The Normative Approach to Stakeholder Management

The Intrinsic Stakeholder Commitment described by Berman, Wicks, Kotha, Jones (Academy of Management Journal; Oct99, Vol. 42 Issue 5) using earlier work of Edward Freeman  is a Normative Approach.

Normative approaches towards stakeholder theory hold that:

Managers ought to pay attention to key stakeholder relationships.

According to this perspective, managerial relationships with stakeholders are based on normative, moral commitments rather than on a desire to use those stakeholders solely to maximize profits. In short, a firm establishes certain fundamental moral principles that guide how it does business--particularly with respect to how it treats stakeholders--and uses those principles to drive decision making.

One genesis of this normative model is the fact that firm decisions affect stakeholder outcomes. Ethics, generally speaking, deals with obligations that arise when an individual or corporate agent's decisions affect others; regardless of precisely what constitutes an ethical decision, decisions made without any consideration of their impact on others are usually thought to be unethical. Donaldson and Preston (1995) captured the implications of this view for stakeholder management quite well by stating that stakeholder interests have intrinsic worth. That is, certain claims of stakeholders are based on fundamental moral principles unrelated to the stakeholders' instrumental value to a corporation. A firm cannot ignore or abridge these claims simply because honoring them does not serve its strategic interests. In a sense, these claims are independent of, and should be addressed prior to, corporate strategic considerations. Stakeholder interests are thought to form the foundation of corporate strategy itself, representing "what we are" and "what we stand for" as a company.

Given such a stakeholder orientation, a firm shapes its strategy around certain moral obligations to its stakeholders. In this vein, a Kantian posture (Bowie, 1994; Evan & Freeman, 1983), a feminist perspective (Wicks, Gilbert, & Freeman, 1994), and a fair contracts approach (Freeman, 1994; Phillips, 1997) are examples of moral principles that can form the normative foundation for stakeholder-oriented management. Freeman and Gilbert explicated this perspective:

We cannot connect ethics and strategy unless there is some point of intersection between the values and ethics we hold and the business practices that exemplify these values and ethics. In order to build strategy on ethics and avoid a process that looks a lot like post hoc rationalization of what we actually did, we need to ask "what do we stand for?" in conjunction with our strategic decisions. (1988: 7071)

The second genesis of a normative stakeholder orientation based on moral principles is the argument that making a strategic commitment to morality is not only conceptually flawed but is also ineffective. First, strategically applying ethical principles--that is, acting according to moral principles only when doing so is to your advantage--is, by definition, not following ethical principles at all. In addition, Quinn and Jones (1995) argued that if the purpose of acting ethically is to acquire a good reputation that, in turn, will provide a firm with economic benefits, why not pursue the good reputation directly without the intellectual excursion into moral philosophy? In some cases, of course, the behavior called for will coincide with that dictated by ethics, but in others it may not. What difference does ethics make if one can act instrumentally without reference to ethics?

From a practical perspective, Jones (1995) argued that the instrumental benefits of stakeholder management paradoxically result only from a genuine commitment to ethical principles. He argued that firms that create and sustain stakeholder relationships based on mutual trust and cooperation will have a competitive advantage over those that do not (cf. Barney & Hansen, 1994). If a firm's commitment to trust and cooperation is strategic rather than intrinsic, it will be difficult for the firm to maintain the sincere manner and reputation (Frank, 1988) required for its differential desirability as an economic partner. In other words, trustworthiness, honesty, and integrity are difficult to fake. Thus, in order to reap the instrumental benefits of stakeholder management, a firm must be committed to ethical relationships with stakeholders regardless of expected benefits. Strategically applied moral commitments are not really moral and, paradoxically, cannot lead to the strategic outcomes desired.

This model is called the intrinsic or normative stakeholder commitment model because the interests of stakeholders have intrinsic value, enter a firm's decision making prior to strategic considerations, and form a moral foundation for corporate strategy itself.
 

Compare with Intrinsic Stakeholder Commitment: Strategic Stakeholder Management  |  Shareholder and Stakeholder Perspective  |  History of Value Based Management  |  What is Value based Management  |  Clarkson Principles  |  Strategic Intent

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