Stakeholders are those persons who are affected by or have an effect on the organization. Stakeholders can also include people who have a strong interest in the organization for academic, philosophical, or political reasons, even though they and their families, friends, and associates are not directly affected by the organization. One way to characterize stakeholders is by their relationship with the organization.
While the interest in the organization can be because of intellectually, academically, philosophically, or politically motivated attention, stakeholders are normally said to have an interest in the organization based on whether they can affect or be affected by it. The more they stand to benefit or lose by it, the stronger their interest is likely to be. Also, the more heavily they are involved in the organization, the stronger is their interest. Stakeholders can have several and varied interests in the organization. Some of the common interests are (i) economic issues, (ii) social issues, (iii) work related issues, (iv) employee welfare related issues, (v) environment protection related issues, (vi) safety, health, and security related issues, and (vii) regulatory issues.
The word stakeholder dates back to the beginning of the eighteenth century, in England, and it meant the persons who were entrusted with the stakes of bettors. They were the holders of all the bets placed on a game or a race, and they were the ones who were paying the money to the winners. Hence, the first stakeholder was a holder of interests, and this is, even today, one of the most common meanings, if people consider, in addition, that ‘having a stake’ is a synonym of ‘having an interest’, and that stakes (meaning ‘strong sticks’) can be pushed in the ground either to mark a property, or to be part of a fence that settles the boundaries of an estate, so defining the perimeter of an interest.
But stakes (still meaning ‘strong sticks’) can be hammered in the ground also for supporting plants. In fact, it is believed that the first modern meaning of stakeholders, which has been attributed to an internal memorandum of Stanford University Research Centre dated 1963, was ‘those groups without whose support the organization would cease to exist’. Hence, stakeholders are the strongest supporters of the organization (It can also be said that they can be ready to ‘go to the stake’ for it), and their contribution is foundational to the existence of the organization itself. The main emphasis here is on internal stakeholders, who are the doers of organization’s performance, and who need to be properly engaged to give an effective contribution.
Meanwhile, in the above-mentioned perspective, stakeholders do not act anymore as individuals only, but they are considered as part of groups also. Stakeholders interface each other through processes, start to act collectively, by sharing their resources and by integrating their efforts, and they do it through relations, so that their behaviour becomes organizational, and not only personal.
Also, in the early concept of stakeholders, the definition of stakeholder was ‘a stakeholder in an organization is any group or individual who can affect or is affected by the achievement of the objectives of the organization’. Since ‘to affect’ is a synonym of ‘to influence’, it was here that one other of the most common concepts in stakeholder definitions came in, i.e., stakeholders influence the organization’s objectives, and are influenced by them, and this is the first time that the nature of stakeholders’ centrality in the organizations became evident, since stakeholders were defined as both the actors and the recipients of the organization’s results.
The logic behind organizational stakeholder concept is dependent upon the assumptions which describe the relationship between the organization and its environment. These assumptions are (i) that organizations have relationships with different stakeholders, (ii) organizations are run by the management who takes strategic decisions affecting the stakeholders, (iii) competing interests between organizations and stakeholders can result in conflict, and (iv) organizations compete in markets which tend to navigate towards equilibrium.
Relatively and broadly, stakeholders can include shareholders, government with its regulatory bodies, stock exchanges, creditors, banks and financial institutions, financial investors and analysts, internal management, executives and non-executive employees, employee association and unions, customers, suppliers, local community and general public, and potential investors. Some organizations include media, competitors, consumer protection organizations, communities and other special interest groups, or different forms of civil society. Further, sustainable development suggests organization has also responsibility to future generations as a stakeholder, since the future generations are going to be reliant one day upon the physical environment. This indicates that there is no common ground between different stakeholders, they are disparate groups.
If the organization employ a diverse work-force as a stakeholder group, it can benefit from expanding its markets through relating to a broader customer base and improve productivity. The efficient management of employee relations by the organization can lead to reward, improved performance, and competitive advantage. The success of the organization is driven through the employees, and how the customers and the employees identify with each other, impacts on service levels, customer willingness to pay, satisfaction, and ultimately improved organizational performance.
Different conditions exist since stakeholder concept has been developed from multiple narratives with different purposes and different definitions are generated to serve these purposes. The recognition of the complexity illustrated evidences, indisputably, the existence of the definitional issues which several stakeholder theorists have referred to, or partially illustrated. As stakeholder concept develops and the term ‘stakeholder’ is spread across disciplines it is inevitable that the stake holder definition becomes susceptible to change. The elaboration of definitions is, hence, a positive and expected consequence of the development of discourse.
