EVALUATING THE

IMPACT OF
STAKEHOLDERS
MANAGEMENT ON
CORPORATE SUCCESS















RESEARCH PAPER by:
Name: Tan Ee Boon
Student Admin No.: 15997728
Module: PUBLIC RELATIONS (CORPORATE)
EVALUATING THE IMPACT OF STAKEHOLDERS MANAGEMENT ON
CORPORATE SUCCESS

It has been a long running debate towards the roles of business in society. Nobel Prize
winning economist Milton Friedman contested in 1970 that the business of business is
business (Barnett and Samuelson 2003, 16), a phase he used to reinstate his beliefs that the
sole legitimate purpose of a business is to generate profit and create value for its shareholders
(Masaka 2008). He went on to support his stance with examples that illustrates how
companies that adopt responsible practice could be liable to more stringent scrutiny and
constraints than those that chose to act along Friedmans belief (Delmas and Toffel 2004).
On the other end of the debate is a growing call for businesses to advocate more
responsibility towards the society and all other entities within the environment that has a
claim or a stake in the well-being of the business (What is CSR? 2006). Advocacy and social
activists groups gathered in strengths and began calling for businesses to do good rather
than to do well (Chatterji, Levine and Toffel 2007).
American economist and ethicist Edward Freeman went up against the ideology of Milton
Friedman in 1979 by presenting to the public his side of the argument on the roles of
businesses. Edward Freeman counter-contested that the society can in fact substantially limit
the unrestricted pursuit of profits via laws and regulations (What is CSR? 2006). Freemans
stance towards the responsibility of businesses significantly abrogates Milton Friedman and
his notion on the role of business in the society and substantially reduces it to a hypothetical
and essentially baseless theory. Edward Freeman prompted businesses to accept their
obligations to consider the societys long term wants and needs and involve themselves in
activities that promote benefits for the society (Branco and Rodrigues 2007) and alleviate on
the negative social impacts they are creating on the environment and the communities that
provide the businesses with the wealth-creating capacity to continue operating (Tsoutsoura
2004).
Corporate Social Responsibility (CSR) became the obvious choice of adoption of most
businesses as the management of these businesses feels there are benefits such as tax rebates
and special allowances of other forms which they can reap off from the format of practice
(Knox and Maklan 2004) which could be used to justify or offset for the amount of monetary
and time expenses they would incur with the implementation of CSR practices. Moreover,
extensive researches conducted over the past 30 years on the issue of social responsibility
have unveiled traces of positive relationships displayed between CSR practices of a business
and the level of Corporate Reputation that it would yield (Margolis, Elfenbein and Walsh
2007).
Despite numerous scholarly articles that were written with CSR as a base point and the
implied relationship between businesses and the society existing and discussed about for
decades, scholars have still to date, failed to come to consensus on a universally agreed
definition of CSR. The European Union vaguely defined CSR as a concept whereby
companies integrate social and environmental concerns in their business operations and in
their interaction with their stakeholders on a voluntary basis(Volodina, Sax and Anderson
2009) while Thomas Jones gave his account of what it means of a CSR program or CSR
initiatives in 1980 with CSR being the notion that corporations have an obligation to
constituent groups in society other than stockholders and beyond that prescribed by law and
union contract(Mele 2004). It is apparent therefore that there is an explicit relationship of
interdependency between the concepts of CSR and stakeholders management as both the
concepts are built on relational processes that businesses are able to develop both internally
and externally to ensure the ability to create financial, social and intangible values (van der
Wees 2009).
To elaborate more specifically, both the concepts of CSR and stakeholders management
undergo the same cycle of having to identify, recognise and acknowledge the stakeholders of
the business, analyse the level of contributions, commitment and supported required of these
stakeholders of the business to ensure the success and profitability of the business and
develop tactic and strategy the business can use to involve the stake-holding groups into its
day to day running of the business (Rasche and Esser 2005) .
Empirical studies conducted by scholars around the world have almost unanimously agreed
on the interdependency of the 2 concepts, and revealed on the importance of stakeholders
management as an importance piece of ground work laid out for the CSR program of a
business to be established. Clarkson mentioned in 1995 in his research studies that
stakeholder theory has grew to become one of the theoretical foundation for the research
streams of CSR (Freeman and McVea 2002). Archie Carroll also vouches for the
relationship between the 2 concepts and the derivative purpose of stakeholder management as
a facilitating element of CSR by concluding in 1991 that the concept of stakeholder
management personalises social or societal responsibilities by delineating the specific groups
or persons business should consider in its CSR orientation (Carroll 1991). To paraphrase, if
CSR defines what social responsibilities a business ought to fulfill, stakeholder theory allow
businesses to identify whom should it direct their social responsibility efforts towards. It is
therefore with substantial evidence that we can conclude that stakeholder theory serve as
important factor to achieve the CSR initiatives of a business and the analysis of CSR would
be valuable to viewed at and executed from a stakeholder point of view.
