Stakeholder

Stakeholder Theory and Analysis

Freeman's work was seminal in the development of stakeholder theory and in advancing academic debate. Since 1984, academic interest in a stakeholder approach has both grown and broadened. Indeed the number of citations using the word stakeholder has increased enormously. The stakeholder concept is being embraced by many as an inclusive philosophy, which can be justified by the organizations' increasing need of dealing with complex contexts. The term is widely used by academicians, politicians, managers, and consultants. However, the academic validity of the concept is disputed by those that argue that stakeholding is too vague and imprecise and the term can mean almost anything the author desires. The stakeholder approach has also been contested because of its marginal treatment of critical concepts such as equity, power, and resistance.

Stakeholder theory proposes that stakeholding has a dual instrumental-normative quality. On one hand, incorporating stakeholders' participation enhances the organization's management capabilities in a globalized context characterized by increasing socioeconomic interconnectivity. On the other hand, promoting plurality and inclusivity and recognizing the intrinsic value of stakeholders' interests makes it morally superior (e.g., in terms of democracy and social justice) to traditional managerial approaches based on the mere optimization of shareholders' gains.

In more practical terms, stakeholder theory seeks to describe and examine the connections between stakeholder legitimate interests, stakeholder management practices, and the achievement of the goals of an organization. This examination should lead to: (1) a better understanding of needs of stakeholders in order to set the bounds of operation and (2) the formulation of recommendations for increasing governance efficiency.

Stakeholder analysis typically consists of the systematic identification and characterization of the most relevant stakeholders for an organization or initiative: that is, those stakeholders exerting, or trying to exert, influence on the company's decisions and activities. Stakeholders with similar interests, claims, or rights can be classified into different categories according to their roles (e.g., employees, shareholders, customers, suppliers, regulators, nongovernmental organizations). In corporate governance, stakeholders are often classified into primary and secondary groups. Primary stakeholders are fundamental for the firm's operation and survival. Such stakeholders include owners, investors, employees, suppliers, customers, and competitors, as well as nature (physical resources and carrying capacity). Secondary stakeholders are those influenced by the firm's operations, but not directly engaged in transactions with the firm, and consequently not essential for its survival. Examples of secondary stakeholders are local communities and local business support groups. Secondary stakeholders can be of high strategic importance for the success of particular operations and activities of a company. A second methodological step consists of determining [Page 919]the stake of stakeholder. Stakes and groups can be categorized as threats and opportunities that build a stakeholder strategy matrix.

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