Early modification is predicated on the basis of extending the boundaries of stakeholder recognition. For example, earlier stakeholders ‘have been identified as ‘those groups without whose support the organization ceases to exist’, presenting a strategy focused perspective. The concept of the stakeholder having a ‘stake’ in the organization has not been proposed until 1979, ‘stakeholder groups consist of people who are affected by corporate policies and practices and who see themselves as having a stake in the organization’. It has been a decade later that stakeholder has got an ethics-based identity, ‘groups to whom the organization is responsible’. In the 1990s, the focus has turned to explaining how stakeholders can impact organizations and why organizations attend to their interests. More recent modification is driven by a desire to express more precisely what contributors are trying to communicate through the inclusion of adjectives or adverbs, for example in debates concerning whether responsibility is to be moral, legal, or derivative.
Some etymological starting points – As per Webster, customer relationships are one of the most important assets of the organizations, and hence, the organizations are required to take a long-term view considering innovation, quality, and service. Customer orientation has been explained as the set of principles which puts the interests of the customer first, while still including all other stakeholders such as shareholders, executives, and non-executive employees, in order to develop a sustainable profitable organization.
From etymological point of view, stakeholder comes from stake + holder. The word stake means a risk or a position of being at hazard. A stakeholder is then normally a person or organization which bears some risk. However, the explanation of a stakeholder is ‘a person or organization with a legitimate interest in a given situation, action. or initiative. Some people understand stakeholder as ‘a person who is involved with organization, and society etc. and hence has responsibilities towards it and an interest in its success’.
Some consider a stakeholder also as ‘a person with an interest or concern in something, especially an organization’. From this point of view, a stakeholder economy is understood as ‘a type of organization or system in which all the members or participants are seen as having an interest in its success’. In a broader explanation of stakeholder, it is a group, corporate, organization, member, or system which affects, or can be affected by the organizational actions. Such an understanding of stakeholders is probably broadly accepted by professionals.
Some people think organizational stakeholders as individuals or groups who can acquire or be harmed by the organization, or whose rights can be violated and is to be respected by the organization. At the same time, it is mistakenly used for the purpose of identifying stakeholder groups for the organizations.
Definitions of stakeholders
There is fair agreement on general thoughts as to who qualifies as potential or actual stakeholders. People include persons, neighbourhoods, institutions, groups, organizations, society, and the environment. There are several definitions exist for the term stakeholder. While the different definitions of stakeholder have different emphases, they largely agree in terms of sentiments. The most quoted definition of a stakeholder is that given by Freeman, who says a stakeholder is ‘any group or individual who is affected by or can affect the achievement of an organization’s objectives’. This is what Freeman refers to as the wide sense of a stakeholder. However, he also spoke of the narrow sense of a stakeholder when he described it as, ‘any identifiable group or individual on which the organization is dependent for its continued survival’.
The definition has been expanded to include groups who have interests in the organization, regardless of the organization’s interest in them. Others have narrowed the definition to those who contribute to the financial bottom line of the organization. Two other fundamental definitions of stakeholder are given below.
Eric Rhenman has defined stakeholder as ‘Stakeholders in an organization are the individuals and groups who are depending on the firm in order to achieve their personal goals and on whom the firm in depending for its existence’.
Post, Preston, and Sachs have defined stakeholder as ‘The stakeholders in a firm are individuals and constituencies that contribute, either voluntarily or involuntarily, to its wealth-creating capacity and activities, and who are therefore its potential beneficiaries and / or risk bearers’.
Alkhafaji has defined stakeholder as ‘groups to whom the corporation is responsible”; Thomson, Wartic and Smith have defined stakeholders as groups ‘in relationship with an organization.’ Clarkson identifies stakeholders as ‘persons or groups that have, or claim, ownership, rights, or interests in a corporation and its activities, past, present, or future’. These claims stem from dealings with the organizational activities, and stakeholders with similar interests can be grouped together.
Mitchell along with his colleagues have argued that definitions entailing relationships, contracts, or transactions need a give-and-take effect which is lacking in the ‘stake’ concept of ‘can affect or is affected by’ as seen in the Freeman definition. They further state that those who have no effect, or are not affected by the organization, have no stake. Further, the groups of stakeholders possess power that influences the managerial decisions. Because of the contractual relationships organizations have with primary stakeholders, they are highly visible, and choices, opportunities, decisions, and the valuation of their demands are needed by the organization. Primary stakeholders enjoy a direct and contractual relationship with the organization.
Hill and Jones have defined stakeholders as ‘constituents who have a legitimate claim on the organization’, while Carroll states that by virtue of legitimacy, groups or individuals can be considered as stakeholders, of which the legitimacy can include power. Jenson interprets stakeholder concept by stating that managements are to make decisions by accounting for the interests of all stakeholders in the organization, and discusses whether or not organizations are to maximize value.
