Stakeholder Theory of the MNC

do a company stand for?” in conjunction with it strategy decisions.  

4.3. Analytic theory

4.3.1. Introduction

Has we have seen in the introduction the analytic part of the stakeholder

theory is composed of what Donaldson and Preston called the instrumental and the

descriptive approach. The objective is to understand how managers deal with

stakeholders, how they represent their interests and the impact of the stakeholder

approach in the achievement of various corporate goals.  

We are going to consider an organization centric view of the stakeholder

theory witch mean that the firm is considered to be the nexus of the interests of each

stakeholder. This is the vision of Freeman and his model has seen contributions of

Savage (1991), Clarkson (1995), Jones (1995), and Mitchell, Agle, and Wood (1997).  

The analytic theory is necessary to answer the question: how to organize into

hierarchy stakeholders influence? Each author has a different point of view and we

are going to see each model, theory or contribution. Even if their theories converge

in order to find a unique stakeholder theory, there are still differences and the authors

have not found a consensus yet.  

 

Stakeholder Theory of the MNC  

4.3.2. Strategic management: Freeman (1984) and Savage et Al.

(1991)

Freeman gave two definitions of a stakeholder:  

•

“Group of people who can affect or can be affected by the achievement of the

organization’s objectives” (1984)

•

“Those groups who are vital to the survival of the organization” (2004)

Belong to him, in order to enhance an organization’s stakeholder management it

is necessary to begin by defining who the stakeholders of the corporation are. If we

apply his definition, it means: “who are those groups who can affect or can be

affected by the achievement of the organization’s purpose”? This mean mapping the

stakeholders, providing detailed list of the specific groups and companies related to

each category of stakeholders, and a corresponding list of interests. For Freeman the

corporation occupies a central position and has direct connections to all Stakeholders

(see Figure 1 pg.11).  

Freeman suggests that each MNC should distinguish important stakeholders and

negligible stakeholders. For him the MNC has to limit the number of stakeholders and

to not take care of inoffensive stakeholders. To facilitate important stakeholder

mapping Freeman suggests the following question:  

•

Who are our current and potential stakeholders?

•

What are their interests/rights?

•

How does each stakeholder affect us?

•

How do we affect each stakeholder

•

What assumption does our current strategy make about each important

stakeholder?

•

What are the “environmental variables” that affect us and our stakeholder?

•

How do we measure each of these variables and their impact?

•

How do we keep score with our stakeholders?

 

Stakeholder Theory of the MNC  

In order to find the optimal strategy for each group of stakeholder Freeman

suggests analyzing the stakeholder behavior and possible coalitions between

stakeholders groups.  

The stakeholder behavior can be delineated investigating in the past actions of

such kind of groups. It is necessary to analyze the actual behavior of stakeholders,

their cooperative potential and competitive threats.  

Coalition may develop if different groups of stakeholder have common interests or

common issues linked to the activity of the MNC. They can then form a more

powerful group witch has to be taken into account. For Freeman manager should

scan the environment for instance of similar actions, interests, beliefs, or objectives

between stakeholders groups. The formation of a coalition can change stakeholder

strategy and positions on issues.  

These two analysis lead to a more realistic map of company’s stakeholders. It

also allows the manager to construct a logical explanation to explain why specific

stakeholders act in a particular way. The company has to determine the long terms

objectives of each groups and consider the stakeholders as rational.  

This map of stakeholders allows finding the optimal strategy for each group.

Freeman is going to consider two variables to determine the optimal strategy: the

relative power of stakeholders and their potential to cooperate or threaten corporate

strategy. Savage et Al. (1991) gave guidance on the measurement of these

variables. The power of threat is determined by resource dependence, the

stakeholder’s ability to form coalitions, and relevance of the threat to particular issue.

The potential to cooperate is determined by the stakeholder’s capacity to expand its

dependence with the organization: the greater is the dependence, the greater is the

willingness to cooperate. As a result Savage et Al. distinguish four types if

stakeholders:  

•

Supportive: high cooperative potential and low competitive threat.

Considered as the ideal type and it includes the board of trustees,

managers, employees, parent companies, suppliers, service providers and

non-profit organizations.  

 

Stakeholder Theory of the MNC  

•

Marginal: low cooperative potential and competitive threat. Includes

consumers’ interest groups, professional association for employees and

shareholders.

•

Non-supportive: low cooperative potential and high competitive

threat. Includes competitors, unions, media and government.

•

Mixed Blessing: high cooperative potential and competitive threat.

Includes client and organizations with complimentary products and

services.  

Freeman distinguishes four main strategies depending of the type of

stakeholders:  

•

Offensive strategy: Should be adopted when a group is supportive. It

includes trying to change stakeholder objectives or perceptions, to adopt

the stakeholder position or to link the program to others that the

stakeholder views more favorably.

•

Defensive strategy: Should be adopted when a group is Non supportive.

The objective is to prevent competitive threat on the part of these

stakeholders. It means reinforcing current beliefs about the firm,

maintaining existing programs or letting the stakeholder drive the

integration process.

•

Swing strategy: Should be adopted when a group is Mixed blessing.

The firm has to take decisions such as changing the rules, the decision

forum, the transaction process…

•

Hold strategies: Should be adopted when a group is marginal. The

company should hold its current position and continue current strategic

program.

