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Accounting Forum 33 (2009) 162175

Stakeholder prioritization and reporting: Evidence from

Italy and the US
Giacomo Boesso a, , Kamalesh Kumar b,1
a Department of Economics and Business, University of Padova (Italy), Via Del Santo, 33, 35123, Padova, Italy
b School of Management, The University of Michigan-Dearborn, Dearborn, MI 48128, USA

Abstract
This study investigates the considerations that might be made by managers when choosing between mutually exclusive stakeholder
expectations and reaching and engaging in a dialogue with them. In addition, the study also examines if there are systematic
differences across countries (Italy and the US) in the decision to address the concerns of various stakeholder groups. Data was
collected from 244 managers and 72 companies simultaneously in two different national business contexts, Italy and the US. The
results of the study provide some evidence that managerial perception of three stakeholder group characteristics power, legitimacy,
and urgency form a parsimonious group of variables that explain the process of stakeholder prioritization. However, only limited
support was found for the relationship between salience accorded to a stakeholder group and engagement efforts directed toward the
group. The results of the study also show that the managerial decision as to which of the stakeholder groups demands to address will
be influenced by society-specific expectations. The significance of this study lies in investigating the stakeholder prioritization and
engagement process, as it is being practiced, which, one could argue, would help in developing guidelines for effective stakeholder
management that stands a realistic chance of being adapted and followed.
2008 Elsevier Ltd. All rights reserved.

Keywords: Stakeholder reporting; Voluntary disclosure; Key performance indicator; Cross-cultural differences

1. Introduction

In recent years, a number of high-profile corporate failures have highlighted the need for companies to report
and be held responsible to a broader social mandate that extends beyond groups with direct financial interests in the
company (Gray, 2006; Lehman, 2004). This has been accompanied by efforts on part of a number of institutions
and professional bodies worldwide to provide elaborate guidelines for stakeholder dialogue and reporting, aimed at
building and managing effective stakeholder relations (Bhimani & Langfield-Smith, 2007; Boesso & Kumar, 2007).
Also, with rapidly disintegrating cross-border economic barriers and unabated globalization, stakeholder management
is increasingly being discussed in the international context (Laines, 2005; Mahoney & Roberts, 2007; Moneva, Archel,
& Correa, 2006; Ogden & Watson, 1999; Smith, Adhikari, & Tondkar, 2005).
European research centers such as the Organization for Economic Co-operation and Development (OECD, 2001), the
Association of Chartered Certified Accountant (ACCA, 1999) and the Institute for Social and Ethical Accounting (ISEA,

Corresponding author. Tel.: +39 049 827 3844; fax: +39 049 827 4211.
E-mail addresses: giacomo.boesso@unipd.it (G. Boesso), Kamalesh@umd.umich.edu (K. Kumar).
1 Tel.: +1 313 593 5214.

0155-9982/$ see front matter 2008 Elsevier Ltd. All rights reserved.
doi:10.1016/j.accfor.2008.07.010
 G. Boesso, K. Kumar / Accounting Forum 33 (2009) 162175 163

1999) have each attempted to develop voluntary disclosure frameworks as they relate to corporate governance structure,
social accounting and stakeholder reporting. Similarly, the Center for Social and Environmental Accounting Research
(CSEAR, 1999), the Global Reporting Initiative (GRI, 2006) and the Institute for Social and Ethical Accountability
(ISEA, 1999) have also examined the relationship between corporate voluntary disclosure and sustainable development
of a companys business activities.
Support also appears to be emerging for creating a new, generally accepted disclosure framework that could be
followed by companies operating across different countries (Lundholm & Winkle, 2006; Smith et al., 2005). For
example, the Business School of Copenhagen in collaboration with Ernst and Young (1999), KPMG and other auditing
firms, has developed a management guide to stakeholder reporting. The Copenhagen Charter suggests, management
should identify not only the obvious significant interests and high influence stakeholders, but also. . .those who have
high influence but low interest, such as special interest groups, ideological organizations. . . (Copenhagen Charter,
p. 6). Similarly, the GRI, which is an official collaborating center for United Nations Environment Program, exhorts
companies to take a long-term, multi-stakeholder approach and extend beyond [the] traditional focus on investors
to address diverse stakeholders (GRI, 2006, p. 2). Based on these guidelines, the triple bottom line (TBL) reporting
framework (Elkington, 1999) has proposed integrated reporting in terms of three different measures of value added,
economic, environmental, and social.
But while managers are being urged to create and sustain, a matching of values between the company and its
key stakeholders (GRI, 2006, p. 6), the extant research provides little insight into how managers actually go about
according priority to a diverse range of multiple stakeholder groups and reaching and engaging them about their
respective concerns and contributions. Also, much of the rhetoric gives the somewhat implausible impression that
organizations simply face a homogeneous set of [stakeholder] expectations (Unerman & Bennet, 2004, p. 686), and
the practical concern of managershow could they be more effective in identifying, analyzing, and negotiating, with
various groups of stakeholder groupsremains largely unaddressed. Preliminary evidence from practice (Moneva et
al., 2006) seems to show that even though the guidelines were developed, as a way of helping organizations to report
on their environmental, social and economic performance and to increase their accountability (Moneva et al., 2006,
p. 121) they are, insufficient to enable new accountability relationships (Moneva et al., 2006, p. 122).
The pragmatic reality is that, despite their obligations to a range of multiple primary stakeholders, managers cannot
attend to all of the actual and potential claims of all stakeholders (Harrison & St John, 1994). Managing a diverse
range of multiple stakeholder interests may be problematic because of conflict among interests of various stakeholder
groups (Greenley, Hooley, Broderik, & Rudd, 2004; Ogden & Watson, 1999) and scarcity of resources (Barney, 1991;
Mahoney & Pandian, 1992). Also, as diverse groups of stakeholders seek information, the multiplicity of information
requests may leave managers wondering how best to engage in stakeholder reporting. As such, it is not uncommon
to find out that many if not most companies are not inclined to address all stakeholder interests, or managers may
consider that not all stakeholders have an equal claim on the company (Ferguson, Collison, Power, & Stevenson,
2007; Greenley et al., 2004; Palmer & Quinn, 2005;), which may result in an undemocratic managerial prioritization
process (Unerman & Bennet, 2004, p. 686).