Mainardes and colleagues state that although the term ‘stakeholder’ is widely used in business, media, and government, several who use the term lack the provision of evidence for their understanding of what a stakeholder actually is. They relate the concept to academic circles with several definitions proposed, yet there has never been a single definitive normally accepted definition. They do note that there are similarities within the definitions whereby organizations are to consider the needs, interests, and influences of individuals or groups who affect, or can be impacted by the decisions and actions of the organization.
An all-inclusive definition outlines a stakeholder as a group (or a coalition, collective, market, neighbourhood, network, publics. or society), individual (or actor, agent, constituent, member, participant, partner, party, or vector), or entity (institution, corporate, or organization) which can be a human (person or citizen) or non-human (the environment, natural entity, or God) even anyone or anything. Stakeholders can be allies, beneficiaries, benefit providers, benefit receivers, value chain participants, claimants, risk bearers or risk providers. A stakeholder is recognized if it is strategic or significant, identifiable, concrete, political or visible. Stakeholders can be past (non-living), present or future (potential, an unborn foetus or future generations).
From the above, it can be seen that there is a relatively large diversity of stakeholder definitions, hence, it is useful to structure or classify them appropriately. In addition, the classification of stakeholders is important in terms of the content of reporting needed required by the IESBA (International Ethics Standards Board for Accountants) code in point 220 (IESBA, 2018) as well.
Stakeholders consist of a group or individual with an interest or a stake in the operations of the organization. Different sets of stakeholders have been suggested by different scholars. Management is required to balance the demands of different stakeholders.
One of the most popular paradigms for finding interest groups in the organization is the distinction between pluralist and corporatist systems of representation. As ideal types, pluralism and corporatism are useful starting points for classifying and comparing interest group systems, but they are no more than intellectual abstractions. In the real world, there are no ‘pure types’ of either pluralist or corporatist systems. Instead, all systems are hybrids which mix both pluralist and corporatist structures in different proportions. Also, even in the same organization, the relative balance between these two types of groups frequently changes dramatically from time to time and from sector to sector.
Organizations exist because of their ability to create valued goods and services and which yield acceptable outcomes for various groups of stakeholders, people who have an interest, claim, or stake in the organization, in what it does, and in how well it performs. In general, stakeholders are motivated to participate in an organization if they receive inducements which exceed the value of the contributions they are required to make.
Inducements are rewards such as money, power, the support of beliefs or values, and organizational status. Contributions are the skills, knowledge, and expertise which organizations need in their employees during the task performance.
The organization is required to sort the stakeholder groups. For doing so and to begin to understand the interests of its core stakeholders, the organization can find it helpful to divide its stakeholders in three categories namely (i) organizational stakeholders (internal to the organization), (ii) economic stakeholders, and (iii) societal stakeholders. The second and the third categories are external to the organization. Together these three kinds of the stakeholders form a metaphorical concentric set of circles, with the organization and its organizational stakeholders at the centre of a larger circle which signifies the organizational economic stakeholders. Both of these circles sit within the largest circle, which represents the society and the organizational social stakeholders. Fig 1 shows the model of the concentric circles of stakeholders.
Fig 1 Concentric circles of stakeholders
There are two main groups of organizational stakeholders namely internal stakeholders, and external stakeholders with each group having inducements and contributions. Inducements are rewards such as money, power, personal accomplishment, and organizational status. Contributions are skills, knowledge, and expertise which organizations need from their employees during the task performance. The inducements and contributions of each group are summarized Tab 1.
|Tab 1 Contributions and inducements of organizational stake holders
|Contribution to the organization
|Inducement to contribute
|Money and capital
|Dividend and share appreciation
|Skills and expertise
|Salaries, bonuses, status, and power
|Skills and expertise
|Salaries, bonuses, stable employment, and promotion
|Union and employee association
|Free and fair collective bargaining
|Equitable share of inducements
|Revenues for purchase of products and services
|Quality and price of products and services
|High quality input materials
|Revenue and purchase of input materials
|Legislations governing good operational practices
|Fair and free competition
|Social and economic infrastructure
|Revenue, taxes, employment, quality of life, and concern for environment
|Customer loyalty, and reputation
Internal stakeholders are employees, departments, divisions, employee association and trade unions, or subsidiary organizations. External stakeholders are business partners, customers and suppliers, or wider groups within society such as government departments, regulatory authorities, the media, and the pressure groups. The external stakeholder groups vary enormously as per the nature and the type of the organization. A public sector organization, for example, can list national or local government authorities as a primary, rather than secondary stakeholders, while for a private sector organization, even the regulatory authorities are not even secondary stakeholders.
