Management DecisionStakeholder theory: issues to resolveEmerson Wagner Mainardes Helena Alves Mario Raposo

Article information:To cite this document:Emerson Wagner Mainardes Helena Alves Mario Raposo, (2011),"Stakeholder theory: issues to resolve",Management Decision, Vol. 49 Iss 2 pp. 226 - 252Permanent link to this document:http://dx.doi.org/10.1108/00251741111109133

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Stakeholder theory: issues toresolve

Emerson Wagner Mainardes, Helena Alves and Mario RaposoCenter for Studies in Management Science,

Management and Economics Department, NECE, University of Beira Interior,Covilha, Portugal

Abstract

Purpose The objective of this paper is to collate and debate the main issues driving the stakeholdertheory academic debate.

Design/methodology/approach First, a discussion of the stakeholder concept is set out beforemoving on to the history and nature of stakeholder theory. The work proceeds with an attempt tobring together systematically the points of divergence among researchers interested in stakeholdertheory, and, finally, there is a brief discussion of these theoretical loopholes in conjunction with aproposed research agenda for the field.

Findings Based on the unification of the theoretically problematic issues, research agenda are putforward with the objective of clarifying doubts and resolving the controversies ongoing amongacademics. As regards the formulation of stakeholder theory, one question requiring resolution is thatof the stakeholder concept itself. Additionally, further research should focus on the boundaries as towhat constitutes a stakeholder group as well as defining the criteria for attributing individualmembership of one or another group. In practical theoretical application, it is correspondinglynecessary to target research on aspects such as conflicts of interest between stakeholders andmanagement difficulties in coping with multiple objectives. Finally, there is a need for research thatsystematizes the knowledge produced with the objective of attaining the theoretical convergencenecessary for the development of stakeholder theory.

Originality/value The main contribution of this paper derives from the systematization of thevarious shortcomings that need overcoming within the framework of stakeholder theory and theidentification of research agendas.

Keywords Stakeholders, Research work

Paper type Literature review

1. IntroductionStakeholder theory was put forward by Freeman (1984) as a proposal for the strategicmanagement of organizations in the late twentieth century. Over time, this theory hasgained in importance, with key works by Clarkson (1994, 1995), Donaldson and Preston(1995), Mitchell et al. (1997), Rowley (1997) and Frooman (1999) enabling both greatertheoretical depth and development. From an initially strategic perspective, the theoryevolved and was adopted as a means of management by many market-basedorganizations.

Given it remains a relatively recent addition to the management field, stakeholdertheory has not been fully developed. According to Fassin (2008), the success of

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This research was supported by the Portuguese Science Foundation through Nucleo deInvestigacao em Ciencias Empresariais (Programa de Financiamento Plurianual das Unidades deI&D da Fundacao para a Ciencia e Tecnologia, Ministerio da Ciencia, Tecnologia e EnsinoSuperior/Portugal).

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Management DecisionVol. 49 No. 2, 2011pp. 226-252q Emerald Group Publishing Limited0025-1747DOI 10.1108/00251741111109133

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stakeholder theory, both in the management literature and in business practice, is duein large part to the simplicity inherent to the model. However, over the years, someacademics have criticized the vagueness and ambiguity of this theory. The stakeholdermodel, backed as it is by its simplicity and clear visual presentation, has stirreddebates in the academic literature.

Indeed, very few management themes have generated as many published works inrecent decades as the underlying concept, i.e. the model and theories aroundstakeholders (Donaldson and Preston, 1995; Gibson, 2000; Wolfe and Putler, 2002;Friedman and Miles, 2006). One of the most salient characteristics of this theory is thediversity in the points of view that have been expressed within its scope.Correspondingly, there is a low level of theoretical integration whether in terms of thenormative, instrumental or descriptive dimensions as well as within the actualdimensions themselves (Lepineux, 2005).

Hence, the objective of this article is to bring together and discuss some of thequestions driving stakeholder theory academic debate. This research was motivatedby the sheer relevance of the theory to various different areas, especially strategicmanagement, marketing, corporative governance, corporate social responsibility,business ethics, public management, among others.

Similarly, the main contribution of this article derives primarily from thesystematization of some of the shortcomings that need overcoming within theframework of stakeholder theory. Based upon this unification of the theoreticallyproblematic issues, we then set out research agendas aiming to clarify the doubts andresolve the controversies that have been ongoing among academics.

In order to achieve this objective, this paper is structured as follows: firstly, there isdiscussion of the stakeholder concept before moving onto the history and nature ofstakeholder theory and presenting the three approaches that explain the theory, thenormative, instrumental and descriptive approaches. The next stage attempts tosystematically bring together the points of divergence among researchers interested instakeholder theory, and finally, there is a brief discussion of these theoretical loopholesin conjunction with a suggested research agenda for the field.

2. The stakeholder conceptThe origin of the stakeholder concept lies in the business science literature (Freeman,1984), and may be traced back even as far as Adam Smith and his The Theory of MoralSentiments. Its modern utilization in management literature was brought about by theStanford Research Institute, which introduced the term in 1963 to generalize andexpand the notion of the shareholders as the only group that management needed to besensitive towards ( Jongbloed et al., 2008). Within this perspective, Freeman (1984)argued that business organizations should be concerned about the interests of otherstakeholders when taking strategic decisions.

Although a relatively longstanding term, the development of stakeholder theory wasset in motion by the work of Freeman (1984). The objective of his work was to delineatean alternative form of strategic management as a response to rising competitiveness,globalization and the growing complexity of company operations. As time went by, thestakeholder concept has taken on greater importance due to public interest, greatercoverage by the media, concerns about corporative governance and its adoption as apolicy within the scope of the Third Way (Hutton, 1999; Greenwood, 2008).

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Meanwhile, in accordance with Friedman and Miles (2006), the term stakeholderhas been deployed indiscriminately in the last two decades. The term is highly popularwith businesses, governments, non-governmental organizations and even with themedia. Despite this widespread usage, many who adopt the term neither define theconcept nor provide any particularly clear understanding of what they mean asregards what a stakeholder actually is. Even in academic circles, countless definitionsof stakeholder have been put forward without any of those suggested ever gainingconsensus, and hence there is no single, definitive and generally accepted definition.The works of Bryson (2004), Buchholz and Rosenthal (2005), Pesqueux andDamak-Ayadi (2005), Friedman and Miles (2006) and Beach (2008) contain a total of 66different concepts for the term stakeholder.