2. Objectives of the study

Given the practical difficulties and limitations involved in identifying and soliciting the views of all stakeholders
affected by an organizations activities, it would be of interest to investigate and to understand what considerations may
be made by managers in choosing between mutually exclusive stakeholder expectations and reaching and engaging in a
dialogue with them. This study has three key objectives aimed in this direction. First, the study attempts to empirically
examine the influence of previously identified situational factors on the prioritization accorded by companies to the
interests of various stakeholder groups. The second objective of the study is to examine how and to what extent
companies reach and engage in a dialogue with stakeholder groups that they determine to be significant to the company.
Finally, since decisions about which stakeholder groups demands to address are expected to be based on society-
specific expectations (Langlois & Schlegelmilch, 1990; Smith et al., 2005), the study examines if there are systematic
differences across national business contexts (Italy and the US) in the efforts made to address the concerns of various
stakeholder groups.
The choice of Italy and the US was based on the fact that, even though both are economically developed countries,
there are fundamental and notable differences in their institutional demands and societal expectations that may have a
164 G. Boesso, K. Kumar / Accounting Forum 33 (2009) 162175

bearing on stakeholder-firm relationships and influence corporate stakeholder management activities (Black & Gilson,
1998; Nickel, 1997; Tschopp, 2005). For example, the societal norms and legislation in Italy take a protective and
favorable view of promoting the interests of the labor group, as opposed to the US, where societal norms and labor legis-
lations put labor and employers interests in a more competitive context (Nickels, 1997). Similarly, the customer group
in the US plays a much stronger role than in the management of a company than in Italy (Langlois & Schlegelmilch,
1990). Also selecting two such countries that allow the control for the level of economic development is important
because it is known to influence the level of voluntary disclosures made by companies in a country (Gao, Heravi, &
Xiao, 2005; Laines, 2005).

3. Hypotheses development

The relatively limited body of research conducted on stakeholder prioritization process appears to indicate that
managers may consider a number of situational factors associated with a stakeholder group when making decisions
about prioritizing their interests. For example, it has been noted that the prioritization made by a company to the
interests of various stakeholder groups will be based on perceptions about a stakeholder groups power to influence the
company (Ogden & Watson, 1999; Rowley, 1997), the assumption that the actions of a stakeholder entity are desirable,
proper and appropriate (Suchman, 1995; Woodward, Edwards, & Birkin, 1996), and the degree to which stakeholder
claims call for immediate action (Mitchell, Agle, & Wood, 1997).
Resource dependency theory suggests that the power differential among stakeholders is the outcome of the fact that
power accrues to those groups who control resources required by the firm (Pfeffer, 1981). Hence, the more critical the
resource controlled by a stakeholder group, the greater the importance the firm will accord to that group. Legitimacy
is a generalized perception or assumption that actions of an entity are desirable, proper or appropriate within some
socially constructed system of norms, values, and beliefs (Suchman, 1995, p. 574). As such, those stakeholder groups
whose claims are perceived as proper and appropriate by the managers are likely to get greater attention. Finally,
urgency is the degree to which stakeholders claim calls for immediate attention (Mitchell et al., 1997, p. 867). It
includes time sensitivitythe degree to which managerial delay in attending to stakeholder is unacceptableand
criticalitythe importance of the claim to stakeholder (Mitchell et al., 1997, p. 867). The immediacy of attending to
the needs of a stakeholder group, as determined by the managers, therefore, may put the group high in the prioritization
process.
Stakeholder salience is defined as, the degree, to which managers give priority to competing stakeholder claims,
(Agle, Mitchel, & Sonnenfeld, 1999, p. 507). The perceived salience will be a function of the power, legitimacy and
urgency associated with a stakeholder group. The salience that a firms managers associate with a stakeholder group is
a matter of multiple perceptions since stakeholder saliencethe degree to which managers give priority to competing
stakeholder groupsis the result of cumulative stakeholder attributes of power, legitimacy and urgency perceived by
managers to be present. In addition, these attributes create greater salience in combination than based on their individual
presence. For example, a stakeholder group may possess the power to impose their will upon a firm but if they do not
possess legitimacy or urgency, the overall saliency will remain inconsequential in eliciting response from the firm. But
when power is combined with legitimacy, the stakeholder group becomes capable of forming coalitions and makes
its influence on the firm felt in a much more pronounced way. Similarly, power when combined with urgency can
create a stakeholder group capable of using coercive means to gain management attention. Based on the above it is
hypothesized that:

H1. The salience that managers of an organization associate with a stakeholder group will be a function of the power,
legitimacy and urgency that managers associate with the stakeholder group.