Internal stakeholders – Internal stakeholders are people who are closest to an organization and have the strongest or most direct claim on organizational resources. Internal stakeholders include shareholders, employees (both executives and work-force), and employee association and unions.
Shareholders are the owners of the organization, and, as such, their claim on organizational resources is frequently considered superior to the claims of other internal stakeholders. The shareholders’ contribution to the organization is to invest money in it by buying the organization’s shares or stock. The shareholders’ inducement to invest is the prospective money they can earn on their investment in the form of dividends and increases in the price of the shares they have purchased. However, investment in shares is risky since there is no guarantee of a return. Shareholders who do not believe that the inducement (the possible return on their investment) is enough to warrant their contribution (the money they have invested), sell their shares and withdraw their support from the organization.
Executive employees are the employees who are responsible for coordinating organizational resources and ensuring that the organizational goals are successfully met. Senior management is responsible for investing shareholder money in different resources in order to maximize the future value of goods and services. Executive employees are, in effect, the agents or employees of shareholders and are appointed indirectly by shareholders through an organization’s governance structure, such as a board of directors, to manage the organization’s operations.
Executive employees’ contributions are the skills they use to direct the organizational response to pressures from within and outside the organization. As an example, an executive’s skills at opening up global markets, identifying new product markets, or solving transaction-cost and technological problems can highly facilitate the achievement of the organizational goals.
Different types of rewards induce executive employees to perform their activities well. Monetary compensation (in the form of salaries, bonuses, and share options) and the psychological satisfaction they can get from accomplishing their work, from controlling the corporation, through exercising power, or even when taking risks with other people’s money. Executive employees who do not believe that the inducements meet or exceed the level of their contributions are likely to withdraw their support by either reducing their contributions or through leaving the organization.
The organization’s workforce consists of non-executive employees. These employees constituting the workforce have responsibilities and duties (normally outlined in a job description) that they are responsible for performing. The contribution of these employees to the organization is the performance of their duties and responsibilities. How well these employees perform is, in some measure, within their control. The motivation of these employees to perform well relates to the rewards and punishments which the organization uses to influence their job performance. Like executive employees, other employees who do not feel that the inducements meet or exceed their contributions are likely to withdraw their support for the organization by reducing their contributions or the level of their performance, or by leaving the organization.
The relationship between the employee association and unions and an organization can be one of conflict or cooperation. The nature of the relationship has a direct effect on the productivity and effectiveness of the organization, the union membership, and even other stakeholders. Cooperation between management and the union can lead to positive long-term outcomes if both parties agree on an equitable division of the gains from an improvement in the fortunes of the organization.
Management and the union can agree, e.g., to share the gains from cost savings because of the productivity improvements which results from a flexible work schedule. However, the management–union relationship can also be antagonistic since the unions’ demands for increased benefits can conflict directly with the shareholders’ demands for higher organizational profits and hence higher returns on their investments, or management is not be treating unionized members in accordance with the level of their contribution to the organization. Disagreement between management and unions can also adversely impact both the internal and external organizational stakeholders.
External stakeholders – External stakeholders are people who do not own the organization (such as shareholders), are not employed by it, but do have some interest in it or its activities. Customers, suppliers, the government, and the regulatory authorities, industry and their associations, local communities, special interest groups, and the general public are all external stakeholders.
Customers are normally the organizational largest external stakeholder group. Customers are induced to select a product or service (and hence an organization) from potentially several alternative products or services. They normally do this through an estimation of what they are getting relative to what they have to pay. The money they pay for the product or service represents their contribution to the organization and reflects the value they feel they receive from the organization. As long as the organization produces a product or service whose price is equal to or less than the value customers feel they are getting, they continue to buy the product or service and support the organization.
If customers refuse to pay the price the organization is asking, they normally withdraw their support, and the organization loses an important stakeholder. Organization is to face the challenges involved in meeting the needs of the customers.
Suppliers constitutes another important external stakeholder group. They contribute to the organization by providing reliable raw materials, component parts, or other materials and services which allow the organization to reduce uncertainty in its technical or production operations, hence allowing for cost efficiencies. Suppliers hence can have a direct effect on the efficient working of the organization and an indirect effect on its ability to attract customers.
Government has historically a major influence upon the regulatory controls, the markets, and the operating environment. This involvement has been both proscriptive and prescriptive in nature. As the organizations operate within, and contributes to the society, government has several claims on the organization. While it wants organizations to compete in a fair manner and obey the rules of free competition, it also wants organizations to obey agreed-upon rules and laws concerning the payment and treatment of employees, employees’ health and work-place safety, non-discriminatory hiring practices, and other social and economic issues.