Although each researcher defines the concept differently, they do as a rule reflectthe same principle to a greater or lesser extent: the company should take intoconsideration the needs, interests and influences of peoples and groups who eitherimpact on or may be impacted by its policies and operations (Frederick et al., 1992).Hence, according to Clarkson (1995), the stakeholder concept contains threefundamental factors:

(1) the organization;

(2) the other actors; and

(3) the nature of the company-actor relationships.

However, Mitchell et al. (1997) propose that these concepts represent phenomena inthemselves, including:

. the relationship between the company and the stakeholders (as in Freeman, 1994);

. the position of the stakeholder towards the company (e.g. Starik, 1994);

. the company as dependent upon stakeholders (see Freeman and Reed, 1983);

. the stakeholder wielding power over the company (according to Brenner, 1995);

. the stakeholder as dependent on the company (as is the case in Langtry, 1994);

. the company as holding power over the stakeholder (see Carroll, 1993);

. the company and stakeholder as mutually dependent (e.g. Wicks et al., 1994);

. the company and the stakeholder as engaged in contractual relations (as in Hilland Jones, 1992);

. the stakeholder as holding a right on the company (see Evan and Freeman, 1988);

. the stakeholder as running some kind of risk (see Clarkson, 1994);

. the stakeholder as having a moral right over the company (according to Carroll,1989); or

. the stakeholder as having an interest in the company (see Clarkson, 1995).

In summary, whether broader or more restrictive, these are understandings of thestakeholder concept as connected to organizations and which, according to Mitchellet al. (1997), may guide the actions of a specific organization.

However, despite the countless definitions and differing emphasizes, which mayresult in distorted conceptual interpretations (Friedman and Miles, 2006), a largemajority of studies adopt the definition idealized by Freeman (1984) that individuals or

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groups may influence or be influenced by the scope of organizational objectives.Within this concept, a person, an informal group, an organization or an institution mayall be stakeholders. Mitchell et al. (1997) state that the Freeman (1984) definition is sobroad that it opens up an infinite scope for stakeholders as even climatic factors mayplay this role. Hence, there is a need to establish limits to the extent of stakeholders. Tothis end, Freeman and Evan (1990) reduce the organizational environment to amultilateral agreement between an organization and its stakeholders.

3. History and nature of stakeholder theoryThe origins of stakeholder theory draw on four key academic fields i.e. sociology,economics, politics and ethics and especially the literature on corporate planning,systems theory, corporate social responsibility and organizational theory. Freeman(1984), over the course of his work entitled Strategic Management: a StakeholderApproach, generally accepted as launching the stakeholder theory concepts, defineshow stakeholders with similar interests or rights form a group. What Freeman (1984)was seeking to explain was the relationship between the company and its externalenvironment and its behavior within this environment. The author set out his model asif a chart in which the company is positioned at the centre and is involved withstakeholders connected with the company.

In this model, the company-stakeholder relationships are dyadic and mutuallyindependent (Frooman, 1999). According to Fassin (2009), the model proposed byFreeman (1984) may have been inspired by a tool drawn from sociology, the sociogram,which visualizes the frequency of interactions between individuals or groups. Themodel design was influenced by the traditional capitalist organizational productionmodel in which the company is related only to four groups: the suppliers, employeesand shareholders supplying the basic resources that the company transforms intoproducts or services for the fourth group, that is, the clients. Nevertheless, Freeman(1984) also added other groups influenced by company activities and saw theorganization as the centre of a series of interdependent relationships (Crane andMatten, 2004).

The ideas of Freeman (1984), which culminated in stakeholder theory, emerged outof an organizational context in which the company was perceived as not beingself-sufficient and actually dependent on the external environment made up of groupsexternal to the organization, as Pfeffer and Salancik (1978) had earlier observed. Thesewere the external groups that Freeman (1984) termed stakeholders. This situationwas later handled by Frooman (1999) as resource dependency.

According to Jones and Wicks (1999) and Savage et al. (2004), the basic premises ofStakeholder Theory are:

. the organization enters into relationships with many groups that influence or areinfluenced by the company, i.e. stakeholders in accordance with Freemans(1984) terminology;

. the theory focuses on the nature of these relationships in terms of processes andresults for the company and for stakeholders;

. the interests of all legitimate stakeholder are of intrinsic value and it is assumedthat there is no single prevailing set of interests as Clarkson (1995) andDonaldson and Preston (1995) pointed out;

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. the theory focuses upon management decision making;

. the theory explains how stakeholders try and influence organizational decisionmaking processes so as to be consistent with their needs and priorities; and

. as regards organizations, these should attempt to understand and balance theinterests of the various participants.

Taking these premises into consideration, and according to Clarkson (1995), Donaldsonand Preston (1995), Rowley (1997), Scott and Lane (2000) and Baldwin (2002), the conceptof stakeholder management was developed so that organizations could recognize, analyzeand examine the characteristics of individuals or groups influencing or being influencedby organizational behavior. Thus, management is carried out over three levels:

(1) the identification of stakeholders;

(2) the development of processes identifying and interpreting their needs andinterests; and

(3) the construction of relationships with the entire process structured around theorganizations respective objectives.

On the other hand, stakeholders define their expectations, experience the effects of therelational experience with the organization, evaluate the results obtained and act inaccordance with these evaluations, strengthening or otherwise their ties with thecompany (Polonsky, 1996, Post et al., 2002, Neville et al., 2005).

While Freeman (1984) limited his own intentions to providing an approach to thesubject, generalizing and testing the taking of strategic management decisions,stakeholder theory earned its wings, both among academics and among practitioners,as a new theory of the firm (Key, 1999). Within this framework, stakeholder literaturebreaks down into two main branches one strategic and one moral (Goodpaster, 1991,Frooman, 1999). The strategic literature emphasizes the active management ofstakeholder interests while literature in the moral field is primarily interested in abalance between stakeholder interests.

Freeman and McVea (2001) clarified how stakeholder theory was originallydeveloped within a framework of four distinct lines of organizational managementresearch, as demonstrated by Freeman (1984):

(1) strategic organizational planning;

(2) systems theory;

(3) corporate social responsibility; and

(4) organizational theory:

Within the strategic organizational planning line, the concept is that successfulstrategies correspond to the integration of all stakeholder interests (contrary to themaximization of one groups position to the detriment of others).