In addition to making the decision about stakeholder salience, managers of an organization are also responsible
for managing a diverse range of multiple stakeholder interest by making strategic decisions to allocate resources in
a manner that is most consistent with the prioritization made. Although firms employ a variety of communication
mechanisms in their attempt to reach and engage in a dialogue with stakeholders, voluntary disclosure is a cornerstone
of stakeholder reporting (Epstein & Birchard, 2000; GRI, 2006; Preston, Donaldson, & Brooks, 1999).
The Financial Accounting Standard Board (FASB, 2000) describes voluntary disclosures as information primarily
outside of the financial statements that are not explicitly required by accounting rules or standards. Recent guidelines
 G. Boesso, K. Kumar / Accounting Forum 33 (2009) 162175 165

provided by FASB have encouraged companies to engage in disclosures in excess of the requirements including
accounting and other information that managers of a company deem relevant to the needs of various stakeholder
groups (Meek, Robert, & Gray, 1995).
These disclosures cover a broad and diverse array of topics including product information, environmental impact
of corporate operations, labor practices and relations, and supplier and customer interactions. In addition, they also
include information on political and charitable contributions, community activities, and effects of companys products
on consumer health and safety. Studies that have examined voluntary disclosures made by firms show that companies
direct their dialogue and reporting towards key stakeholders that are perceived to be important and have influence on
firms activities (Core, 2001; Smith et al., 2005). Also, researchers have found robust correlation between voluntary
disclosure made in annual reports and other forms of disclosures (Holland, 1998; Lang & Lundholm, 1993).
Although the information provided in form of voluntary disclosure may provide information to specific stakeholders
that are more relevant to their needs, it does have implications for reliability and comparability. This is an important
issue that GRI and other institutional bodies have focused on since the need for validation of information provided to
concerned stakeholders is important. Also, there are natural limits to voluntary disclosures in collection, processing,
litigation and proprietary costs (Healy, 2001). In order to address some of theses concerns, data obtained from the
analysis of voluntary disclosures needs to be validated by other measures of companys stakeholder performance,
obtained from independent archival sources.
Viewing voluntary disclosures as a strategic plan by a firm to manage stakeholder relations (Jones & Xiao, 2003;
Lundholm & Winkle, 2006; Roberts, 1992), one can expect to find information about how much and what kinds of
attention various stakeholder groups receive and are likely to receive from the management of a firm. Studies that
have examined voluntary disclosures made by companies unequivocally show that companies direct their dialogue and
reporting efforts towards key stakeholdersthose stakeholders that are perceived to be important and have influence
on firm activities (Core, 2001; Smith et al., 2005). It appears logical that the greater the salience associated with a
stakeholder group, the higher will be the level of interaction between the firm and the stakeholder group and the more
will be the stakeholder dialogues addressing the interests of the group. It is therefore hypothesized that:
H2. The greater the salience associated with a stakeholder group, the greater will be the stakeholder engagement
effort directed at that group (as evidenced in the voluntary disclosures made by the company).
While the decision about which stakeholders group to accord importance to may be dependent on managerial percep-
tion of power, legitimacy and urgency associated with a stakeholder group, the decision about which groups interests
to address will be influenced by society-specific expectations related to the claims of different stakeholder groups
(Bhojaraj, Blacconiere, & DSouza, 2004; Greenley et al., 2004; Guthrie & Parker, 1990; Langlois & Schlegelmilch,
1990; Meek et al., 1995; Smith et al., 2005). This is especially important because, given resource constraints, man-
agers often cannot attend to all of the claims of all stakeholders that they may deem to be potentially important and
consequently have to make a choice between competing interests, based on the prevalent social expectations. Such an
assertion is well-supported by the basic tenets of legitimacy theory which posits that, organizations seek to establish
congruence between social values associated with or implied by their activities and the norms of behaviors in the larger
social system (Mathews, 1993, p. 350).
For example, one could argue that traditionally, the societal norms and legislation in Italy have taken a protective
and favorable view of promoting the interests of the labor group, as opposed to the US, where societal norms and labor
legislations have put labor and employers interests in a more competitive context. As such, Italian managers will be
more inclined to address the interests of the labor group, as opposed to the managers from the US (Nickel, 1997).
Similarly, the customer group in the US has played a much stronger role than in the management of a company than in
Italy. Therefore, when making the decision to allocate resources to competing stakeholder groups, US managers will be
more inclined to address the interests of customer groups than will Italian managers (Langlois & Schlegelmilch, 1990).
To the extent that a societys values and expectations underpin the regulations and business practices of individual
countries, and legitimize the activities of the firms, it is expected that there would be differences in the efforts made
by the managers from the US and Italy to address the needs to different stakeholder groups deemed to be important by
them. It is therefore argued that:
H3. The extent of efforts made to address the needs of various stakeholder groups (as evidenced in the voluntary
disclosures made by the company) that are deemed to be salient, will be moderated by the country context.
166 G. Boesso, K. Kumar / Accounting Forum 33 (2009) 162175

