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Strategy
Understanding Stakeholders
Stakeholders and Corporate Governance
Systems
Learning Objectives:
To explore the term stakeholder and their influence on
organisations.
To review the different corporate governance systems
and their relationship with stakeholder theory.
Stakeholders
Any person, or group of persons, with an interest in
how a business operates (e.g. products, methods of
operation)
Types of Stakeholders
Stockholder Position (Friedman, 1970)

A business exists primarily for their owners (usually
shareholders). As such any business behaviour that lowers
potential profit will harm the business.

Stakeholder Position

Businesses are citizens of society. If we wish to maintain
our position in society we must accept our responsibilities.
Types of Stakeholder
Narrow and Wide Stakeholder

Evan and Freeman (1993)
Narrow stakeholders are those who are most affected by
an organisations actions, eg shareholders, management,
employees, suppliers and customers.
Wide stakeholders are those less affected although whom
must be considered, eg government, less dependent
customers, the wider community etc.
Types of Stakeholder
Primary and Secondary Stakeholders

Clarkson (1995)
A Primary stakeholder is one with whom without their
continuing participation the organisation cannot survive,
eg unlike Friedman (1970) those who influence an
organisation (government, customers and suppliers)
Secondary stakeholders are those who without
participation the organisation is likely to survive, eg the
community and even possibly management.
Types of Stakeholder
There are also stakeholder groups.
Johnson, Whittington and Scholes (2011) break these into
four categories; economic stakeholders, socio-political
stakeholders, technological stakeholders and community
stakeholders.


Economic Stakeholders
Suppliers, Distributers, Competitors,
Shareholders
Socio-Political Stakeholders
Policy makers, regulators,
government etc
Technological Stakeholders
Standards agencies, owners or
competitive technologies etc
Community Stakeholders
Those who live close to your
organisation
Stakeholder Mapping
Johnson, Whittington and Scholes (2011) suggest a
stakeholder map should be completed to identify an
organisations stakeholders, their expectations and
the power they have over the organisation.
Stakeholder Mapping
As part of the strategic analysis process, an
organisation should ascertain:

How likely each stakeholder group is likely to impress its
expectations on the company

Whether they have the means and power to do so.

The likely impact of stakeholder expectations on future
strategies


The stakeholder map
Source: Campbell D, Stonehouse G, Houston B (2002). Business Strategy - An Introduction. 2nd ed., p 28.
Low
High
Least influential
Most influential
Stakeholder interest
S
t
a
k
e
h
o
l
d
e
r

p
o
w
e
r

Low
High
Interest relates to the extent to which the stakeholder is likely to impose
their expectations on the organisation.
Power relates to the influence the stakeholder has within the organisation
Power Interest Matrix
- Mendelow, 1991
Power Interest Matrix
- Mendelow, 1991
Seg D key consideration during formulation
and evaluation of new strategies.
Seg C can be most difficult. Lack of interest
now. However, a specific event could
reposition them in D! Need to assess reaction
to future strategy.
A & B can be important allies.

Stakeholder Mapping
Stakeholder Mapping can aid the following:

Determine strategy
Identify the key blockers and facilitators of
strategy
Maintain the interest of key stakeholders through
involvement

Some general aims of Corporate
Governance


Encourage accountability and openness
Avoid conflicts of interest (between different
groups and managers e.g. M&A)
Enhance separate ownership and control
Open selection procedures of Senior Directors /
Managers
Raise standards of Corporate Conduct
Reduce abuses of power.
Benefits of a Strong Ethical
Performance
Direct correlation between strong ethical stance and
long-term profitability (Martinson, 1998)
A high level of CSR indicates an awareness of external
influences, and might therefore better manage conflict
and risk and provide sustainability
Organisations enjoy high levels of esteem if have a
positive social/ethical stance
In the long-term organisations have to be acceptable
to majority of stakeholders
A positive social responsibility will be reflected in the
culture of the organisation (motivated workforce,
satisfied customers)
Can significantly help competitive advantage.

Directed Reading
Atkinson A A, Waterhouse J H & Wells R B (1997). A stakeholder
approach to strategic performance measurement. Sloan
Management Review. Spring.
Donaldson T & Preston L E (1995). The stakeholder theory of the
corporation: concepts, evidence, and implications. Academy of
Management Review. Vol. 20(1).
Freeman R E (1984). Strategic Management: A Stakeholder
Approach. Pitman, Boston, MA.
Mitchell R K, Agle B R, Wood D J (1997). Toward a theory of
stakeholder identification and salience: defining the principle of
who and what really counts. Academy of Management Review.
Vol. 22(4).
Rowley T J (1997). Moving beyond dyadic ties: a network theory
of stakeholder influences. Academy of Management Review. Vol.
22(4).