Both systems theory and organizational theory focus upon the idea thatorganizations are open systems that interact with diverse third parties and thus it isnecessary to set out collective strategies that perfect the system as a whole beyond theactual recognition of all the relationships on which companies depend for their ownsurvival.

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Corporate social responsibility is not considered a formalized theoretical group butrather a series of business case studies and empirical analyses seeking to demonstratethe importance of building up strong and trustworthy relationships and maintaining agood reputation with all groups external to the organization for its ongoing success.

Within the broad context of this theory, it may be stated that diverse stakeholdergroups interact with a company. According to Clarkson (1995), these groups may besubdivided into two:

(1) the primary those with formal or official contractual relationships with thecompany, such as clients, suppliers, employees, shareholders, among others;and

(2) the secondary those without such contracts, such as government authoritiesor the local community.

In this way, we may configure a company as a set of relationships, explicit or implicit,across both the internal and external environments. However, with the emergence andadvance of stakeholder theory, attention began to be paid to the interests of thesedistinct groups of individuals and not only to the shareholders or owners of thecompany (Argandona, 1998; Gibson, 2000).

Indeed, history now states it was Freeman (1984) who was the first researcher toclearly identify the strategic importance of other groups and individuals to thecompany, different to the traditional groups of clients, suppliers, employees andshareholders. In fact, he saw these groups as highly disparate, such as localcommunity, environmentalist and consumer defense organizations as well asgovernment authorities, special interest groups and with even competitors and themedia as legitimate stakeholders (Clement, 2005). Given there were so manystakeholder groups listed by Freeman (1984), over time the need to group them wasencountered within the scope of efforts to reduce managerial complexity. For example,Gibson (2000) proceeded to group stakeholders into institutional (involving laws,regulations), economic (actors in the marketplace) and ethical (environment and socialpressure groups) categories. Furthermore, for Lepineux (2005), these becameshareholders, internal stakeholders, operational partners and community.

However, in accordance with Freeman and Liedtka (1997), stakeholder theory wasbound up with an already long-standing tradition that perceived business as anintegral part of society and not as some separate and purely economic institution.Radin (1999) affirmed that stakeholder theory means recognizing that organizationshold responsibilities towards people and entities beyond their stockholders.Stakeholder theory draws on analytical mechanisms from Systems Theory, forexample, regarding the interdependence and integration of actors making up a systemand in seeking to explain the interrelationship between them (Campbell, 1997). Hill andJones (1992) had already utilized agency theory, which approaches the company as thenexus of contracts between stakeholders and managers as if some central node. Thisoperates as the means to explain how managers bear responsibility for conciliatingdivergent interests, taking strategic decisions and allocating strategic resources inwhatever form proves most coherent with the demands of the other stakeholders.

Thus, the theory of Freeman (1984) came against a scenario of rising awareness asto the importance of business to society and along with the beginnings of theglobalization of markets and the development of information technologies and means

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of communication followed by the later heightening of social pressures applied bygovernments, trade unions, political groups and communities in general. Stakeholdertheory arrived in time to explain and predict how organizations should act by takinginto consideration the influences of stakeholders hitherto left out of the range ofanalysis, such as the local community and the media, among others.

Many have already posited that the destiny of stakeholder theory is to topple thedominant paradigm, the economic model of the company (Key, 1999). Theaforementioned theory seeks to set down attitudes and organizational practices forthe company to survive and prosper (Brenner, 1993). Given this situation, the influenceof stakeholders in organizational strategy requires responses on behalf of the companyreflecting the potential power, whether to threaten or to cooperate, of each stakeholderwithin a context of mutually exchanging interests and benefits.

Without doubt, the appearance of stakeholder theory proved a counterbalance to thekey actor approach, based upon agency theory, in its presentation of a more collectivistvision of organizations as a social vehicle for human development. Within thisframework, Clarkson (1995) stated that the survival and sustainable profitability oforganizations depended upon their capacity to comply with the economic and socialpurpose defined as creating and distributing sufficient wealth or value to ensure thateach group of primary stakeholders continues to be a part of the companys system.Hence, an organization may be seen as a set of interdependent relationships betweenprimary stakeholders, a perspective that has seen significant research in the field oforganizational strategy (Evan and Freeman, 1988; Hill and Jones, 1992; Kotter andHeskett, 1992; Harrison and St John, 1994; Donaldson and Preston, 1995; Jones, 1995;Greenley and Foxall, 1996; Hillman and Keim, 2001).

After the theory took shape and over time, stakeholders slowly moved in from theperiphery of organizational activities towards a more central position. Andriof et al.(2002) explains that the stakeholder concept, its involvement and relationship with theorganization is now positioned as characteristic of most modern companies. In the lasttwo decades, there has been a perceivable rise in the number of research publicationsdealing with the strategy and positioning of stakeholders in organizationaldecision-making (Asher et al., 2005). Various studies point to the utilization ofstakeholder theory for analyzing the circumstances faced by contemporaryorganizations (Freeman and Liedtka, 1997; Metcalfe, 1998; Clarke, 2005).

This emphasis may have come about, according to Clement (2005), given the greaterlevel of pressures on organizations currently facing demands for responses fromdistinct groups of stakeholders. As these stakeholders are in constant interaction withthe company, they may provide them with contributions or important resources whileeach also represents interests needing to be satisfied. Correspondingly, analyzing whothe stakeholders are, identifying their interests and how they act is fundamental tocontemporary organizations, and especially in terms of those stakeholders of greatestimportance to organizational survival and being able to meet their respective needs(Hill and Jones, 1998).

4. Normative aspects of stakeholder theoryAs Donaldson and Preston (1995) affirmed, stakeholder theory cannot be considered asingle theory, but rather a set of theories for the management of stakeholders. Thistheoretical set is divided into three approaches (Friedman and Miles, 2006):

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(1) the descriptive (which sets out how the organization operates in terms ofstakeholder management);

(2) the instrumental (which demonstrates how to attain organizational objectivesthrough stakeholder management); and

(3) the normative (which defines how businesses should operate, especially inrelation to moral principles).

We now take up this third theme.The normative approach is based upon moral premises about how actors and

organizations should go about their activities. According to Donaldson and Preston(1995), stakeholder-oriented policies are justifiable based upon the supposition thatthey do hold legitimate interests in the company activities that should be taken intoconsideration by managers as, from Freemans (1998) perspective, stakeholders shouldnot be seen merely as the means of raising organizational performance. Researchwithin this framework evaluates relationships in accordance with ethical andphilosophic principles. Jones and Wicks (1999) propose stakeholder theory as anormative ethic that should approach which obligations from the stakeholder modelrest upon the management, and particularly the level of importance of obligationsattributed to some stakeholders over other stakeholder groups.