4. Method

4.1. Study sample

The sample for this study consisted of 244 managers. One hundred and thirty of the managers were from the US
and one hundred and fourteen were from Italy. Data was collected in form of an anonymous questionnaire, which was
administered while these managers were attending management programs during 2005. Each of these managers was
working for companies whose origin was of the countries to which they belonged (i.e. Italian managers working for
Italian companies and managers from the US working for American companies). Nearly all of the managers attending
the management programs were sponsored by their company and as such were making meaningful contributions in
their company to the topic under investigation in the research study.
Although the questionnaire used in Italy was in English, prior to use it was reviewed for clarity and appropriateness
by Italian management faculty who were proficient in Italian and in English. Italian managers who completed the
questionnaire were attending a management program in English and were proficient in the language. In addition,
a professor fluent in Italian and English was available during the administering of the questionnaires to provide any
clarification, if needed. To achieve sufficiently accurate responses, the questionnaire was kept succinct (one double-sided
sheet) and only four questions were asked for each stakeholder group (see Appendix A).
In each of the two country settings, the managers who participated in the study represented four industriesfinancial
services, industrial manufacturing, information and communication and public utilities. The choice of industries was
based on the likely impact that companies in these industries were to have on a broad range of stakeholders. The
responses of managers obtained through the questionnaire were then matched with stakeholder engagement efforts, as
evidenced in the voluntary disclosures made by 72 randomly selected companies in the US and Italy from the same
four industries to which the managers responding to the survey belonged. Since voluntary disclosures are known to
vary along industry contexts (Boesso & Kumar, 2007; Gao et al., 2005; Palmer & Quinn, 2005), and since industry
level norms and practices are known to influence the importance a firm attaches to the claims of different groups
(Patten, 1992), the matching of perceptual and archival data was justified and appropriate. Also, combining perceptual
and archival data obtained from two independent sources allows the managerial perception and intent and managerial
actions to be measured independent of each other, thus providing greater confidence in the potential findings of the
study.

4.2. Stakeholder salience: collection of survey data

The power, legitimacy and urgency that managers associate with a stakeholder group were measured based on
the prior work of Agle et al. (1999). Power was defined as a stakeholders ability to impact the company and to
enforce its claims. Legitimacy was treated as a generalized perception or assumption on part of the managers that
the actions of a stakeholder group were desirable or appropriate. Urgency was measured as the extent to which
a stakeholder group was active in pursuing its claims that it deemed as important. A seven-point Likert scale
(1 = very little, 7 = a lot) was used and respondents were asked to circle a number that corresponded most closely
to their observations about that stakeholder group. Stakeholder salience was operationalized as the degree to which
managers gave priority to competing stakeholder groups. Once again, a seven-point Likert scale (1 = strongly dis-
agree, 7 = strongly agree) was used. Managers were asked to evaluate each item for each of the five stakeholder
groupslabor, financial community, customer groups, social and environmental groups and professional and industry
groups.
In designing the questionnaire, particular attention was paid to the potential for bias resulting from response artifacts
(Podsakof & Organ, 1986). First, the order of questions was randomized to avoid any response-order biases. Second,
variation was made in the wording and anchors associated with the scale used to measure constructs. Third, respondents
were not told about the nature of relationships being investigated, to avoid over-justification effects (Greenley et al.,
2004). Also, since stakeholder attributes and salience can change over time and because survey research like this is
cross-functional, managers were asked to evaluate various stakeholder groups in present terms.
Data for stakeholder engagement efforts aimed at each stakeholder group, as evidenced in the voluntary disclosures
made by the firm, was collected from archival sources, using content analysis. Details of the process followed for
collecting this data is described below.
 G. Boesso, K. Kumar / Accounting Forum 33 (2009) 162175 167

