Stakeholder Theory and Management

Stakeholder

An individual or group that has an interest in, is affected by, or can influence an organization's decisions or success.

Stakeholder Orientation

An approach to business that considers the interests and welfare of multiple stakeholders rather than focusing only on shareholders.

Internal Stakeholders

People or groups within the organization who have a direct role in its operations, such as employees, managers, the CEO, and board of directors.

External Stakeholders

People or groups outside the organization who affect or are affected by the organization, such as customers, suppliers, government, communities, competitors, media, and NGOs.

Board of Directors

The group that oversees the organization's mission and direction, sets major goals, and selects the CEO or president.

CEO (Chief Executive Officer)

The top executive who manages the organization and implements the policies and direction established by the board.

Employees

Internal stakeholders who provide labor and skills to the organization and are affected by pay, benefits, working conditions, and management decisions.

Shareholders

Individuals or groups who own shares of a company and have a financial interest in its performance.

Customers

External stakeholders who purchase an organization's products or services and can influence the organization through purchasing decisions, reviews, loyalty, or complaints.

Suppliers

External stakeholders who provide the goods, materials, or services necessary for an organization's operations.

Government

An external stakeholder that establishes and enforces laws and regulations that organizations must follow.

Community

The people and organizations in areas affected by a company's operations and decisions.

Competitors

Organizations operating in the same industry that can influence industry standards, practices, and norms.

Media

External stakeholders that can influence public awareness and an organization's reputation through news and information.

NGOs (Nongovernmental Organizations)

Organizations outside government that can influence businesses by advocating for social, environmental, or ethical issues.

Stakeholder Interdependence

The idea that organizations and stakeholders depend on one another and that changes affecting one stakeholder can affect others.

Stakeholder Claim

A particular stakeholder's interest or demand regarding a business decision or action.

Stakeholder Welfare

The well-being and interests of people and groups affected by an organization's decisions.

Power-Interest Matrix

A tool used to prioritize stakeholders according to how much power they have and how much interest they have in an organization or issue.

High Power / High Interest

Stakeholders with significant influence and strong interest; they should be managed closely and given substantial attention.

High Power / Low Interest

Stakeholders with significant influence but relatively little interest; they should generally be kept satisfied and monitored.

Low Power / High Interest

Stakeholders who care strongly about the organization or issue but have limited influence; they should generally be kept informed.

Low Power / Low Interest

Stakeholders with limited influence and limited interest; they require less attention but should still be monitored.

Stakeholder Prioritization

The process of determining which stakeholders deserve the most attention based on factors such as power, interest, urgency, and their relationship with the organization.

MITRE Stakeholder Management Framework

A five-step stakeholder-management process that emphasizes maintaining trust through identifying stakeholders, gathering and analyzing information, communicating findings to management, and showing stakeholders that they matter.

MITRE Step 1: Establish Trust

The first step of the MITRE process; organizations build and maintain trust with stakeholders.

MITRE Step 2: Identify Stakeholders

Organizations identify the people and groups that can affect or be affected by the organization.

MITRE Step 3: Gather and Analyze Data

Organizations collect information about stakeholders and analyze their concerns, interests, and claims.

MITRE Step 4: Present Information to Management

Stakeholder information is communicated to organizational leaders so it can be considered in decision-making.

MITRE Step 5: Let Stakeholders Know They Matter

Organizations communicate with stakeholders and demonstrate that their concerns and interests are being considered.

Grunig and Hunt

The scholars associated with the linkages model, which categorizes stakeholders according to their relationship with an organization.

Grunig and Hunt Linkages Model

A model that categorizes stakeholders into enabling, functional, normative, and diffused groups based on their relationship with an organization.

Enabling Stakeholders

Stakeholders who provide an organization with resources, authority, or permission to operate.

Examples of Enabling Stakeholders

Stockholders, government regulators, legislators, and boards of directors.

Functional Stakeholders

Stakeholders involved in the organization's inputs and outputs, including those who provide resources and those who receive or distribute products and services.

Functional Input Stakeholders

Stakeholders who help provide inputs needed by an organization, such as employees, unions, and suppliers.

Functional Output Stakeholders

Stakeholders connected to an organization's outputs, such as customers, distributors, and retailers.

Normative Stakeholders

Stakeholders within an organization's industry who influence industry norms, standards, or informal rules.

Examples of Normative Stakeholders

Competitors, peer organizations, professional associations, political groups, and industry organizations.

Diffused Stakeholders

Stakeholders with less direct relationships to an organization but who can still significantly affect it.

Examples of Diffused Stakeholders

NGOs, community residents, voters, media organizations, and special-interest groups.

Four Categories of Stakeholders

The four Grunig and Hunt categories are enabling, functional, normative, and diffused stakeholders.

Enabling vs. Functional Stakeholders

Enabling stakeholders provide authority or resources that allow an organization to operate, while functional stakeholders are involved in the organization's inputs and outputs.