Within this perspective, Friedman and Miles (2006) draw an institutional vision ofthe organization defined as an arena of competing, and on occasion conflicting,multiple interests. This social space sees stakeholders acting from different positions ofpower depending on the organizational sustainability of negotiations and the specificcooperative solutions agreed upon.

Some studies have explicitly justified this normative dimension to stakeholdertheory (Freeman and McVea, 2001, Hansen et al., 2004) making recourse to legalarguments, such as property rights (Donaldson and Preston, 1995, Blair, 1998). Othersdeploy the Rawlsian construct of a social contract (Freeman and Evan, 1990; Child andMarcoux, 1999; Phillips, 2003). There are, however, also economic arguments thatincorporate relationships of trust (Goodpaster, 1991; Boatright, 1994; Marcoux, 2003) oragency theory (Shankman, 1999) and moral reasoning (Gibson, 2000), such as theequity principle (Phillips, 1997; Metcalfe, 1998), Kantian theory, the right to be treatedas an end (Evan and Freeman, 1988; Bowie, 1999) or through recourse to the concept ofthe common good (Argandona, 1998).

According to proponents of business ethics, the normative aspect of stakeholdertheory incorporates the following trends: Evan and Freeman (1983) and Bowie (1994)identify Kantian capitalism, for Phillips (1997) justice, according to Freeman (1994) faircontracts, while Freeman and Gilbert (1988) propose personal projects and, inaccordance with Wicks et al. (1994), the feminist approach.

In summary, these theories guide the thinking behind stakeholder theory, orientingits principles towards the application of theory as a proposed relationship between thecompany and its stakeholders within a fair, ethical and morally correct framework(deontological principles), where interests are not purely economic (utilitarianprinciples), thereby justifying both the actions of management as well as the resultsobtained. The theories cited, according to Friedman and Miles (2006), act as influentialinputs into stakeholder theory normative thinking.

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Therefore, the normative facet to stakeholder theory may serve to generalize theunderstanding of how organizational behaviors may be shaped and fashioned. In otherwords, the efforts of management need to be focused on grasping why the companyneeds to satisfy its stakeholders and how to achieve this as well as prescribing valuesfor the undertaking of normative research projects (Freeman, 1999; Radin, 1999).

Complementarily, McVea and Freeman (2005) propose that stakeholders should beunderstood as real, and not abstract, individuals as only thus can managers gainawareness about the options they take and considering the moral and ethical aspects toeach organizational decision. Stakeholder theory should focus on the creation of value,decision-making processes and relationships with real individuals. This represents anindividualization of the company-stakeholder relationship.

Many researchers involved in stakeholder theory agree that the normativedimension depends upon the other dimensions (descriptive and instrumental) andthese should not be underestimated. When positing certain types of behavior, it isimportant to compare the desirable with the real. Rowley (1997) explained that anyunderstanding of this theory requires not only explaining the influences wielded bystakeholders, but also how the company responds to these influences. In addition,stakeholder theory needs to describe and predict how organizations are to operateunder diverse and different conditions. More recent revisions of the normative facet ofstakeholder theory suggest three categories for stakeholder participation:

(1) moderate, that is dealing with parties with respect;

(2) intermediary, thus incorporating some stakeholder interests into organizationalmanagement; and

(3) demanding, hence with the full participation of such actors in corporate decisionmaking processes (Hendry, 2001 Flak et al., 2008).

5. Analytic aspects of stakeholder theoryThe analytical perspective to stakeholder theory covers two dimensions:

(1) the descriptive perspective; and

(2) the instrumental perspective.

Both were discussed in the study by Donaldson and Preston (1995), and later renamedby Reed (2002) as positive and strategic. Despite this proposal, the original terminology(i.e. descriptive and instrumental) has prevailed in the literature. According toFriedman and Miles (2006), these perspectives should be centered on the organization,on the organization-stakeholder relationship, or directly on the stakeholder.

The instrumental perspective, proposed initially by Jones (1995) and later furtheredby Donaldson and Preston (1995), explores how the stakeholder model may be used toattain the performance objectives of an organization as a tool to be deployed instrategic decision making, where certain results derive from enacting certain behaviors( Jones and Wicks, 1999). This relates primarily to the relational management ofspecific stakeholder groups (Freeman, 1984). For example, Berman et al. (1999)proposed a strategic stakeholder management model based on the premise thatcompanies address the concerns of stakeholders when believing this will boostcompany financial performance and is hence an instrumental approach. Theinstrumental perspective of stakeholder theory is based upon organizational

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economics, especially agency theory, transaction cost theory and corporate behavioralethics ( Jones, 1995). From Stariks (1994) perspective, that which became theinstrumental aspect enables organizations to personalize relationships withstakeholders, particularize their interests and raise managerial awareness oforganizational decisions, processes and policies.

Studies adopting the instrumental theory normally use statistical methodologiesand focus principally upon the relationship between the pressures that stakeholdersmay apply and the process by which organizational strategy is formulated (e.g.Weaver et al., 1999) and derive from the relationship between financial and socialperformance (as with the studies by Cochran and Wood, 1984; Cornell and Shapiro,1987; McGuire et al., 1988; Barton et al., 1989; Preston et al., 1991). In general, theyexplore causes and effects.

As regards the descriptive perspective, this seeks to describe and/or explaincharacteristics and organizational behaviors relative to stakeholders. This perspectivediscusses issues relating to the nature of the firm, how managers act and what theythink about the strategic components (Donaldson and Preston, 1995). Wood (1994)advocated that the descriptive theory of the stakeholder should extend over two facets:

(1) describing the organizational reality; and

(2) describing the company-stakeholder relationships.

This represents the difference between inductive and deductive visions. According tothis author, of these two modes, neither is preferred and both approaches makesignificant contributions towards the development of stakeholder theory as bothcontain factors important for any understanding of organizational relationships withstakeholders.