4.3. Stakeholder engagement: collection of archival data

To examine the stakeholder engagement initiatives of companies, this study utilized a stratified sampling procedure.
A total of 72 public companies (36 from the US and 36 from Italy) were randomly selected to match each of the four
industry groups to which managers responding to the surveys belonged. The 36 companies included in the Italian and
the US groups were further matched in terms of industry and market capitalization, since company size is known to
affect a companys stakeholder management initiatives (Boesso & Kumar, 2007). Next, the key performance indicators
(KPIs) of stakeholder initiatives for each of the five stakeholder groups were identified and matched with the responses
of the managers.
KPIs are performance measures that can be utilized to assess a firm intent in attempting to meet the information
needs of various stakeholder groups and is generally included in the Management Discussion and Analysis section of
a firms annual report. These are the factors that firms plan to manage, measure and report (Healy, 2001, p. 406).
Thus, for each manager, corresponding KPIs as noted through the content analysis of randomly selected firms from
their industry were matched to measure stakeholder engagement initiatives.
It has been noted that corporate social performance is, notoriously difficult to quantify (Agle et al., 1999).
However, the focus of this study was not on evaluating a firms performance in meeting the needs of a stake-
holder group, but its intent, willingness and agreement to act, that is, the extent of its engagement initiatives.
As such, the use of a KPI approach to assess the stakeholder engagement initiatives of the firms is well
justified.
Data on KPIs was collected utilizing content analysis from the Management Discussion and Analysis section of
the annual reports for the year in which the data for the study was collected. Content analysis is considered one
of the most important methodologies in communication research and has been widely utilized by researchers try-
ing to obtain reliable and valid information from narratives that appear in the natural context of the phenomenon
being investigated (Krippendorf, 1980). Content analysis is a particularly important research method in understand-
ing social and environmental, intellectual capital and stakeholders reporting (Guthrie, Petty, Yongvanich, & Ricceri,
2004).
Although content analysis is a source of rich data, it is a labor-intensive and time-consuming methodology.
As such, it is fairly common to find relatively small sample size in studies using this methodology. Examples
of data sets from recent studies using the methodology are: Bhojaraj et al. (2004) (81US investor-owned elec-
tric utilities); Bozzolan, Favotto, and Ricceri (2003) (30 randomly selected Italian companies); Hooks, Coy, and
Howard (2002) (33 New Zealand electricity companies); Guthrie and Petty (2000) (20 largest Australian Compa-
nies); Williams (2001) (31 randomly selected UK companies). Compared to the number of companies included
in these studies, the sample size of 72 companies used in the present study seems to adequately conform to the
norm.
The KPIs used to gather information about firms stakeholder engagement initiatives towards each of the five
stakeholder groups were developed after an extensive review of academic and professional literature utilizing multiple-
stage content analysis and Q-sort technique. The final list of KPIs for each of the five stakeholder groups was attained
after a pilot study in which one of the researchers content analyzed the annual reports of randomly selected 36 companies
from Italy and the US. The result of this analysis was a pool of 209 items. Using the Q-sort technique and by examining
the uniqueness, relevance, and relationship of each item to the five stakeholder groups, a final list of 30 KPIs was
developed. The complete list of 30 KPIs for each of the five stakeholder groups is presented in Table 1. Together,
these 30 KPIs, we believe, capture the dialogue and reporting significant to each stakeholder group in a relevant and
comprehensive way.
The application of content analysis technique in this study to collect data about stakeholder engagement efforts
consisted of three interrelated phases. First, the definition of recording unit; second, the development of coding proce-
dure, and finally, the assessment of the reliability and validity of the coded information. As for the recording unit, each
single sentence in the MD&A of the annual reports of the 72 companies was chosen as the recording unit. For coding
purposes, each sentence was matched against the 30 KPIs and was coded as follows: a score of 0 was assigned if the
sentence made no mention of any of the 30 KPIs, a score of 1 was assigned the first time the sentence disclosed one of
the 30 KPIs. This coding procedure was followed because the same sentence may disclose more than one KPI and the
same information may be repeated in the report. A tally was kept of the disclosures made by counting the frequency
of KPIs for each of the five stakeholder groups.
168 G. Boesso, K. Kumar / Accounting Forum 33 (2009) 162175

Table 1
Voluntary disclosure and key performance indicators (KPI)
Labor unions
1 Wages, contracts and benefits (average amount by category)
2 Training and internal education (hours, number of employee involved)
3 Employee composition by professional category, business units, age, country, minority (%, trend)
4 Employee number, turnover and hiring/firing procedures (numbers, %, trend)
5 Productivity (volumes/sales/value added by employee)
6 Employee satisfaction, competence and commitment (indices, surveys)
Financial community
7 Stocks performance, shareholder return (dividends, trends, EPS, stock and debt ratings)
8 Managements presentation of measures adopted as critical success factors (milestone achievements, goals)
9 Non-mandatory analysis and discussion of financials (EBITDA, Cash Flow, ROI, ROE, Debts ratios, Pro-forma data)
10 Description of a total results by business/geographic units (% of total, export)
11 Intangible assets monitor or Intellectual capital statement (value of assets internally developed)
12 Economic profit and value based management (Economic Value Added)
Social and environmental
13 Donations and other social expenses, without quoting the programs details and results (amount, %)
14 Description of social, ethic, environmental activities and projects (information about the project)
15 Diversity and equal opportunities (%, distribution)
16 Environmental performance and social impact (awards, consumption rate, toxic emission)
17 Litigations, legal actions and claims, included accounting litigations (expenses, number)
18 Environmental profitability and cost accounting (ratios, trend, indices, value added)
Customer groups
19 Main customers, contractual relationships, prices, bargaining power (average numbers, % of products or services bought)
20 Geographic diversification and characteristic of retail network (%, number of dealers)
21 Market share, penetration and benchmarking with competitors (%, trend)
22 Brands, license and trademarks (numbers, value assessment, evaluation)
23 Customer satisfaction, retention, loyalty (indices, surveys, complains, defects, warranty claims, repeat sales)
24 Customer profitability and reliance (indices, trend)
Professional and industry groups
25 Processes innovations, patents, standards, suggestion developed (number, value)
26 R&D projects and expenditure (number, employees, %, trend) description of specific projects or growth
27 New products, project, reserves, services, customers (number, objective, market share, investments)
28 Decision making, segments strategy and responsibilities maps (levels, objectives, parameters)
29 Time to market of new products/strategies/contracts (days, months, costs)
30 Historical products cycle life analysis (timing, market share, trend)

Number of disclosed KPIs for stakeholder groups: Number % of total

Labor unions 302 7.8

Financial community 1147 29.8
Environmental and social groups 308 8.0
Customer groups 902 23.4
Professional and industry groups 1189 31.0
Total 3848 100
Total of analyzed sentences 15091

Examples of information included as a measure of each KPI are in parentheses.

