Theory Of Stakeholder

Why Required? Organisations are Managers have to collections of individuals with different demands and limited ability to attend to demands Influenced by actors controlling critical resources and Have attention of the managers Managers have to Balance divergent interests Allocate resources Consistent with claims of stakeholder groups Perception of managers of various demands and their salience is important. They are the only ones with relationships with all other stakeholders. Managers act on their perception. Perception and values, therefore, act as moderators of action of managers Structured and standard way of determining salience removes or reduces perception

What To Do? Identify stakeholders Prioritise stakeholders – decide salience Act on basis of salience of stakeholders

Stakeholder Definitions 1980 – Jones Corporations have an obligation to constituent groups in society other than stockholders and beyond that prescribed by law or union contract. This indicates that a stake may go beyond mere ownership 1989 – Alkhafaji groups to whom the corporation is responsible 1991 - Thompson, Wartick, and Smith Groups "in relationship with an organization"

Stakeholder Definitions Broad Definition Includes practically everyone except those that have nothing to do with the organisation 1984 – Freeman A stakeholder in an organization is (by definition) any group or individual who can affect or is affected by the achievement of the organization's objectives Narrow Definition Depends upon the stakeholders relevance to the organisation 1983 – Freeman stakeholders are those groups on which the organization is dependent for its continued survival

Stakeholder Classifications Primary and Secondary Owners and Non-owners Owners of capital and Owners of less tangible assets Actors and those Acted upon Voluntary relationship and Involuntary relationship with firm Rights holders Resource providers to firm Dependent on the firm Influencers Legal principals

Stakeholders and Stake “Who and What Counts” Types of entities that can be stakeholders. Quite well settled. It is “Who Counts” People Groups Neighbourhoods Organisations Societies Institutions Environment What is the stake? “What Counts”. Controversial Depends upon the understanding of what is at stake. The existence and nature of stake.

Stakeholders Identification Theories define conditions under which certain classes of entities are stakeholders Who are stakeholders Normative theory of stakeholder identification What are stakeholders Descriptive theory of stakeholder identification

Who Is A Stakeholder? To understand, differentiate between groups Influencers vs. Claimants Actual vs. Potential relationship

Stakeholder? Is the stakeholder defined through influence and claim or by just one of these? Influencers Have power over the firm irrespective of the Claim Claimants Have a claim over the firm irrespective of the Influence that they may have Claim can be Legitimate Illegitimate

Stakeholder? Can there be a stake without actual relationship or a potential relationship also identifies stakeholders? Actual relationship Actual willful relationship Depends upon Power Dependence Reciprocity Generally decided through power-dependence Potential relationship (Latent Stakeholders) Involuntary stakeholders who are not willfully at risk due to the firm

Stakeholder? Nature Of Relationship Doing something to give meaning to the firm. Relationship could be latent or active Nature decided by power-dependency Stakeholder dominant Organisation depends on stakeholders for survival Firm dominant Stakeholders depend upon organisation Mutually dependent Each depend upon the other for their goals

Narrowing Stakeholders Relationship Contractual Power Dependence Exchange In general Broad Definition Emphasises power to influence irrespective of legitimacy Narrow Definition Emphasises legitimacy

Stakeholder? Legitimacy Of Relationship Bases Contractual relationship – suppliers etc Legal claim Stakeholder has something of value at risk Moral claim by stakeholder

Stakeholder? Ilegitimacy Of Relationship Bases Assertion of claim by stakeholder Ability to influence the organisation

Typology Method Identify Prioritise Act on salience of stakeholder Use broad definition by Freeman to include all stakeholders Any group or individual who can affect or is affected by the achievement of the organisation objectives Identify classes of stakeholders using their possession of three attributes Power to influence the firm Legitimacy of the stakeholder relationship with the firm Urgency of the claim on the firm Prioritise Use theory of Salience to identify importance of stakeholders Identifies managerial behaviour towards stakeholders Predicts movement of stakeholders from one class to another Act on salience of stakeholder Firm Centered Purpose To ensure economic well being of the firm System Centered Purpose To balance the stakeholder requirements

Stakeholders Attributes Independent attributes Power Legitimacy Urgency Salience Degree of importance to the stake

Stakeholders Attributes Power Definitions Ability to get someone do something even against his wishes Ability to bring the outcome one desires even against wishes of others Bases of power (how it is exercise) Coercive Based on use of physical resources of restraint, force or violence Utilitarian Based on use of material resources of reward Normative Based on use of symbolic resources such as prestige, love, acceptance

Stakeholders Attributes Legitimacy Definition A generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions. Defined and negotiated on levels Individual Organisational Societal Legitimacy defined by society so definition is Sociologically based Authority = Power + Legitimacy Power and Legitimacy are independent

Stakeholders Attributes Urgency Definition Degree to which stakeholder claims call for immediate attention Attributes Time sensitivity Degree to which the delay is acceptable to the stakeholder Criticality Importance of the claim or relationship to the stakeholder Some reasons for criticality Expectation Sentimentality Ownership – assets that lose value elsewhere Exposure - Risk

Attributes - Implications Stakeholder attributes are Variable i.e. not steady state Perceptual i.e. Socially constructed Conscious i.e. willful exercise may not be present

Assumptions Various classes of stakeholders may be identified using three attributes Power Legitimacy Urgency Managers pay attention to specific classes of stakeholders depending upon what they want to achieve Manager’s perception dictates salience of stakeholders

Stakeholder Classes

Stakeholder Classes

Salience More the attributes, more the salience Stakeholder can improve his salience by acquiring the missing attribute or by alliances with stakeholders having such attributes

Classes Latent – 1 attribute Expectant – 2 attributes Dormant Discretionary Demanding Expectant – 2 attributes Dominant Dependent Dangerous Definitive - 3 attributes

Classes Latent Dormant Discretionary Demanding Low salience Not likely to get attention or acknowledgement of the firm Dormant Posses Power Normally unused Power Can acquire legitimacy or urgency Examples Fired employees RTI applicants Discretionary Posses Legitimacy Powerless to do anything No pressure on managers to engage with them Example NGOs beneficiaries Demanding Posses Urgency Require passing attention as can be irksome Few demonstrators

Classes Expectant Dominant Dependent Dangerous Two attributes Active and expectant Dominant Power + Legitimacy May have formal mechanism to exercise both Example PR with Government Dependent Urgency + Legitimacy Power is used through existing rules or norms Needs attention if ties up with dominant stakeholders Civil society activists Dangerous Power + Urgency Coercive and possibly violent Examples Terrorism Wild cat strikes

Classes Definitive Examples All three attributes Dominant stakeholder can move into this class with urgency Examples Change of Management by dissatisfied board

Salience ?