Descriptive theory resulted out of the need to describe (and very often explain)specific characteristics and behaviors, including the nature of firms (Brenner andCochran, 1991), how managers perceive their companies (Brenner and Molander, 1977),how organizations are managed (Halal, 1990; Clarkson, 1991; Kreiner and Bhambri,1991), the diffusion of social information (Ullman, 1985), the concept oftarget-stakeholders (Mitchell et al., 1997), and the meanings attributed to eachstakeholder, varying in accordance with the phase reached in the respective companylife cycle ( Jawahar and McLaughlin, 2001). Research carried out under this approach isnormally exploratory.

Of these two approaches, the instrumental perspective has received greatestattention from researchers with its highlighting of stakeholder management as a factorfor competitive advantage and better performance. According to Donaldson andPreston (1995), the effectiveness of stakeholder management is positively correlatedwith conventional performance indicators.

The instrumental aspects of the Donaldson and Preston (1995) model were taken upespecially by Mitchell et al. (1997), who researched manager perceptions on stakeholdercharacteristics and their relevance as regards facets such as power, legitimacy andurgency, given how stakeholder management is of particular importance to businessprojects taking place in institutionally demanding environments.

According to Aaltonen et al. (2008), the existing research points to managementpaying attention to stakeholders where these are deemed more important in terms ofpower, legitimacy and urgency. The question of stakeholder relevance and the extent

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to which managers attribute priority to competing stakeholder requests stretchesbeyond the issue of stakeholder identification. Thus, it is correspondingly necessary totheoretically grasp how stakeholder relevance may be able to explain where managersreally should be applying their attentions (Mitchell et al., 1997).

With the objective of resolving this question, a three-factor model was put forward(power, urgency and legitimacy) by Mitchell et al. (1997). Entitled stakeholdersalience, it was defined according to Friedman and Miles (2006) to bring aboutstakeholder powers of negotiation, the legitimacy of relationships with organizations,and urgency as regards meeting the needs present. In the perspective of Mitchell et al.(1997), stakeholder salience suggests a dynamic model based on an identificationtypology enabling the explicit recognition of the uniqueness of situations and amanagement perception explaining how managers should prioritize relationships withstakeholders. The authors demonstrated how the identification typology enabledforecasts of managerial behavior as regards each class of stakeholder to be generatedas well as predictions as to how stakeholders change from one class to another andwhat that actually means to the management. This model features three advantages:

(1) it is political (considering the organization as the result of conflicting andunequal interests);

(2) it is operational (qualifying the stakeholders); and

(3) it is dynamic (contemplating changes of interests in social space-time).

The model proposed suggests that the strategic behavior of an organization is subjectto diverse groups located within its environment, given that its strategies should meetthe needs of these groups in accordance with their respective importance. This isdefined by the following three factors, which vary depending on the prevailingsituation (Mitchell et al., 1997):

(1) Power The ability to make someone do something that would not otherwisehave been done, the power of the stakeholder over the organization may becoercive (strength or threat), normative (legislative, the media) or utilitarian(holding resources or information).

(2) Legitimacy The generalized perception that the actions of an entity aredesirable or appropriate in accordance with the socially constructed context andmay be individual, organizational or social.

(3) Urgency The immediate need for action, determining the organizationalresponse time when receiving requests from stakeholders, should consider timesensitivity (the need for speed in the organizational response) and the criticality(the importance of the request or the company relationship with the stakeholderin question), with this factor rendering the model dynamic.

According to Wartick (1994), power is the most critical dimension to stakeholdermanagement, and hence he recommends great care in recognizing and monitoringrelationships with those stakeholders holding greatest power. After all, one of the basictenets of stakeholder theory is that stakeholders are not equal with their importancealso varying dependent on the prevailing context and organization. As Evan andFreeman (1983) detailed, the essence of the company is to manage the interests ofdifferent stakeholders and including changes in expectations and demands.

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Mitchell et al. (1997) held that the model proposed is dynamic for three reasons:

(1) the three attributes are variable (and neither static nor stationary);

(2) the attributes are socially constructed (and not objective); and

(3) not all stakeholders are aware that they possess one or more attributes.

These questions make the stakeholder salience model fairly dynamic and subject tofrequent change. Stakeholders may hold only one attribute today and acquire anotherone or two attributes tomorrow.

Finally, in addition to the work of Mitchell et al. (1997), focusing on identifying andevaluating the salience of stakeholders, other studies stand out as important within theinstrumental and descriptive perspectives according to Friedman and Miles (2006).However, it is the work of Mitchell et al. (1997) that has proved to be of greatestinfluence to the stakeholder theory literature.

6. The shortcomings of stakeholder theoryFollowing its original proposition, stakeholder theory underwent rapid growth in the1990s with a lot of research ongoing and its adoption by researchers in theorganizational field. These works looked at a series of facets and expanded the theoryspopularity among both academics and management practitioners. Nevertheless, somequestions still remain. Throughout the first decade of the twenty-first century, it maybe stated that the theory was commonly deployed but, on the other hand, in theoreticalterms, there was very little progress and the current reality of stakeholder theorydemonstrates that little changed in the last decade. Furthermore, that means a series ofshortcomings still need resolution particularly regarding aspects involving thetheoretical formulation in itself, the normative, descriptive and instrumentalapproaches, the application of theory to organizational realities and the developmentof the theoretical body of work.

One of the main questions raising discussions around stakeholder theory is notcriticism of the Theory in itself but rather targets the content of the term stakeholder,which is essentially relatively vague (Jones and Wicks, 1999). Clarkson (1994) hadearlier observed that terms such as stakeholders, stakeholder models, stakeholdermanagement and stakeholder theory were defined and used in different ways and indifferent approaches and correspondingly based on a diverse range of evidence andcontradictory arguments, as already mentioned above in relation to the stakeholderconcept.

Another relevant question for Key (1999) is that Freeman (1984) focused on thetechnical rather than the theoretical. The presentation of identifiable actors provides avaluable strategic tool, which was one of his intentions, but he did not provide atheoretical base that was appropriate for explaining either the behavior of the companyor that of individual actors, whether internal or external. He then correctly asserts thatthe economic model does not describe company behavior with any precision andprovides no alternative beyond rethinking the company as an entity convertingresources influenced by and influencing both internal and external actors. According toKey (1999), stakeholder theory does not adequately explain the process, makes anincomplete interlinking between the internal and external variables, does not payenough attention to the system within which companies operate as well as those levelsof analysis within the system, and also inappropriately evaluates the environment. In

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the perspective of Voss et al. (2005), stakeholder theory does not respond to the needs ordemands of stakeholders given that these are dynamic, latent or difficult to discern.

