
Family ownership
Domestic employees, Employees living
Trade unions at
around the plants, local
country level
unions
National government
(taxation and norms)
Local government
(reciprocal influence)
The organized
community of persons
and the environment
around the factory
Community
Humanity at large and
future generations
(environmental
implications)
The country (fiscal
implications and
compliance to law)
Customers,
consumers
Transnational movements
(Green Peace, NGOs, ..)
Domestic market, national consumers
movements
Suppliers
International division of
labor and subcontracting
Domestic suppliers
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Local stable suppliers (i.
e. industrial districts)
How to manage stakeholder relations
(Donaldson & Preston 1995)
• Descriptive approach: mapping them and taking into
account their positions,
• Instrumental approach: using stakeholders’ relations
in order to pursue business “as usual”,
• Normative approach: identifying values within an
axiomatic rationality approach (Weber 1922) and
accepting limitations of property rights according to a
principle of distributive justice.
Normative stakeholders’ management
(modified from Clarkson 1999)
• Recognizing them and being informed about their interests
(recognition of legitimate conflicts of interests),
• Communicating transparently with them (stakeholder
dialogue),
• Adopting decisions taking into account their positions,
• Balancing benefits among different stakeholders (distributive
justice),
• Cooperating with them in order to minimize negative
externalities and encourage the production of public goods:
trust, reputation, transparency, accountability (this means that
also stakeholders are requested to behave following the same
rules of reciprocity)
Theoretical problems in stakeholders’ management
• no rules to settle the trade-off between them,
• no rules to define a hierarchy of interests
among them,
• Managers should replace profit maximization
function with Pareto efficiency for all
stakeholders (which is impossible to compute).
• BUT…..
Chiesi for Politeia 2008-05-22/23
..... In practice
These three problems are often by-passed in the
actual practices adopted in managing every-day
relations with stakeholders. Managers try:
• to satisfy dynamically all stakeholders, taking into
account the relative intensity of their pressures (rather
than abstract rules of distributive justice),
• to increase their reputation,
• to improve the image of an organization, in terms of
morality, accountability, sustainability, transparency,
fairness.
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What is actually done in stakeholders’ management:
• Stakeholders have to gain recognition,
• and to engage in negotiations in order to get a larger share of resources
coming from the organization (value added, transfers, benefits).
• Managers are encouraged to give priority to long rather than short term
interests,
• and are drawn to take care of social and environmental consequences of
the organization.
• All parties are drawn to conceive the organization as a collective good,
• are encouraged to comply with practices of accountability, transparency,
reliability, fairness in order to gain reciprocal reputation,
• know that unfair practices and moral hazard can destroy the intangible
asset everyone can enjoy: social capital (Coleman 1990, Lin 2001).
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