Normative vs. Diffused Stakeholders

Normative stakeholders influence industry standards and norms, while diffused stakeholders have less direct relationships but can still influence the organization.

Descriptive Approach

A stakeholder theory lens that describes how organizations actually behave toward stakeholders and how stakeholder relationships work.

Instrumental Approach

A stakeholder theory lens that argues effective stakeholder management can help an organization achieve its goals, including improved financial performance.

Normative Approach

A stakeholder theory lens that argues stakeholders should be treated as ends in themselves because their interests have inherent value, not merely because doing so benefits the company's profits.

Three Stakeholder Approaches

The descriptive, instrumental, and normative approaches used to understand stakeholder theory.

Descriptive vs. Instrumental

The descriptive approach explains what organizations actually do, while the instrumental approach focuses on how stakeholder management can help organizations achieve goals.

Instrumental vs. Normative

The instrumental approach views stakeholder management as useful for achieving organizational goals, while the normative approach views stakeholders as valuable in their own right.

Legal Responsibility

The responsibility of a business to obey applicable laws and regulations.

Ethical Responsibility

The responsibility to do what is morally right, which can require going beyond what the law requires.

Ethical Minimum

The least a company can do to claim it is acting ethically, generally involving compliance with legal requirements.

Ethical Maximum

The strongest or most responsible ethical action a company could reasonably take in a situation.

Social Responsibility of Business

The view that stakeholders should not simply be treated as a means to earn profit but should be valued as ends in themselves.

Corporate Social Responsibility (CSR)

The idea that businesses have responsibilities to society and should consider their effects on stakeholders, communities, and the environment.

Genuine CSR

CSR that represents a real commitment to social, ethical, and environmental responsibilities rather than simply a public-relations strategy.

Greenwashing

Superficial or misleading CSR efforts used to make a company appear environmentally responsible while hiding or failing to address deeper environmental or ethical problems.

Triple Bottom Line

A business approach that considers three areas of performance: people, planet, and profit.

People in the Triple Bottom Line

The social dimension of sustainability, focusing on employees, communities, customers, and other people affected by the organization.

Planet in the Triple Bottom Line

The environmental dimension of sustainability, focusing on protecting natural resources and reducing environmental harm.

Profit in the Triple Bottom Line

The economic dimension of sustainability, focusing on the organization's financial performance and ability to remain economically viable.

Shareholder-Oriented View

The view that a business should primarily focus on creating financial value for its shareholders.

Stakeholder-Oriented View

The view that a business should consider the interests and welfare of all important stakeholders, not just shareholders.

Stakeholder Theory

The theory that organizations have responsibilities to multiple stakeholders whose interests should be considered in organizational decision-making.

Stakeholder Trust

The confidence stakeholders have that an organization will act reliably, honestly, and responsibly toward them.

Stakeholder Engagement

The process of communicating with and involving stakeholders when making organizational decisions.

Stakeholder Power

The ability of a stakeholder to influence an organization's decisions or actions.

Stakeholder Interest

The degree to which a stakeholder cares about or is affected by an organization's actions or a particular issue.

Stakeholder Urgency

The degree to which a stakeholder's claim requires immediate attention.

Stakeholder Significance

The importance or potential impact of a stakeholder's interests or claims to the organization.

Stakeholder Claims Can Change

Stakeholder importance can change over time as circumstances, issues, power, interest, and urgency change.

Why use the Power-Interest Matrix?

To determine which stakeholders require the most attention and what type of relationship or communication strategy should be used.

Why prioritize stakeholders?

Organizations have limited resources and must determine which stakeholder claims and relationships require the greatest attention.

Why is stakeholder welfare important?

Businesses have ethical responsibilities to the people and groups affected by their decisions, and stakeholder welfare can also contribute to long-term organizational success.

Why can laws be insufficient for ethical decision-making?

Laws establish minimum standards, but ethical responsibilities can extend beyond what is legally required.

Ethical Minimum vs. Ethical Maximum

The ethical minimum represents the least acceptable action, while the ethical maximum represents a stronger effort to fulfill ethical responsibilities.

CSR vs. Greenwashing

CSR involves genuine responsibility toward society and the environment, while greenwashing uses superficial or misleading environmental claims to create a positive image.

Enabling Stakeholders — Memory Trick

Think "ENABLE" — they provide the authority, resources, or permission that enables the organization to operate.

Functional Stakeholders — Memory Trick

Think "FUNCTION" — they are connected to the organization's inputs and outputs.

Normative Stakeholders — Memory Trick

Think "NORMS" — they influence the rules, standards, and expectations of the industry.

Diffused Stakeholders — Memory Trick

Think "DISTANT" — they have less direct relationships but can still influence the organization.

Power-Interest Matrix — Memory Trick

High power + high interest = manage closely; high power + low interest = keep satisfied; low power + high interest = keep informed; low power + low interest = monitor.

Descriptive — Memory Trick

"DESCRIBE" = What is the organization actually doing?