4.4. Validity and reliability

Since content analysis involves subjectivity, the issue of reliability and validity of the data obtained using this method-
ology assumes an added significance. Krippendorf (1980) has identified three types of reliability issues associated with
this methodology. These are accuracy, reproducibility and stability.
To establish accuracy data, are obtained under test-standard conditions, which are met when the measure of
one coder is compared with what is known to be the correct measure (Krippendorf, 1980, p. 131). For this study
 G. Boesso, K. Kumar / Accounting Forum 33 (2009) 162175 169

to ensure accuracy first a pilot-test was conducted in which 21 decision rules that included illustrations of what
gets coded into the each of the 30 KPIs were formulated. Next, two coders (both of whom possessed gradu-
ate degrees in business and were fluent in Italian as well as English) independently analyzed a random sample
of 50 sentences obtained from the MD&A in order to identify potential differences in the application of the
decision rules and to standardize the coding procedure. Finally, the two coders independently analyzed 232 sen-
tences, the results of which showed high reliability (alpha = .87). This addressed the accuracy from inter-observer
standpoint. Calculating the Krippendorff alpha, after the two coders independently completed coding assessed
the reproducibility of the content analysis for this study. The alpha level for coding was .81, which showed a
degree of agreement above the minimum limit of acceptance (Milne & Andler, 1999). Finally, stability is the
degree to which a process is invariant or unchanging over time. Stability becomes manifest under testretest con-
ditions (Krippendorf, 1980, p. 130). The stability of the content analysis was verified by recoding a sample of
MD&A independently a month after the coding for this study was completed. The alpha level of this analysis was
.95.
Validity of the analysis for this study was established by correlation validity and predictive validity. To check the
correlation validity, the number of observations for social and environmental groups obtained through the content
analysis was correlated with the number of awards received by the company for their external communication. The
rationale was that, the greater emphasis on social and environmental groups the more the likelihood of being recognized
in the form of awards for stakeholder communication by independent evaluators. These two variables were found to be
significantly correlated (.54, p < .001) for the Italian sample and (.35, p < .05) for the US sample (Krippendorf, 1980,
p. 157).

5. Results

The data analysis for this study was done in three stages, using correlation statistics, multiple regression analysis
and moderated regression analysis. First correlation of all variables was calculated. The correlation matrix was closely
examined for any evidence of multicollinearity, since data for all of the independent variable and one of the two
dependent variables was collected from the same source. However, there was no evidence of multicollinearity in the
data, as all variables that were correlated were theoretically meaningful, and relationships among theoretically unrelated
variables were insignificant.
Next, multiple regression analysis was used to examine the relationship between the managerial perceptions about
the power, legitimacy, and urgency associated with the claims of different stakeholder groups and the salience associated
with that group. The effect of industry was controlled for, since industry is known to have an influence on the variables
being examined in the study (Boesso & Kumar, 2007). Because the salience that a firms managers associate with
a stakeholder group is the result of cumulative stakeholder attributes of power, legitimacy and urgency, it could be
that managers may associate greater salience with a stakeholder group possessing a combination of attributes. For
example, it is possible that a high power and low urgency stakeholders receive more attention than low power and high
urgency stakeholder group. As such, test for interaction of the three main factors seemed appropriate in the regression
models. In each regression, stakeholder salience was the dependent variable and the power, legitimacy and urgency
associated with the stakeholder group were first entered as independent variables, and then the interaction of each in
combination, was tested.2 Industry was the control variable. Results of the five regression analyses are presented in
Table 2.
The overall model, as hypothesized, was significant in case of each of the five stakeholder groups, explaining
between 36% and 43% of the variance (adjusted R2 ) in stakeholder salience. Industry, as anticipated was signif-
icant, but only in case of three of the five stakeholder groups. As for the three independent variables examined,
power alone was associated with salience accorded to a stakeholder group in all of the five cases. Urgency alone
was associated with the salience of labor, financial and customer groups and legitimacy alone was associated
with the salience of labor, financial, and social and environmental groups. These results provide partial support
for Hypothesis 1. The tests for interaction effects showed that of the 15 possible interactions (three for each of
the five stakeholder groups), only two were significant. The salience associated with the social and environmen-

2 The authors are grateful to the anonymous reviewer for making this suggestion.
170 G. Boesso, K. Kumar / Accounting Forum 33 (2009) 162175

Table 2
Perception of stakeholder groups and salience (N = 244)
Independent variables Dependent variable (stakeholder groups salience)

Labor unions Financial Social and Customer Professional and

community environmental groups groups industry groups

Power Coeff. .37** .61*** .19* .57*** .50**

Urgency Coeff. .26* .26* .15 .18* .06
Legitimacy Coeff. .36* .33* .45** .05 .04
Power legitimacy Coeff. .19 .02 .74*** .14 .12
Power urgency Coeff. .41* .09 .14 .18 .19
Urgency legitimacy Coeff. .14 .24 .14 .22 .10
Industry Coeff. .05 .11* .18 .14** .13*
Adj. R2 .36 .42 .37 .43 .38
F 20.97*** 26.41*** 21.13*** 27.75*** 22.19***

Standardized coefficients; ***p < .001; **p < .01; *p < .05.