Globalisation and the growing numbers of new entrants within the industry has increased the
call for corporate to utilise their resources to alleviate the rising social issues (Margolis,
Elfenbein and Walsh 2007). Stakeholder theory that derives with the stakeholder managing
protocols entails the motion of having businesses to view itself as part of an open system
which is interdependent to individuals or groups within the system who can significantly be
affected or affect the achievement of an organisations goals and objectives (Olum 2004).
Savage et al rationalised for the growing importance and power of the stakeholders of a
business in 1991 by mentioning of their growing affluence of the surrounding as well as the
organisations they believe they can claim a stake in; Savage et al believe the stakeholders of
the business environment today possess the ability to intrude in organisational operations
(Gomes 2005).
Donaldson and Preston in their heavily publicised article in 1995 further vouches for the
perceived level of influence possessed of by these individuals or groups as demonstrated in
Edward Freemans definition by emphasising the needs to treat each and every group of these
stake-holding members as an end itself and not a mean to reach one or another
end(Donaldson and Preston 1995).
Edward Freeman further added to the roles and importance of stakeholders with stakeholders
must involve him or herself in determining the direction of any business that he or she can
claim a stake in(Freeman and McVea 2002). He substantiated his stance with his hypothesis
that a systematic consideration of all the stakeholders needs and wants would allow a
business to outperform its rivals and other competing companies both financially and socially
(Freeman and McVea 2002). Clarkson made an conclusive statement on the importance
stakeholder management by asserting that the survival and the continuing profitability of a
business depends on the ability to fulfill its economic and social purposes, which is to create
or distribute wealth or value sufficient to ensure each primary stakeholder continues as part of
the stakeholder management system (Hillman and Keim 2001).
While the multi-fiduciary approach of stakeholder management has met with much scrutiny
and criticisms for creating a paradox that damages managements accountability to its
shareholders as it generates a contradiction that hinders profit maximization on top of other
recurring issues that has scholars have still fails to address(Hillman and Keim 2001), the
relevance of having to adopt stakeholder management practices and proactively manages the
stake-holding members of a business has grew by a substantial amount since its formalisation
by Edward Freeman some 20 years ago (Freeman, Velamuri and Moriarty 2006). Historical
governance failure of big names corporations such as Enron and Tyco which folded up as a
result of distributing too much focus on creating values for the shareholders of the business
and neglecting the legitimate business stakeholders which includes but limited to primarily
the customers, employees, suppliers, community residents and the operating environment of
the business also prompted management figures of businesses to advocate more emphasis and
embraces the approach.
Stakeholder management is defined as a proactive approach towards the management of
issues and claims that are relevant and of significance to the stake-holding individuals or
groups of a business (Hillman and Keim 2001). The creation of positive relationships as
brought about with the approach is believed to be able alleviate pressure and uncertainties
away from businesses with implicit agreements and relationships which allows for the
formulation of cooperation and relationships to take place between businesses and their
stakeholders (Cennamo 2007). The relationship established can fundamentally improve and
ensure the continuous support and participation of the stakeholders in the business, and go on
to constitute to an intangible social resource that would adversely improve the businesss
capacity to outperform its competitors with the ability to create long term values for its
stakeholders (Cennamo 2007).
The resource centric view of the business which was accounted for and illustrated in details
by Jay Barney in 1991 asserted that the ability of a business to outperform rivaling
companies are held in its unique interplay of human (Barney 1991), organisational and
physical resources which constitutes to the development of intangible resources for the
business. Jay Barney added that in order for intangible resources of the businesses to further
develop into unique competitive point of differences for the business, the conditions of the
resource being rare, inimitable, non-substitutable and valuable must be met (Barney 1991).
Resources which successfully fulfill the 4 conditions laid down by Barney would grow into a
competitive advantage that could serve as a point of differentiation as the business competes
with its competitors. Resources that most generally fulfills the conditions and lead to the
acquisition of new competitive advantages of the business includes reputation, corporate
culture, long term relationships with suppliers and customers and knowledge assets acquired
from collaborations with competing companies (Barney 1991).