Besides the purely statutory and legal aspects of the operations of the organizations, government frequently receives a mandate from the public concerning particular issues reflecting broader social concerns. The subsequent involvement of government and its treatment of these issues can involve or affect the operations and the conduct of the organizations in several ways.
Whether it is a new regulation designed to improve accountability through changes to corporate reporting and audit procedures, legislation concerning environmental protection and guidelines for hazardous waste management, or quotas on the harvesting of natural resources, government can enact different legislation originating at the national, state, or local level. In this fashion, government is an organizational stakeholder, and the government makes a contribution to the other organizational stakeholders by standardizing regulations so that no one organization or group of organizations can get an unfair competitive advantage in the market. Government also serves as mechanisms to introduce needed changes and facilitate economic growth, all while protecting and preserving the society as a whole. Hence, government controls several of the rules of operational practices of organizations and have the power to punish any organization which breaks these rules.
For example, the major corporate scandals in the last several years have caused both state and national governments to become increasingly attentive to the concern of the public over corporate governance and organizational ethics. Foe both of these, government actively work with public interest groups and industry representatives to address these growing ethical and legal concerns.
In addition to market and legislative governance, another result of the national system of government has been a broader economic concern with nation building. This has led to the historical evolution of different authorities / agencies within the government whose role is to assist in regional economic development. While these agencies have no direct legislative role, they are designed to facilitate economic development in a number of ways.
Government also plays a major role in the protection of not only shareholder interests, but also the interest of direct and indirect stakeholders. It has a responsibility to the public to oversee or mandate changes to business practice in order to protect social interests, areas of practice which historically have been left to market forces and operational practices, such as governance and oversight, environmental concerns, and the enforcement protection of evolving social standards such as non-discriminatory practices.
Local communities also have a stake in the performance of the organizations since employment, housing, and the general economic well-being of a community are strongly affected by the success or failure of local organizations. This is of particular importance in the countries which have several smaller and medium sized organizations which are regionally based. This has important implications, since the local economy is closely tied to the organizational performance. The local communities rely upon the economic performance of the local organizations.
When the local community is integrally tied to the economic fortunes of local organizations, it gets affected when the organizations shift focus or effort to keep themselves competitive in the rapidly globalizing environment, to open new markets, to create advantage through knowledge management initiatives, or to move away from a resource-based to a knowledge-based or service-based focus.
For example, when the local organizations increase its use of technology, whether for manufacturing, information processing, or service delivery, it changes the skill sets it needs in employees. This can make local college or university programmes outdated or obsolete, hence affecting the educational and employment prospects of the next working generation in the community. If the community cannot adapt itself to these new needs, the organizations fulfill their needs from other regions outside the local community. When this happens, jobs, salaries, and wages are removed from the local community, which can have a devastating impact to the community as a whole.
Special interest groups and the general public also wants the organizations to act in a socially responsible way so that organizations are normally refrained or are constrained from taking any actions which can injure or impose unreasonable or unjust costs on other stakeholders. As the social culture evolves, people become more aware of how the organizational activity impacts the environment and social issues. Beyond statutory regulations, several of these issues become particularly important to different sub-elements of the broader public or what are referred to as special interest groups. These groups can represent those with particular social or environmental concerns. For example, groups can be motivated by concern for those with disabilities by sponsoring initiatives to make work-places more accessible to those with mobility impairments. While several of these special interest groups start out small, they can grow in size and influence as the issues they raise become concerns for the general public.
It is interesting to debate whether the natural environment, as a non-independent actor, is to be included as an identifiable stakeholder of the organization. Several people argue that ‘it should’ and in fact the environment has rights that it is to be protected by legislation. In contrast, other people argue that ‘it should not’ be included since the environment itself does not speak or feel or act, rather the degradation of the environment affects other stakeholder groups (e.g., non-governmental organizations or government), who then advocate on its behalf. However, it is recognized the environment needs actors to speak and act on its behalf in order to be protected. In Fig 1, however, the environment is excluded because of its lack of agency. Since the environment is unable to speak for itself, the management priority (in relation to sustainability issues) is to attend to those stakeholders who speak most vigorously (and knowledgeably) on the environment’s behalf.
Traditionally, the focus in management has been on internal (e.g., employees) rather than external stakeholders, with organization boundaries drawn around the individuals and groups over which management has direct supervisory control. An inherent assumption in the drawing of organizational boundaries is that external stakeholders cannot be managed, in the traditional sense of the word, since they are not a part of the management hierarchy. A distinction can also be drawn between different stakeholders, which classifies the stakeholders into primary stakeholders and secondary stakeholders.