tal group was affected strongly (standardized coefficient, .74, p < .001) when both high power and high legitimacy
were present together. Similarly, the salience associated with the labor group was affected by the combined presence
of power and urgency (standardized coefficient, .41, p < .05). Detailed explanation for these findings is provided in
Section 6.
Hypothesis 2 predicts that, the greater the salience associated with a stakeholder group, the greater will be the
engagement effort directed at that group, as evidenced in the voluntary disclosures made with regard to that group. To
test the hypothesis, multiple regression was again used with number of KPIs for the stakeholder group, as identified
from the voluntary disclosure statements of firms, as the dependent variable and salience as the independent variable.
Industry was the control variable, because industry, as noted earlier, is known to have significant effect on the voluntary
disclosures made by firms (Boesso & Kumar, 2007). The standardized coefficients presented in Table 3 shows that,
while salience associated with a group is a predictor of the engagement efforts in case of labor, financial and customer
groups, it fails to predict the relationship in case of social and environmental and professional and industry groups. This
means that even though the social and environmental and professional and industry groups are deemed to be salient,
the voluntary disclosures made by companies provide no significant evidence of efforts made to meet the claims of
these stakeholder groups. Once again, these results provide only partial support for Hypothesis 2. Possible explanation
for this is provided in Section 6.
Finally, Hypothesis 3 predicts that, the extent of efforts made to address the needs of different stakeholder
groups deemed to be important would be moderated by the country context. To test the effect of country con-
text, country was added as a dummy variable, in which it was assigned the value of 1 for Italy and 0 for the
US. Next, to examine the moderating effect of this dummy variable, a multiplicative interaction term was created
with salience country. The creation of such interaction terms to examine the moderating effects of a dummy
variable is fairly common in strategy and other behavioral research (Yip & Tsang, 2007). Results of this analy-

Table 3
Perceived salience of stakeholder groups and voluntary disclosure made (N = 244)
Independent variables Dependent variable (number of disclosed KPIs)
Labor unions Financial Social and Customer Professional and
community environmental groups advocate groups industry groups

Salience Coeff. .20*** .13* .03 .10* .09

Industry Coeff. .69*** .07 .92*** .55*** .93***
Adj. R2 .58*** .01 .85*** .28*** .87***
F 167.19*** 2.21 712.78*** 49.41*** 847.26***

Standardized coefficients; ***p < .001; **p < .01; *p < .05.
 G. Boesso, K. Kumar / Accounting Forum 33 (2009) 162175 171

Table 4
Perceived salience of stakeholder groups, country and voluntary disclosure made (n = 244)
Independent variables Dependent variable (number of Disclosed KPIs)

Labor unions Financial Social and Customer Professional and

community groups environmental groups advocate groups industry groups

Salience Coeff. .26*** .12 .30*** .04 .13*

Salience country Coeff. .65*** .24*** .31*** .02 .43***
Adj. R2 .35 .05 .11 .01 .26
F 66.08*** 6.00** 16.81*** .19 44.69***

Standardized coefficients; ***p < .001; **p < .01; *p < .05.

sis (Table 4) show that country does act as moderator in the case of four of the five stakeholder groups, with the
customer group being the only exception. This generally provides support for Hypothesis 3. Keeping in mind that
Italy was coded as 1 and the US as 0, one can interpret that given the Italian context managers are more inclined
to address the demands of labor and professional and industry groups when these groups are deemed to be impor-
tant; while in the context of the US, managers are relatively more inclined to address the demands of financial and
social and environmental groups, when these groups are deemed to be important. Such a discrepancy can perhaps
be explained by differences in societal and institutional importance that is associated with these groups in the two
countries.

6. Discussion and future research directions

The objectives of this study were to understand factors that may account for the prioritization accorded by managers
to various stakeholder groups, and to examine the extent to which companies reach out and engage in a dialogue with
stakeholder groups, who they determine to be important. In addition, the study also examined if the country context
affected the extent to which the concerns of various stakeholder groups, deemed to be important, were addressed.
Based on the extant literature, it was argued that the prioritizations decision would be based on managerial perception
of three characteristics associated with a stakeholder group-power, legitimacy, and urgency. Industry was also expected
to influence this relationship and hence was controlled for.
While, in general, it appears that these three factors together form a parsimonious group of variables in explain-
ing the process, the relative significance of these factors individually seems to vary from one stakeholder group
to the other. The differences in the relative importance of the three attributes hypothesized to be determinants
of stakeholder salience, across the five stakeholder groups could perhaps be explained by the nature of rela-
tionships that exist between the firm and each of these stakeholder groups. Demands of the professional and
industry group are considered important only when firms view this group powerful enough to affect their inter-
ests. In case of the demands of customer groups, while legitimacy is largely not an issue, it is the power and
urgency that determine the salience of this group. For financial group, each of the three factors is important
in determining the salience associated with these groups. This is perhaps because the firm has routine and fre-
quent interactions with this group and is more discriminating in determining the salience they associate with these
groups.
Tests for interaction effects show that in case of labor group power associated with this group combines with urgency
to increase the salience that is associated with this group. This means that when the labor group is perceived to be
powerful and their demands are perceived to be urgent firms are more likely to deem the demands of this group as
important. One could assume that this may be because of the potential ability of this group to cause disruptions, if
their claims continue to be ignored. In case of social and environmental group, once again high salience is associated
when these groups are perceived to be powerful and their demands are perceived to be legitimate at the same time.
Once again, one can speculate that since the social and environmental group is the most heterogeneous and nebu-
lous of the five-stakeholder group included in the study, with many divergent and extreme demands, the legitimacy
associated with the demands of these groups may become an important factor in evaluating the importance of this
group.
172 G. Boesso, K. Kumar / Accounting Forum 33 (2009) 162175