As regards the original proposal, the questions left open and the suggestions forrefinements cover some ground. One question discussed within stakeholder theory isthat Freeman (1984) put forward a new framework nevertheless lacking any logic ofdevelopment or the causality that would serve to connect the variables and does notprovide any form of testing or predicting the behavior of either the company or that ofexternal actors. The first steps to identify this logic were the work of Donaldson andDunfee (1994) and Jones (1995). They proposed social contract theory as being at thecore of relationships with stakeholders, similar to the logic explaining the relationshipbetween managers and shareholders within the scope of economics even if there hasbeen little subsequent development to the work of the aforementioned authors.

Furthermore, Freeman (1984) included an incomplete connection between actorsand between internalities and externalities. Despite failing to identify the internal andexternal interest groups, simply left incomplete, he provided for unlimited connectionsbetween these groups and individual actors. To this end, an actor may be a member ofa variety of groups; hence, an employee may be a member of internal interest groups,shareholders and employees, and external stakeholder groups, such as professionaland consumer organizations, environmental activist associations, parent or othercommunity action entities (Hsueh et al., 2010; Wegner et al., 2010). To try and resolvethis, Rowley (1997) suggested stakeholder networks. Freeman also describesrelationships as if some kind of network, suggesting an even still greater complexity(Rowley, 1998). However, there has been no empirical evaluation of this.

Within this line, the Freeman (1984) model suggests that stakeholder groups may beclearly identified as separate entities, which would lead to a loss of complexity in theirreal relationships (Rowley, 1997). It may be the case that stakeholder groups cannot beclearly identified but the interests represented by the groups (internal versus external)are susceptible to due identification (Connelly, 2010; Mas-Verdu et al., 2010). Hence, theinterests may prove to be the critical variable, and not the interested parties inthemselves. Donaldson and Preston (1995) have argued in favor of stakeholders beingidentified by their interests although this position has not gained any consensus in theliterature.

Another question posed by Key (1999) refers to the fact that stakeholder theoryincorrectly approaches the environment as something static, focused upon thecompany and made up only of stakeholder groups. Considering that the system andprocesses sustaining the system are not totally overcome, the company image at anyspecific time is fixed. Therefore, the element of change that takes place over time is notexplainable through recourse to Freemans (1984) model with very few propositions forthe resolution of this problem having been put forward thus far. While part of thestrategic management approach set out by this author includes evaluating theenvironment for the identification of stakeholder groups, there is no provision forunderstanding how to manage change. Curiously, the work of Freeman (1984) is basedon his own evaluation of climate change and how this impacted upon the company tosuch an extent that it became necessary to respond to groups other than shareholders.One contribution towards this thinking was made by Rowley (1998), who used networkanalysis to evaluate the environmental influence on the relationship between acompany and its stakeholders.

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From another line of rationale, more philosophical, Antonacopoulou and Meric(2005) concluded that stakeholder theory is more of an ideological product thansomething scientific. They considered that the theory in question is based uponpsychology and socialization and preaches more moral behavior to marketorganizations as a counterbalance to capitalism and the financial and economicobjectives of firms. They point to the lack of scientific thoroughness in the propositionsset out by stakeholder theory researchers. Much of the theory is presented in veryutilitarian terms, trusting in Kantian ideas and attributing intrinsic value to thestakeholder (Martin et al., 2010). The theory lacks the production of knowledge able toexplain the complex and multi-faceted social relationships between the company andits stakeholders (Melia et al., 2010; Un and Montoro-Sanchez, 2010).

Within the same context, Stoney and Winstanley (2001) label stakeholder theory asin fact being a political pluralism theory. Adopting a Marxist criticism of pluralism,these authors argue that this theory supplies an excessively simplisticconceptualization of power as a good that may be negotiated between theorganization and the groups of stakeholder and, therefore, very limited in itsexplanation of the means by which different stakeholder group interests emerge andare generated by society. Without the capacity to distinguish between the divergentorganizational stakeholder interests, stakeholder theory may easily be subverted to aunitary concept (Bonet et al., 2010; Comeche and Loras, 2010).

Stieb (2009) complemented this in affirming that the pretensions of stakeholdertheorists as to their theory evolving to replace capitalist theories were unfounded. It issimply not possible to create value for all stakeholders in any equalitarian fashion(distributive justice). This author holds that stakeholder theory has not proven a solutionfor the economic ills afflicting society. Given this, and taking into consideration thepositions of Stoney and Winstanley (2001), Antonacopoulou and Meric (2005), Stieb(2009) and Sanyang and Huang (2010), we may thus perceive of the need to definestakeholder theory within the field of organizational management and avoid the theoryspilling over into other fields such as philosophy, sociology and psychology.

These critical questions, involving philosophical and theoretical points of view,were closely analyzed and broadly commented upon in the scientific literature(Donaldson and Dunfee, 1994; Donaldson and Preston, 1995; Weiss, 1995; Sternberg,1996; Key, 1999; Moore, 1999; Gibson, 2000; Kaler, 2003; Fassin, 2008; Rubalcaba et al.,2010). There have also been attempts to integrate the theory into research fromdifferent areas so as to advance the state of stakeholder theory (Jawahar andMcLaughlin, 2001; Andriof et al., 2002; Venkataraman, 2002; Koelling et al., 2010;Sebora and Theerapatvong, 2010). Nevertheless, much work still remains to be done.

According to Fassin (2009), a juridical interpretation, strengthening thephilosophical input, based upon rights and contracts means stakeholders havedemands and companies have obligations and duties. On the other hand, themanagerial approach, stemming from organizational theory and sociology, is morepragmatic and emphasizes the relational aspects between interested parties and thecompany. These two opposing visions of the stakeholder concept reflect totallydifferent questions. This mixture, in constant evolution, overlapping and combiningutilizations of both definitions (Kaler, 2003), has boosted the perception of uncertaintysurrounding the model and demanding theoreticians take up their positions as regardswhich problem they aim to resolve.

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Specifically, from the instrumental perspective, according to Sternberg (1999), themeaning and applicability of the stakeholder doctrine depends on what is involved inbalancing out the benefits generated. Nevertheless, this idea has also come in forcritical analysis. First, stakeholder theory does not provide any orientation as regardshow to benefit all parties equally and justly. Were all stakeholders able to affect or beaffected by the organization, the number of groups whose benefits were to be includedin the calculation would be infinite. For any balance to be reached, the number or typeof stakeholder would have to be restricted in some way or another (Ramrez et al., 2010;Tihula and Huovinen, 2010). However, stakeholder theory at this stage does notprovide any orientation as to the way in which stakeholder groups should be selectedor defined.