Primary stakeholders – They are the people or groups who stand to be directly affected, either positively or negatively, by the actions of the organization. In some cases, there are primary stakeholders on both sides of the equation, i.e., a regulation which benefits one group, but can have a negative effect on another. Primary stakeholders define the organization and are important for its continued existence. The normally considered primary stakeholder groups are (i) employees, (ii) shareholders and / or investors, (iii) customers, and (iv) suppliers.
Secondary stakeholders – Secondary stakeholders are defined as ‘those who influence or affect, or are influenced or affected by, the organization, but they are not engaged in transactions with the organization and are not necessary for its survival’. Secondary stakeholder groups include competition, media, industry associations, and support groups (special interest). Although these groups have no contract or authority with the organization, and the organization is not dependent upon these groups for its survival, they can cause considerable disruption to the organization’s operations.
Secondary stakeholders are the people or groups which are indirectly affected, either positively or negatively, by the actions of the organization. These stakeholders are those who can affect relationships with primary stakeholders. For example, an environmental pressure group can influence customers by suggesting that the organizational products fail to meet eco-standards. Secondary stakeholders can include (i) national and local government authorities, (ii) statutory and regulatory authorities, (iii) the media, (iv) the social groups, and (v) such organizations as business partners, and competitors etc.
Perception of stakeholders – A stakeholder is someone who has got a vested interest in the organization. The organization has some kind of relationship with the organization. However, the perception of stakeholders varies within different stakeholder groups. For example, a supplier stakeholder group considers that ‘a stakeholder is one of the suppliers to the organization who form an integral part of their requirements’. As per this group, a stakeholder is someone who is part of the organizational operations, and hence both the stakeholder and the organization are critical to each other since for the supplier, the organization is the customer, while for the organization, the supplier fulfills its needs for the materials needed for its operations.
Employees perception for being a stakeholder is that they are ‘people who have a vested interest in particular areas as a stakeholder in the organization and they make sure they deliver what they can to the other stakeholders of the organization in lieu of compensation given to them by the organization. Employees can be a customer to a department, or a supervisor, or a manager. They are an individual person or entity who has a direct or indirect interest (in case of contract employee) with the organization, meaning that they are to do well so that the organization can do well. Hence, there is a direct relationship between the organization and the stakeholder.
Customers perception for being a stakeholder is that they are people who are linked to the organization, though they do not own a share in the organization. The organization is a supplier to its customers and is reliant on them so that it can sell its products and can feel like a part of the customer’s organization.
Further, there are certain stakeholders which are key stakeholders. They belong to either or neither of the first two groups, and are those who can have a positive or negative effect on the organization, or who are important within or to an organization. For example, the director of an organization is a key stakeholder, but so as the employees who carry out the work of the organization. If they do not believe in what they are doing or do not do it well, it can as well not have begun.
Mapping of stakeholders – Mapping of the stakeholders can be done by constructing a diagram with the organization at the centre, showing primary stakeholders around it, and secondary stakeholders in a second tier. Fig 2 shows n example of the mapping of the stakeholders.
Fig 2 Mapping of the stakeholders
Stakeholders can be affected by (influenced by, or impacted by) an organization (or association, business, company, cooperative, corporation, enterprise, entity, firm, focal organization or management). The nature of the impact can be that the stakeholder hurts or is harmed (suffers) as a consequence of the relationship, has its rights violated or that it benefits or gains from having its rights respected.
Stakeholders can also affect (influence or impact) an organization (association etc.) positively by investing resources to create value, benefits, wealth or to make a difference or by providing assistance (help, support or promotion) through its contribution (participation or co-operation) or negatively by threatening, opposing, damaging, harming, hurting or hindering an organization (association etc.) directly or through imposing a critical eye or mobilising opinion. The affect (impact etc.) can be on the organizational (association etc.) objectives (or strategy, goals, purpose, function, mission or policies), actions (practices, activities, decisions or behaviour), survival or failure (existence, ability to continue as a going concern or to exist) or outcome (performance, success, products, operations, value, welfare, bottom line, future, revenue, distributions, image or licence to operate).
A relationship is required to be present whether in the form of a contact, exchange (deal, interaction or transaction) or collaboration (affiliation, involvement, engagement or joint endeavour) which can be organization-dependent, stakeholder-dependent or inter-dependent. The relationship can be direct or indirect, voluntary or involuntary, external (outside) or internal (inside), critical (core, necessary or non-trivial) or distal (fringe), primary, secondary, or tertiary, formal (official) or informal, perfect or imperfect, implicit or explicit, legal (contractual or arm’s length), economic (financial), operational, social or moral (normative), legitimate, derivative or residual, market or non-market, joint and mutual.