Has we can see Freeman but also Savage et al. do a separation of

stakeholders regarding the cooperative potential and the competitive threat.  

 

Stakeholder Theory of the MNC  

Clarkson (1995) introduce a distinction between primary stakeholders and

secondary stakeholders. Primary stakeholders as those “without whose continuing

participation, the corporation cannot survive as a going concern,” suggesting that

these relationships are characterized by mutual interdependence. Secondary

stakeholders are not vital for the MNC. Primary stakeholders are the partners of the

firm whereas secondary stakeholders have voluntary relationships with the firm.  

4.3.3. Stakeholder identification: Mitchell, Agle and Wood (1997)

The major contribution for relationships between managers and

stakeholders and the way to categorize them comes from Mitchell, Agle, and Wood

(1997). They tried to find a model to explain logically why managers should consider

certain classes of entities as stakeholders and how prioritize stakeholder

relationships. They put forward three objective criterions in order to organize into

hierarchy stakeholders of a company: the stakeholders power to influence the firm,

the legitimacy of the stakeholders relationship with the firm and the urgency of the

stakeholders claim of the firm. These three criterions can be combined and it lead to

seven stakeholders types (see figure 2). There are three types of power:  

•

Coercive power: based on physical resources of force, violence, or restrain

•

Utilitarian power: based on financial or material resources

•

Normative power: based on symbolic resources such as being able to

command attention of the media

But it is not the only way to classify a stakeholder as a high priority.

Legitimacy is required to provide authority. They use the Suchman’s definition of

legitimacy: “a general perception that the actions of an entity are desirable, proper, or

appropriate within some socially constructed system of norms, values, beliefs and

definitions. “  

Urgency is based on time sensitivity, the degree to witch managerial delay

in attending to the claim is unacceptable fro the stakeholder, or critically.  

Urgency  

3

 

Stakeholder Theory of the MNC  

Stakeholder Type  

Latent:  

1. Dormant

2. Discretionary

3. Demanding

Expectant:  

4. Dominant

5. Dangerous

6. Dependant

Highly salient:  

7. Definitive

Figure 2: Model of stakeholder salience 

All attributes can be gain as well as lost. A  

/ Source: Mitchell, Agle, and Wood (1997)  

stakeholder is a low priority if only one attribute is

recognizes, he became a moderate priority if two attributes are held and a high

priority if the three attributes are perceived.  

Possession of an attribute is subjective. Sometime a stakeholder may not be

conscious of possessing an attribute, but at the end it is the manager who decides

witch stakeholder has this or another characteristic. So manager could incorrectly

perceive the field, and should ask the questions Freeman uses for mapping

stakeholders. Furthermore this possession is also dynamic. For example for Nike,

NGOs were only legitimate at the beginning, but became urgency with the media

support and then powerful with the boycott appeal.  

4.3.4. Friedman and Miles (2002)

Friedman and Miles (2002) use two criterions to define firms stakeholder

relationships. Their typology of organization-stakeholder relations is based on two

distinctions:  

•

Compatible or incompatible in terms of sets of ideas and material interests

 

Stakeholder Theory of the MNC  

•

Necessary or contingent. Necessary relationships are internal to a social

structure or to a set of logically connected ideas. Contingent relations are

not integrally connected.

As a result four relationships between MNC and stakeholders are

distinguished. For each of them they encourage certain strategic actions.  

Necessary

Contingent  

Type A

Defensive

Type B

Opportunism

Compatible Shareholders

Top management

Partners

The general public

Companies connected through

Common trade association  

Type D  

Compromise  

Trade unions

Low-level employees  

Incompatible Government

Customers

Creditors

Some NGOs  

Type E  

Competition/elimination  

Criminal

Members of the public

Some NGOs  

Type A: Necessary compatible relationships when all parties have something

to win this connection. It is so logic to protect this relationship as a strategy.  

 

Stakeholder Theory of the MNC  

Type B: contingent compatible institutional arrangements. The two parties

have the same interest but there is no direct relationship between parties. An

opportunistic strategy is the logical strategy.  

Type C: contingent incompatible institutional arrangements. The two parties

have separate, opposite and unconnected set of idea or interests. It becomes a

problem when one of two parties insists on its position. The strategy corresponds of

defending its own interest by seeking to eliminate or by discrediting oppositional

views.  

Type D: Necessary incompatible relations occur when material interests are

necessarily related to each other, but their operations will lead to the relationship

itself being threatened. The situational logic is concession and compromise.  

As we can see stakeholder theories, normative and analytic, are widely different

between times and authors.  

5. The stakeholders: from theory to practice.

5.1. The Corporate Social Responsibility theory

The way businesses involve the shareholders, employees, customers,

suppliers, governments, non-governmental organizations, international organizations,

and other stakeholders is usually a key feature of the Corporate Social Responsibility

(CSR) concept.  

According to the Commission Green Paper (2001), the CSR is a concept

whereby companies integrate social and environmental concerns in their business

operations and in their interaction with their stakeholders on a voluntary basis.

Amongst other things, this definition helps to emphasize that:  

•

An important aspect of CSR is how enterprises interact with their internal and

external stakeholders (employees, customers, neighbors, non-governmental

organizations, public authorities, etc.);

 

Stakeholder Theory of the MNC