Support was found only in three of the five stakeholder groups when examining the relationship between stakeholder
salience accorded to a group and engagement efforts directed toward the group (as measured by the voluntary disclosure
aimed towards that group). In explaining the absence of such relationship in social and environmental and professional
and industry group one can only speculate about possible reasons. For example, one could argue that in case of the
social and environmental group, the absence of this relationship may be because companies provide information related
to the actions taken with regard to this group by way of mandatory reporting and that non-mandatory reporting related
to this group may be minimal or may be made using channels other than annual reports. As for the professional
and industry group, one can say that companies may be relatively reluctant to disclose too much of the efforts being
made to comply with the demands of this group simply because of the apprehension of disclosing their competitive
strategy.
This study acknowledges the practical difficulties and resource constraints faced by companies in addressing the
needs of different stakeholder groups. Based on the above, the study had predicted that the decision about which
stakeholder groups demand to address would be influenced by society-specific expectations. Results of the study
provide support for such assertion. Managers in each of the two countries, Italy and the US, were found to be addressing
the needs of those stakeholder groups, which within their country contest assumed greater importance. Hence, Italian
managers pay greater attention to labor and professional and industry groupsboth of which are known to play an
important role in the Italian context (Greenwood & Webster, 2000), while US managers were found to be inclined
towards fulfilling the needs of financial and social and environmental groupsboth of which are known to have
significance for effective stakeholder management in the US (Burges, 2001; Langlois & Schlegelmilch, 1990). This
finding has important implications because any guideline provided to managers for effective stakeholder management
needs to be tailored in terms of the societal context present in the country where such guidelines are to be acted
upon.
An important limitation of this study stems from the limited number of variables that were examined in under-
standing the stakeholder prioritization process. Future researchers need to incorporate these and other factors so
that a more comprehensive understanding of this process can be developed. Another limitation of this study is the
use of voluntary disclosure as a measure of stakeholder engagement efforts. Although voluntary disclosures are
now acknowledged as the cornerstone of effective stakeholder management, future researchers are well advised
to utilize other measures, such as focus groups and interviews. Finally, findings of this study need to be repli-
cated in other cross-cultural contexts before one can be certain about the role of country-context in stakeholder
management.

7. Contributions of this study/managerial implications

The stakeholder management literature is replete with normative work that despite good intentions fails to acknowl-
edge the practical difficulties and limitations involved in meeting the needs of multiple stakeholder groups. In
the absence of a realistic understanding of the issues involved in stakeholder management, the appeals made by
various scholars and professional bodies continue to be largely unheeded and stakeholder management contin-
ues to be carried out using what has been called, undemocratic management prioritization process, (Unerman
& Bennet, 2004, p. 686). This study is based on the acknowledgement that, despite their desire to address the
demands of a diverse group of stakeholders, managers face limitations. The significance of this study lies in inves-
tigating the stakeholder prioritization and engagement process, as it is being practiced. Such an understanding,
one could argue, could help in the development of guidelines for effective stakeholder management that stands
a realistic chance of being adapted and followed. Also, stakeholder management generally viewed as a partner-
ing that involves communicating, negotiating, contracting, and managing relationships (Freeman, 2004, p. 237)
is increasingly being debated in the international context because strategically managing the stakeholder relation-
ship is becoming critical in todays global business environment. One cannot, however, ignore the reality that many
of the decisions involved in the process of stakeholder management involve society-specific demands and expec-
tations. To the extent that a societys values and expectations underpin the regulations and business practices of
individual countries, and legitimize the activities of the firms, pragmatism may require that existing guidelines for
stakeholder reporting acknowledge such differences and are further adapted to the societal contexts present in a
country.
 G. Boesso, K. Kumar / Accounting Forum 33 (2009) 162175 173

Appendix A

Survey:

Surveys respondents Italy US

Number % of total Number % of total

>10 years of work experience 21 18.42 24 18.46

>7 years of work experience 34 29.82 34 26.15
>4 years of work experience 33 28.95 51 39.23
>2 years of work experience 26 22.81 21 16.16
Total 114 100 130 100
Financial services industry 17 14.91 21 16.15
Industrial manufacturing 45 39.47 64 49.23
Information and communication 18 15.79 20 15.38
Public utilities 34 29.83 25 19.24

Sample questions:
This stakeholder group has the ability, whether used or not, to apply a high level of direct economic reward or
punishment (money, goods, services, etc.) to obtain its will:
(1 = very little, 3 = somewhat, 5 = quite a bit, 7 = a lot)
This stakeholder group is active in pursuing claims (demands, desires) which it feels very important:
(1 = very little, 3 = somewhat, 5 = quite a bit, 7 = a lot)
The claims of this stakeholder group are viewed as proper and appropriate by managers operating in our industry:
(1 = very little, 3 = somewhat, 5 = quite a bit, 7 = a lot)
This stakeholder group receives high priority in the stakeholder engagement efforts (as reflected in the voluntary
disclosure) of the companies operating in our industry:
(1 = strongly disagree, 3 = disagree, 5 = agree, 7 = strongly agree)

Content analysis:

Companies analyzed Italy US

Number % of total Number % of total

Capitalization percentile: 4590 18 50 18 50

Capitalization percentile: 90100 18 50 18 50
Total 36 100 36 100
Financial services industry 12 33.33 12 33.33
Industrial manufacturing 13 36.11 13 36.11
Information and communication 5 13.88 5 13.88
Public utilities 6 16.68 6 16.68

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