2.3 Stakeholder theory
2.3.4 Stakeholder management
Since an organisation is viewed as a group of people with diverse interests, an organisation then can be thought to be an entity which through its managers, manage the various interests of people (Fontaine et al., 2006; Jiao, 2010). The managers protect stakeholders’ rights and ensure profitability of the business for the sake of the shareholders (Fontaine et al., 2006; Jiao, 2010; Ayuso et al., 2012).
Ayuso et al. (2012) reiterate that managers are agents of stakeholders and by doing so make sure that the interests of all stakeholders (including shareholders) are managed sustainably. Hornby (2010) defines shareholders as owners of shares in a company, that is, through shares they contribute capital to a business. Stakeholder management therefore concerns managing and balancing various stakeholder interests with the view that doing so enhances the benefits derived from a resource under management (Reynolds et al., 2006; Banerjee and Bonnefous, 2011).
The first and important aspect of stakeholder management is communication (Phillips, 2004). It is frequent and constant communication with stakeholders which helps managers to avert conflict as well as ensure that the organisation meets the needs of its stakeholders (Phillips, 2004). Thus, through frequent communication managers receive feedback on how well the organisation is doing in meeting
stakeholder needs. In addition, De Nooy (2013) asserts that communication among stakeholders fosters achievement of natural resource management objectives because it improves agreement on facts and management goals. Consequently, communication should also allow stakeholders to make a contribution towards the running of the organisation (Phillips, 2004).
Since the success of an organisation hinges on effective communication among stakeholders, it is important to manage stakeholder needs (Tullberg, 2013). Thus, another aspect of stakeholder management is that managers should maintain a balance in meeting the needs of various stakeholders (Phillips, 2004; Reynolds et al., 2006). This means that considerable resources must be invested in contributing to all stakeholder interests which maybe conflicting (Tullberg, 2013). However, this does not mean that all stakeholders must receive equal amount of attention or resources in meeting their needs. Rather, stakeholder needs should be met proportionate to their contribution to the organisation (Phillips, 2004). Jawahar and McLaughlin (2001) argue that a large share of resources should go to stakeholders who control or have power over an organisation’s resources. In addition, allocation of resources to stakeholder management must be commensurate with the level of threat they pose to the survival of the organisation (Jawahar and McLaughlin, 2001). Thus, such stakeholders receive a bigger share of the resources when compared to stakeholders who do not control any of the organisation’s resources.
It is believed that the ethics of business are lower than those of everyday life and some people believe that it should remain so (Phillips, 2004). However, the normative stakeholder theory introduces a moral aspect of considering high ethics in business (Phillips, 2004; Ayuso et al., 2012). Thus, the theory requires that managers consider the interests of all its stakeholders in the management processes of the organisation (Freeman, 2009). To do so, managers need to adopt certain strategies for each of its stakeholders relative to stakeholder demands and importance (Ayuso et al., 2012). Some of the strategies that could be adopted in managing stakeholder needs are discussed next.
2.3.4.1 Stakeholder management strategies
Various stakeholders have different interests and demands on an organisation, some of which can be conflicting and this demands that an organisation develops strategies for managing stakeholder needs (Ayuso et al., 2012). Initially, Carroll (1979) and Wartick and Cochran (1985) proposed that whatever management strategies an organisation develops, it can be categorised into RDAP strategies. Working on the foundation set by these authors, Clarkson (1995) developed an RDAP scale of strategies to stakeholder management and the scale ranges from doing less than is required to doing more than is required as shown in Table 2.1. However, Jawahar and McLaughlin (2001) building on the work by Carroll (1979), Wartick and Cochran (1985) and Clarkson (1995) later proposed that the strategy taken by an organisation should depend on whether there is a threat to an organisation’s survival or
not. If a threat exists, an organisation will adopt a risky strategy to address the needs of the stakeholder(s) posing the threat. In this instance, an organisation will satisfy the needs of the stakeholder(s) posing a threat while concomitantly refusing to satisfy the needs of stakeholder(s) not posing any threat to the organisation. Nevertheless, if a threat does not exist, then an organisation will adopt a strategy which will satisfy the needs of all stakeholders (Jawahar and McLaughlin, 2001).
Table 2.1: The RDAP Scale (Source: Clarkson, 1995: 109)
Rating Posture or Strategy Performance
1. Reactive Deny responsibility Doing less than is required 2. Defensive Admit responsibility but fight it Doing the least that is required 3. Accommodative Accept responsibility Doing all that is required 4. Proactive Anticipate responsibility Doing more than is required Table 2.1 summarises the different strategies available to managers of an organisation in managing stakeholder needs. As shown in the Table 2.1, a reactive strategy is one where an organisation decides to refute any responsibility and thus does less than is required. A defensive strategy is one where an organisation acknowledges responsibility over stakeholder claims but does so with much resistance.
In addressing stakeholder needs, managers only do the least required actions (Carroll, 1979; Clarkson, 1995). An accommodative strategy is one where an organisation accepts responsibility over stakeholder claims and in addressing the stakeholder needs, the managers go all the way in doing all that is required (Carroll, 1979; Clarkson, 1995). Thus, the organisation becomes accommodative of the stakeholder claims. Lastly, a proactive strategy is one where an organisation foresees the possible future responsibility. Thus, the managers actively engage the stakeholders in the organisation and do more than is required to meet stakeholder needs (Carroll, 1979; Clarkson, 1995). This strategy ensures that stakeholders are satisfied and thus averts possible problems in the future (Jawahar and McLaughlin, 2001).
At any given time, an organisation will adopt one or more of the four RDAP management strategies to deal with stakeholder claims (Jawahar and McLaughlin, 2001). For instance, an organisation’s managers may adopt proaction or accommodation to meet the needs of stakeholders who pose a threat to the survival of an organisation. Thus, as stated previously, the management strategy adopted will depend on the type of stakeholders making claims. In identifying which management strategy is needed by stakeholders, Ayuso et al. (2012) classifies stakeholders into primary and secondary. An organisation’s primary stakeholders are groups of people “that are essential for the business itself to exist and/ or have some kind of formal contract with the business (that is, shareholders, employees, customers, and suppliers)” (Ayuso et al., 2012: 6). Such stakeholders would merit a proactive or accommodative strategy because they hold power to an organisation’s critical resources or have power over operation licences such as government (Jawahar and McLaughlin, 2001). Therefore, an organisation’s managers will allocate more resources towards managing stakeholders with more
power. Conversely, an organisation’s managers could adopt a defensive or reactive strategy for secondary stakeholders (Jawahar and McLaughlin, 2001). Ayuso et al. (2012: 7) define secondary stakeholder group to include “social and political stakeholders that play a fundamental role in obtaining business credibility and acceptance of business activities (that is, NGOs, activists, communities, governments, media, and competitors).” In addition, non-human, non-present, peripheral (not readily identifiable) and environmental stakeholders are part of secondary stakeholders (Ayuso et al., 2012). According to Verbeke and Tung (2013), stakeholder salience in stakeholder management changes as the organisation evolves from early stages of establishment to later stages of existence. This implies that the strategies adopted to manage stakeholders change throughout the lifecycle of an organisation.