The relationship, which is not mutually acknowledged or substantial, arises from a past, present or future interest, claim, stake, right, contract, bond, title, agreement, commitment, risk, personal, or institutional goal. The interest (claim, stake, and risk etc.) can be based on power, legitimacy or urgency, proximity or frequency of contact, derived from resource dependency of invested resources, ownership, or fiduciary duty, sacrifice made or recognition which the stakeholder has something to lose, but can also be based on concern, beneficence, a duty of care, obligation, responsibility, fairness, because the stakeholder interest is held to have intrinsic value as determined by managerial values spiritualism, symbolism, or organizational culture.
This overview of the stakeholder concept ignores examples of stakeholders (supplier, customer, and employee etc.) as it focuses on the attributes recognized by contributors as necessary or sufficient conditions for considering stakeholder status. Not all conditions are needed for recognition. Definitions can present just one or two condition e.g., ‘having a contract’ or ‘explicit or implicit claimant’, or multiple conditions such as ‘classes of stakeholders can be identified by their possession or attributed possession of one, two, or all three of the attributes like the stakeholder’s power to influence the organization, the legitimacy of the stakeholder’s relationship with the organization, and the urgency of the stakeholder’s claim on the organization’.
Identification of stakeholder groups – In principle, the concept of stakeholder can be defined by two methods namely (i) with an interest of the stakeholder in the organization, and (ii) with the interest of the organization in the stakeholder. The second method mainly affects the organizational policy, and less the interest of a stakeholder in the organization. In addition, such a range of stakeholders can be extremely broad and difficult to manage. At the same time, it does not meet the foundations of stakeholder concept, which assumes the existence of stakeholder interest which in its own way influences value creation in the organization. This is rather also an objective of corporate marketing policy. Hence, only the stakeholders from the first method are more important from the viewpoint of the organization.
As stated earlier in the article, one of the options is to classify stakeholders into internal stakeholders and external stakeholders. Such a division is simple, but not suitable for a more analysis of the stakeholders. The input-output model divides stakeholders into investors, customers, suppliers, and employees. A divisio into investors, political groups, customers, employees, industry associations, suppliers, government, and communities as a more appropriate model has also been suggested. However, the issue with these rankings of stakeholders is not only their number, but above all their diversity of interests. On this basis, conflicts between stakeholders can arise, which the organization is required to take into account.
Clearly, it is necessary that organization manages and coordinates the different interests of stakeholders. This can be done by classifying stakeholders, but normally only in the form of a more detailed list of stakeholder types, such as, customers, partners, employees, employee association and unions, local community, society, government, NGOs (non-governmental organizations), associations, competitors, suppliers, investors, and shareholders. However, a more detailed enumeration does not eliminate the issues, so some suggest classifying stakeholders into individual, substantive categories. According to their impact, the stakeholders can be distinguished into four categories namely (i)enabling which permits the organization to function, (ii) normative which influences the norms or informal rules of the industry, (iii) functional which influences inputs and outputs, and (iv) diffused with less direct relationship but potential for meaningful impacts on the organization. These four types of identification to identify all stakeholders is known as the linkage model developed by Grunig and Hunt. This model has four linkages which identify stakeholder relationships to an organization. These changes are (i) enabling linkages, (ii) functional linkages, (iii) diffused linkages, and (iv) normative linkages.
The enabling linkages identify stakeholders who have some control and authority over the organization, such as shareholders, board of directors, and government and regulatory authorities etc. These stakeholders enable an organization to have resources and autonomy to operate. When enabling relationships falter, the resources can be withdrawn and the autonomy of the organization gets restricted.
The functional linkages are those which are necessary to the function of the organization, and are divided between input functions which provides work-force and resources to create products or services (such as employees and suppliers) and output functions which consume the products or services (such as consumers and retailers).
Normative linkages are associations or groups with which the organization has a common interest. Stakeholders in the normative linkage share similar values, goals, or problems and frequently include competitors which belong to industrial or professional associations.
Diffused linkages are the most difficult to identify since they include stakeholders who do not have frequent interaction with the organization, but become involved based on the actions of the organization. These are the publics which frequently arise in times of a crisis. This linkage includes the media, the community, activists, and other special interest groups.
Going through the linkage model helps the organization to identify all its stakeholders. The diffused linkage stakeholders are subject to change as per the situation, but the enabling, functional, and normative linkage stakeholders are likely to be constant. Fig 3 shows the linkage model.
Fig 3 Linkage model
Stakeholder analysis is the process of identifying an organization’s stakeholders and their interests, assessing their influence, or how they are impacted by the organisation, so as to formulate strategies for managing relationships with them.