The perspective of interdependency between a business and its stakeholders holds the belief
that effective stakeholder management activities would drives the business forward with
positive financial performance (Fontaine, Haarman and Schmid 2006). The sentiment is
shared by many other management scholars who have researched extensively and published
on their perspectives of the relationship between stakeholder management and the financial
performance of a business. Robert Wood Johnson listed customers, employees, communities
and shareholder in that sequence to depict the level of importance he feels businesses should
allocate to each of the 4 stakeholders he listed. To benefit the shareholders of the business,
Johnson firmly believes that business must act in the interest of the first 3 stakeholders of the
customers, employees and the community (Freeman, Velamuri and Moriarty 2006). Lengnick
Hall who released his research paper in 1996 emphasised on the importance of relationships
with customers that extends beyond the boundaries of businesses to allow for the acquisition
of a competitive edge. Bennett Stewart on the other hand, contested with his research studies
in 1995 where he feels the needs of businesses to more effectively and efficiently address the
needs of its stakeholders than the rivaling companies that it competes with in order to
increase stakeholder value (Freeman and McVea 2002). Therefore, it can be conclusive that a
positive and effective stakeholder management would lead to value creation for the
shareholders of a business in the business society today.
By developing long term relationships with stakeholders such as the suppliers and customers,
current and future employees, all the other entities that resides in the community or
environment where the business operates in which includes competitors vying for the market
shares with the business, businesses are expanding their value creating function beyond that
that a firm that allocates bulk of its focus on the shareholders of the business can achieve or a
relationship built on pure transactional ties can attain. Values that were created from
relational interactions that develops when businesses accurately meet the needs and wants of
their stakeholders are perceived to be more favorable and sustainable than those that were
derived from pure transactional interactions which are easily imitated and offers little to the
contribute to the competitive aspect of a business (Feller, Shunk and Callarman 2006). Such
value creating interactions are not limited to those with primary stakeholders but can be
extended out to the interactions with rivalry businesses that operates in the same geographical
environment in the exchange of technological or infrastructure values.
A widely cited example of businesses that perform its long term value creation duties amiable
would be Sony Corporation, a multinational conglomerate who has establishing relational
transaction with mobile products developer Ericsson to launch a line of mobile
communication products. The collaboration with Ericsson indirectly allowed Sony to interact
with the other stake-holding individuals and groups in its operating environment (Feller,
Shunk and Callarman 2006).
Other examples of business initiated activities consistent with long term value creation
through relationships with key stakeholders are cooperative planning and design efforts that
unite firms with suppliers and customers and rewarding employees on the basis of customer
satisfaction measures or other measures of external reputation. Because of the relational
aspects that underlie these relationships, the activities carried out will constitute to an
important and intangible relationship which are highly difficult for other companies within
the same spectrum of duties or operations to duplicate between the businesses and the stake-
holding groups of the business (Delmas and Toffel 2004).
In summary, stakeholder-oriented companies has the potential to build long term
relationships with their stakeholders and result in transactional and governance cost saving as
a result of trust developments, increase in operational and corporate overall reputation,
develop intangible assets and capabilities and enhance organisational legitimacy which can in
turn secure the survival of the business.
Hence, in conclusion, as business firms continue to deal with the growing competition in the
industry, they are spurred to search for advantage or point of difference where rivaling
companies will find difficult to imitate in order to attract investment capital. These
sustainable competitive advantages can be built on resources that derive from healthy and
proactive relationships with the stakeholders of the business which includes the employees,
customers, suppliers, competitors and all entities residing in the environment where the
business operates.
Empirical researches and studies conducted by management scholars over the world have
found stakeholder management, the process that proactively deals with the issues and claims
of the stakeholders to be able to exert certain impacts on the value creation function of the
business, and act as a basis for competitive advantages to be developed. On the other hand
however, there has been evidence which researches yielded that demonstrates how easily
these impacts can be cushioned for companies who merely uses transactional relationship to
mitigate the social issues.
Key findings from some of the most notable scholars have found that companies which ties
their social mitigating activities with the needs and wants of their primary stakeholders to be
at a better position to increase the wealth or its shareholders. Participating in social issues that
are beyond the primary stakeholders however, may adversely affect the ability of a company
or business to create shareholders value.
All in all, while there are ambiguities in the clarity of actual benefits and the structural
impacts of the stakeholder model. There are two consistent findings that are synchronised
throughout all the research papers, that there are no negative effects of stakeholder
management and and firm centric stakeholder models have positive effects on firm
performance.

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