Remaining with instrumental issues, the stakeholder model structure visuallyillustrates the relationships between the different groups of actors surrounding acompany. However, it is necessary to be aware that all representations, models andlayouts are social constructions that inevitably simplify and reduce reality. Thisobservation naturally holds valid for stakeholder theory (Pesqueux and Damak-Ayadi,2005) as well. The recent literature on the theme puts forward an impressive range ofperfections and improvements but there still lacks a clarification and thoroughdefinition of the models nature ( Jones and Wicks, 1999; Lepineux, 2005).

Also questioning the model, Carroll and Buchholtz (2006) highlight the reciprocalinteraction between stakeholders and society. The stakeholder model graphicallyrepresents the relationship between the stakeholders and the company by means of abi-directional arrow. These arrows depict not only a relationship, but also expressdependence and reciprocity (Tortosa-Edo et al., 2010). The relationships between themare reciprocal given that each may impact on the other in terms of losses and gains aswell as rights and duties (Evan and Freeman, 1988). However, not all relationships areequal: the intensity of interaction in each direction might be quite different dependingon the power and the sensitivity to influence (Post et al., 2002; Phillips, 2003). Theintensity may be seen as a point on a continuum and this may be expressed in differentarrow widths, as in a sociogram, with possible width differences in either direction, asolution uncommon to studies on stakeholder theory.

Complementarily and as already observed, one interpretation of stakeholder theoryincorrectly perceives that a company should take into account the aspirations of allparticipants and that they should all be treated equally, independent of the fact thatsome clearly contribute more than others to the organization (Gioia, 1999; Marcoux,2003; Phillips, 2004; Tortosa-Edo et al., 2010). However, the management ofstakeholders does not imply that executives have to focus equal quantities of attentionon each of their components (Dentchev and Heene, 2003; Chamberlin et al., 2010;Devlin, 2010). In the stakeholder categories, the level of attention and obligation mayvary (Mitchell et al., 1997; Phillips, 2003; Neville et al., 2004). However, the originalgraphical representation of the stakeholder model may be at the root of this erroneousinterpretation of equality among all stakeholders given how, for reasons of simplicityand clarity, each stakeholder category is attributed a symbol (oval or rectangular) ofidentical size. Perhaps, to better reflect reality, symbols of different sizes, shapes andintensities are needed in accordance with the relative importance of the respectiveparticipant categories (Fassin, 2008). These examples do demonstrate that theliterature requires a new and more robust model.

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In addition to questioning of the model, the application and usage of stakeholdertheory also raises doubts. For example, Jensen (2002) calls into question the theoryrelating to two aspects: the non-specific Theory on how managers should handleconflictual interests, with a lack of objective criteria for decision making andperformance evaluation, and the impossibility of an organization attaining success whenchasing multiple objectives as inherently attempting to achieve many objectivessimultaneously corresponds to having no overall objective. Companies adoptingstakeholder theory, in general, experience managerial confusion, conflict, inefficienciesand even a weakening of the corporation (Abreu et al., 2010; Martinez-Gomez et al., 2010).

Taking a similar line, Dufrene and Wong (1996) question the validity of stakeholdertheory for its failure to provide clear management objectives. Baggio and Cooper (2010)maintain that stakeholder interests are frequently mutually incompatible, a factnecessarily preventing any clear decision by the management. This same position wasused by Stieb (2009), who criticized the power sharing defended by Freeman (2002,2008). The author questioned just how you might face suppliers, the local communityand clients as management and in control of the organization? This would seem, at theminimum, unviable.

Another doubt as to the practical application of stakeholder theory was posed bythe work of Sundaram and Inkpen (2004). These authors defend the purpose of thecompany being the maximization of shareholder value. Hence, they criticize studiescalling for the needs of multiple stakeholders to be met with the objective of gainingcompetitive advantages as is the case, for example, with the works by Jones (1995),Donaldson and Preston (1995), and Altman (1998) and Mathew (2010). Sundaram andInkpen (2004) emphasized that the relationship between stakeholders and companyperformance is either refutable or inconclusive in various empirical works, with thestudies by Griffin and Mahon (1997), Agle et al. (1999), Berman et al. (1999) identified,among others. Hence, more research on the relationship between stakeholdermanagement and organizational performance is clearly needed.

Finally, according to Key (1999), stakeholder theory does not meet the requirementsof a scientific theory. Trevino and Weaver (1999) stressed that despite progress therehas yet to be any theoretical convergence between the instrumental, descriptive andnormative perspectives even taking into account the efforts of research in this field,such as that of Jones and Wicks (1999). According to Trevino and Weaver (1999), thereis a lack of sufficient empirical evidence.

Furthermore, as Lepineux (2005) affirmed, stakeholder theory is affected bycountless problems and imperfections. In summary, they are:

. the definition of its object of study remains controversial;

. the stakeholder spectrum and its classification is variable;

. the balancing of their respective interests causes problems;

. there is a lack of solid normative foundations;

. the normative and empirical flows are very commonly separated; and

. the role and the positioning of civil society as a stakeholder is neither clear norprecise.

Considering these aspects, many authors doubt whether stakeholder theory justifies itsstatus as a theory, a position taken by Trevino and Weaver (1999), for example.

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Considering the questions and issues set out here, it may safely be said that there isstill much to do. Despite being a still relatively recent theory, it has gained inpopularity and attracted the interest of researchers in countless areas. These criticismsserve only to help in fostering the development of stakeholder theory, over timemoving towards the status representing a new paradigm for the organizational field.According to Friedman and Miles (2006), any attempt to converge around a justifiedand consistent theory remains premature. There are questions to resolve, such asstakeholder focused decision making processes (which to choose?), the managerialstructure appropriate to focusing on stakeholders, the role of intermediaries in thisrelational interaction, the real legitimacy of stakeholders, the means of relating andinteracting between the organization and each of its stakeholders. These are thequestions worthy of the attention of researchers in this field.