Organizations have an obligation to shareholders of maximizing wealth, and that shareholders invest in organizations expecting returns on their investments which are higher than alternative options with minimized risks. Organizations are to be accountable for their actions, as these contribute to shareholder value. Maximizing returns to shareholders at the expense of other primary stakeholder groups is no longer an option for management since they are now accountable for corporate responsibilities for all primary stakeholders.
The organization and its supplier relationships are critical to the organizational performance, since conflict can affect the organizational performance and satisfaction negatively. When the organization – supplier relationship involves collaborative communication, the supplier understands the organizational needs and enables commitment towards the organization, which, in turn, improves the supplier performance.
Organizations which ignore community and social interests risk losing consumer support, which can result in boycotts, thereby negatively affecting the organizational reputation and performance. Regulatory authorities imposing restrictions can affect marketing activities, causing additional costs through adherence, and so marketing strategies are adjusted accordingly. Increased pressure through regulation from statutory authorities, organizations become more proactive when developing strategies to remain competitive and successful.
Theoretically shared interests join groups of individuals who constitute stakeholder groups, the issue is that stakeholder groups have sub-groups and persons who both have varying interests and support multiple roles, where ‘individuals wear different hats at different times’. Also, there is value by assessing empirically how stakeholders and management interact to determine what constitutes stakeholder groups. For qualifying as a stakeholder, the stakeholder is required to have a stake in the organization. Further, the concept of having a stake within the organization is to be recognized as contributing an input to organization, and being part of its output, hence a reciprocal link is present.
Reciprocity in stakeholder relationships, and the reciprocal nature of responsibility is an important aspect. Stakeholders are to be differentiated by ‘influences’ (powerful and important to the organization) and ‘claimants’ (less powerful and vulnerable to the organizational actions). A narrow definition of stakeholder excludes ‘influences’ and only include ‘qualified claimants’ (those who can exert power over the organization but lack a strong connection). Hence, the exclusion of competitors, NGOs, and media Is frequently being suggested.
Normally, almost all can be indirectly affected by the organization, but it is to be considered insufficient without making a contribution or having a role in the organization. This narrow view indicates that shareholders, customers, employees, suppliers, at times the community, and executives are to be included, because of the controversy surrounding self-interest.
Stakeholder attributes – The nature of relationship between the organization and the stakeholders is important. Different definitions of stakeholder show that the organization is dependent on the stakeholder for survival, or how the stakeholder is dependent on the organization. Some includes contractual relationships, power-dependence relationships, and a legal or moral right, or an interest. Influencing groups with power over the organization can upset operations to a point where legitimate claims are disregarded, hence resulting survival of the organization at risk.
Normally, power and legitimacy are core attributes of identifying stakeholders. It is normal that power and legitimacy interact, and when urgency is included, then the stakeholder behaviours influence the organization. For understanding ‘the principle of ‘who and what really counts’, stakeholder relationships are to be evaluated in terms of the attributes of power, legitimacy, and urgency, to which managers perceive stakeholders on those attributes and the stakeholders become salient to the management.
Power is a relationship among parties whereby one party can get another party to do something they have not originally been intended to do. Because of its nature, power is a variable and not a stable state, and is hence temporary. It can be gained or lost. Legitimacy refers to socially accepted norms and behaviours and is integrated with power when society evaluates relationships, and legitimacy is an assumption which an entity’s actions are desirable, applicable, and socially accepted. This is explained e.g., if an organization has a legitimate standing in society, or a stakeholder has a legitimate claim on the organization, if it does not have the power to enforce its will or a perceived urgent claim, they do not fall within a management’s salience.
From a disclosure perspective, management is to understand what stakeholders want and need to know, and stakeholders who demand disclosure but are unwilling to disclose themselves lose legitimacy.
Urgency refers to the extent to which stakeholder claims need immediate attention, and it exists only when two conditions are encountered. The first is when a claim is of a time sensitive nature, and the second is when the claim is significant to the stakeholder. Urgency as an attribute is a relevant component of prioritization regarding stakeholder salience, but not in identifying stakeholders as it is the urgency of the claim, not the stakeholder, which is relevant.
There is controversy surrounding the importance of legitimacy as a stakeholder attribute. In the minds of some chief executive officers (CEOs), the stakeholder attributes of power, legitimacy, and urgency relate to the urgency best predicted executive responses, and that shareholders, customers, and employees are viewed as the most important stakeholders.
The who or what of the stakeholders of the organization, do not include the dynamics of the organization. The identification of the stakeholders through possessing a minimum of one of the three stakeholder attributes (power, legitimacy, and urgency) refer to categorizing stakeholders within primary and secondary groups.