Part One
3.3 To Whom Do Voluntary Organisations Account To?
3.3.14 Stakeholder Theory: Predicting Important Accountability Relationships
could not detect what dynamics and processes were at play, nor suggest explanations, and their open-ended questions yielded limited results. They urged follow-up research, using qualitative techniques (Woodward and Marshall, 2002).
Some authors have theorised about how voluntary organisations should prioritise between stakeholders. Smith (1993) argues decisions on managing multiple stakeholders should be made on a moral basis; Lawry (1995) on an ethical basis; and Bogart (1995) for economic considerations to guide the decisions. Brown and Moore (2001) argue that all three bases as well as legal requirements need to be considered.
Lansley (1996) suggests that many organisations only cope because some stakeholders do not assert their rights for an account, or managers decide who to give account to based on a calculation of the support the organisation can least do without, or base their decisions on ideological positions.
There has been limited theoretical or empirical work to date on the relative priorities assigned to accountability relationships. Given that there is a potentially wide range of stakeholders to account to, and the problems that multiple accountabilities generate, this is an important omission in the literature. Indeed, Leat’s (1996: 62) conclusion still stands:
There is little data on how voluntary organisations define accountability, what priority they attach to it, and what systems and procedures they have in place.
Studies raising the issue of accountability tend to be concerned primarily with accountability to statutory funders.
What is a Stakeholder?
What constitutes a stakeholder? Mitchell et al (1997) identify two responses to this question – those who propose a narrow definition and those who propose a broad one.
A narrow definition focuses on stakeholders in terms of their direct relevance to an organisation’s economic interests. It focuses limited managerial time on the most important external constraints. Stakeholders are usually mandated by regulations or laws or contracts, or pose financial risk, or a risk to the achievement of the organisation’s goals (Cornell and Shapiro, 1987; Freeman and Evan, 1990). In contrast, a broad conceptualisation of stakeholders includes all individuals or groups who can affect or are affected by the organisation. The basis of the relationship is stakeholder power over the organisation derived from their stake in the organisation’s successful achievement of its goals (Freeman, 1984).
Whatever definition is adopted, theorists recognise that managers only have so much energy and that priority must be attached to stakeholders. Important stakeholders will be given an account; managers will not be able to account to all stakeholders (Mulgan, 2003). A number of categorisation schemas of stakeholders are presented to guide managers in their stakeholder sorting decisions:
• Generic vs specific stakeholders: the difference depending on the issues the stakeholders are interested in (Frooman, 1999);
• Primary vs secondary: the difference depending on the strength of the stakeholder (Frooman, 1999; Rowley and Moldoveanu, 2003);
• Claimant and influencer: stakeholders rights based on either a direct claim or the ability to influence the organisation (Kaler, 2002a);
• Compatible and incompatible: with organisation objectives (Friedman and Miles, 2002); and
• Voluntary and involuntary: whether the organisation chose to give account to the stakeholders or had no choice but to (Rowley and Moldoveanu, 2003).
However, Kanter and Brinkerhoff (1981), D’Aunno (1992) and Harrison and Freeman (1999) conclude that most of the schemas are not well developed and offer limited guidance on which stakeholders managers should give most attention to.
Two widely cited studies take up the challenge of showing, conceptually and empirically, who organisations respond to and why (Mitchell et al., 1997; Agle et al., 1999). They develop the idea that stakeholders become salient to managers to the extent that those managers perceive stakeholders as possessing three attributes – power, legitimacy and urgency. Power is defined as the extent to which managers perceive that stakeholders can impose their will on the organisation. Legitimate stakeholders are those that are perceived to have an acceptable claim on the organisation and the power to enforce their claim. Urgent claims are those that are time sensitive and a manager will need to respond to the claim quickly (Mitchell et al., 1997)
These ideas, and stakeholder theory in general, are widely accepted. Critics have challenged its ‘uni-directional’ assumptions as limited recognition is given to the ability of the stakeholder to influence the organisation. Stakeholder theorists have, in the past, focused on how stakeholders should be managed by the organisation.
Current research is addressing this by exploring stakeholder perspectives as Frooman (1999: 192) explains:
Missing from the theory, then, has been an account of how stakeholders manage a firm to enable them to achieve their interests, possibly at the expense of the firms’ … And, if what a firm should do is partly determined by what its stakeholders will do, we need an account of what its stakeholders will do.
Therefore, to be really useful to a firm trying to manage its stakeholders, stakeholder theory must provide an account of how stakeholders try to manage a firm.
Others have also cautioned that a generalised theory of stakeholders must not assume that stakeholders will behave consistently. Their significance may change depending on the issue at hand:
Stakeholders’ significance depends upon the situation and the issues and managers must have appropriate methods to deal with different stakeholders.
Of all the possible stakeholders, the ones who will be relevant to the organisation’s executives depend on the particular issue. Both the stakeholder’s willingness and opportunity to act are particularly sensitive to specific issues … Executives can not assume a supportive stakeholder on the first issue will be so on the second, nor that a non-supportive stakeholder on the second issue will always be non-supportive. Issue specificity suggest that stakeholder diagnosis is an ongoing activity (Savage, 1991: 62-3).
Stakeholder Theory and Voluntary Organisations
Stakeholder theory was developed by theorists considering private sector businesses, and has not been widely applied to voluntary organisations, so how applicable is it to the study of voluntary organisations? Bryson et al (2002), proponents of using stakeholder theory in public policy development, recently applied stakeholder theory to the voluntary sector. Their conclusion was that the importance of managing stakeholders is as important, if not more so, for voluntary sector organisations.
According to Bryson:
The notion of paying attention to stakeholders is very, very old. Niccolo Macchiavelli, for example, really was operating out of a kind of stakeholder theory. And most social science literatures have an idea of who stakeholders are and how they relate to one another, although each literature uses different names for stakeholders. So business management has no exclusive claim to
‘stakeholder theory’ – indeed, I would argue that business management theorists are latecomers to the field. Of course stakeholder theory applies to nonprofit organizations (Bryson, 2003).