7. Conclusion: a suggested research agendaOut of this analysis of the literature, it may be understood that stakeholder theory hasspilled over into different fields. According to Carroll (1994), the theory holds relevanceto strategic management, marketing, production, financial management, humanresource management, research and development, organizational ethics, corporativegovernance, business performance, healthcare management, information technologysystem management, among others. Although not the leading theory in any of thesefields, stakeholder theory provides a means of combining ethical questions withcomplex operational environments and encapsulating details within a general vision.That is, this is a theory that proves its relevance to organizations in general terms,nevertheless, as explained above, further research of an empirical nature is required,especially descriptive approaches (Friedman and Miles, 2006). Such empirical anddescriptive research would enable the organizational reality to be cross-referenced withthe theoretical assumptions. The sheer quantity of shortcomings presented heresuggests that the theoretical approach remains within the domain of supposition withmany of the assumptions underlying stakeholder theory never subject to testing, whichhas led researchers into raising doubts as to the validity of this theoretical approach, aspresented above.

Therefore, it becomes important to seek out solutions (qualitative and quantitative)to the diverse questions raised by research into stakeholder theory. Correspondinglyone natural option involves systematizing issues critical to the theory and developing aresearch agenda that seeks to respond to the aforementioned imperfections.

As regards the formulation of stakeholder theory, one question requiring resolutionis that of the stakeholder term itself. The profusion of definitions hindersunderstanding as to what the term actually represents. Establishing boundaries tothe concept would go a long way towards resolving a series of issued posed byresearchers in this field. Might it prove feasible that company objectives serve to guidethe definition of these boundaries? In accordance with a unified concept of thestakeholder term, the theoretical approach referred to here would render conceptualclarity and an enhanced definition, generating important academic interpretations (andbetter focused research) and practices (better management understanding as to whotheir stakeholders actually are). As a guideline for empirical research (or for practicalapplications), prior to embarking on stakeholder theory field research, academicsshould determine the individuals under analysis understand the term. One of the

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problems encountered by researchers in relation to this theory relates to the different(where not erroneous) perceptions of the term stakeholder. Staging focus groups mayaid in unifying understandings as to the concept.

Further research would focus on the boundaries as to what constitutes a group ofstakeholders as well as defining the criteria for attributing individual membership toone or another group. This definition should justify the logic binding the variables inaddition to clarifying the criteria adopted for choosing one or another stakeholder asthe main beneficiary of a specific organizational action in contrast to conceiving as tohow to benefit all equally, which does not, after all, seem a feasible objective. Clearlydefining what makes up a stakeholder group may focus not only academic research butalso its deployment within the business environment. In this case, the proposal putforward by Rowley (1997) emerges as the most logical with its interest basedstakeholder groups rather than definitions around individuals. For example, a specificindividual might simultaneously be an organizational client and supplier. The personremains the same even where his/her interests differ. Thus, in practice, from theorganizational perspective, stakeholder groups are collective individual interests andnot specifically the individuals themselves.

A more critical aspect of stakeholder theory is its theoretical mixture. This clearlydemonstrates the lack of demarcation to its theoretical borders and which results in thetheory being misrepresented as a technique or even as a support tool for other theories.Thus, researching and determining the actual extent of stakeholder theory,particularly in taking this approach as an organizational theory rather than as anideological or political concept, might result in an important contribution for academicsand practitioners in this field. Complementarily, the static conception of thesurrounding environment also needs dealing with. Correspondingly, within the scopeof the theory, dynamism needs to be introduced into this external environment. Hence,stakeholder theory needs defining as a theory and not as some aggregation ofsuppositions with diverse connotations. Thus, descriptive research may prove able toascertain the scope of the theory.

As regards the instrumental question, the main utilization of stakeholder theory bymanagement professionals, new models need proposing and that are capable ofanswering the various challenges set out by Carroll and Buchholtz (2006), and Fassin(2008, 2009), among others. Despite the discussions regarding the graphicalrepresentation of stakeholder theory, there is a shortage of proposed models dealingwith aspects such as stakeholder homogeneity, their respective independence, amongother criticisms set out above. Some proposals are already to be found in the literature(Fassin, 2008, 2009), nevertheless, they have yet to stake their claim as the most robuststakeholder theory model. After all, they have yet to be subject to empirical testing.Furthermore, model focused research may also open up avenues for the resolution ofmany other critical theoretical issues, especially through the empirical testing of newmodels. Any new stakeholder theory model would certainly bring progress towardsresolving some of the weaknesses set out here, especially should such a model derivefrom a unified definition of the stakeholder conceptual. Furthermore, the main facet tothe company and each of its stakeholders would appear to be the mutual influenceongoing between the parties. This factor might yet prove the foundations for a newmodel.

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For practical theoretical applications, research, especially descriptive analysis,needs to focus on aspects such as the ongoing relationships, conflicts of interestbetween stakeholders and management difficulties in coping with multiple objectives(decision making, structures, intermediaries, etc.). Research into how differing actors,when belonging to different groups, reconcile their interests (which may be divergent)is essential. Furthermore, as it is highly difficult to deal with everyone, we clearly needrecommendations on how to attribute relevance to stakeholders, as is the case with thestakeholder salience model (Mitchell et al., 1997), thereby contributing to the practicalapplication of this theory despite the long standing lack of thorough empirical testing.It is perfectly feasible that the model proves to have little practical utility. Indeed,measuring power, legitimacy and urgency represents a challenging task and subject todoubts, as proven by Agle et al. (1999) in their application of the stakeholder saliencemodel where the results obtained registered divergences between the theoretical modeland the organizational reality. In addition, more studies are necessary on how to relategood stakeholder management to organizational performance. Perhaps the mosteffective theoretical application might actually be in public or non-profit organizationsrather than the private sector (Beach, 2009).

Finally, the need for research that systematizes the knowledge produced should behighlighted with the objective of attaining the theoretical convergence necessary forthe development of stakeholder theory. There is clearly a very significant body of workacross a range of areas but they have not yet been gathered and collectively analyzedin order to extract the conclusions and adjustments necessary for delimitating andadvancing the theory.

In summary, it is necessary to attain consistency within the normative stakeholdertheory perspective, overcoming its still incipient phase of development in terms of itsdescriptive capacities while validating and broadening the descriptive base supportingthe normative perspective. This holds particular relevance given the descriptiveperspective may drive changes in the actual normative perspective itself. However,there is much road ahead of us. We particularly need to focus efforts on definitivelyestablishing the foundations of stakeholder theory, which does nevertheless prove atheoretically relevant approach both in organizational and in social terms.

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