We describe two approaches to stakeholder theory - a social science approach and a normative ethics approach- since neither of them is complete without the other.
One group of scholars views stakeholder theory as a potential foundation for the growth of social science-based research; another views stakeholder theory as an umbrella term describing a class of narrative accounts, each based on its own moral principles.
We argue that convergent stakeholder theory demonstrates how managers can create ways of doing business that are both moral and workable.
THE CURRENT STATE OF STAKEHOLDER THEORY RESEARCH
The essential premises of stakeholder theory are:
1. The corporation has a relationship with many constituent groups (stakeholders) that affect and are affected by its decisions 2. The theory is concerned with the nature and of these relationships in terms of both processes and outcomes for the firm and its stakeholders. 3. The interests of all (legitimate) stakeholders have intrinsic value, and no set of interests is assumed to dominate the others. 4. The theory focuses on managerial decision making.
This domain description is unique in its reluctance to assume the predominance of one stakeholder group – that is shareholders. Early formulations suggested that
1. Firms/managers should behave in a certain way NORMATIVE 2. Certain outcomes are more likely if firms/managers behave in certain ways INSTRUMENTAL 3. Firms/managers actually behave in certain ways DESCRIPTIVE/ EMPIRICAL We will group these in 2 somewhat broader categories:
1. Social science based theory: Instrumental + descriptive/empirical 2. Ethics based theory: Normative issues
STAKEHOLDER THEORY AS SOCIAL SCIENCE
Can good social science research be done under the rubric of stakeholder theory?
Descriptive stakeholder theory: Theory that purports to describe actual behavior. The following theoretical claim is unique to stakeholder theory: “Managers behave as if stakeholders mattered because of the intrinsic justice of their (the stakeholders) claims on the firm” (Jones 1994) Although this proposition is theoretically interesting and empirically tractable, claims of this type do not fully exploit the possibilities for stakeholder-based descriptive theory. There is another “theoretically more aggressive” approach: “The stakeholder theory of the firm posits that the nature of an organization´s stakeholders, their values, their relative influence on decisions and the nature of the situation are all relevant information for predicting organizational behavior” (Brenner&Cochran, 1991) Unfortunately, this formulation is empirically less tractable than the previous claim. Authors stop short of either substantive prediction or description of the mechanism(s) through which the predicted behavior might occur.
Instrumental stakeholder theory: Posits that certain outcomes will be obtained of certain behaviors are adopted. It does not require the theorist to make simplifying assumptions about the fundamental nature of human behavior. One form of instrumental stakeholder theory: if firms contract (through their managers) with their stakeholders on the basis of mutual trust and cooperation, they will have a competitive advantage over firms that do not.
One of the central (normative) tenets of stakeholder theory is that firms should attend to the interests of all their stakeholders. A broader measure, such as Corporate Social Performance (CSP) is needed. There are tow methods of measuring CSP. 1. Data envelopment analysis (DEA)
2. “Halo removed” reputational surveys
With the advent of testable theory and some viable means of operationalizing the relevant dependent variable, it seems that an instrumental form of stakeholder theory can meaningfully be called social science.
STAKEHOLDER THEORY AS NORMATIVE ETHICS
This mode of inquiry involves...