The Instrumental Approach
Strategic Stakeholder Management
Summary of the Instrumental Approach to Stakeholder Management. Abstract
Berman, Wicks, Kotha, Jones (1999)
Edward Freeman (1984)
Strategic Stakeholder Management, as described by Berman, Wicks, Kotha, Jones (Academy of Management Journal; Oct99, Vol. 42 Issue 5) using earlier work of Edward Freeman is an Instrumental Approach.
Instrumental approaches towards stakeholder theory hold that:
To maximize shareholder value over an uncertain time frame, managers ought to pay attention to key stakeholder relationships.
Firms have a stake in the behavior of
their stakeholders. Further, if prudent management of firms' operating
environments, including relationships with their stakeholders, is a part
of good management in general, good stakeholder management has clear
instrumental value for the firms.
A fundamental assumption of this type of model is that the ultimate
objective of corporate decisions is marketplace success. Firms view
their stakeholders as part of an environment that must be managed in
order to assure revenues, profits, and ultimately, returns to
shareholders. Attention to stakeholder concerns may help a firm
avoid decisions that might prompt stakeholders to undercut or thwart its
objectives. This possibility arises because it is the stakeholders who
control resources that can facilitate or enhance the implementation of
corporate decisions (Pfeifer & Salancik, 1978); in short, stakeholder
management is a means to an end. The end, or the ultimate result, may
have nothing to do with the welfare of stakeholders in general. Instead,
the firm's goal is the advancement of the interests of only one
stakeholder group--its shareholders. Employing the terminology used
by Donaldson and Preston (1995) and Quinn and Jones (1995), we refer to
the firm's interest in stakeholder relationships as instrumental and
contingent on the value of those relationships to corporate financial
success. As Quinn and Jones made clear, "Instrumental [strategic] ethics
enters the picture as an addendum to the rule of wealth maximization for
the manager-agent to follow" (1995: 25).
Two variants of the Strategic Stakeholder Management approach are the direct effects model and the moderation model. In the direct effects model, managers' attitudes and actions toward stakeholders (their stakeholder orientation) are perceived as having a direct effect on firm financial performance, independent of firm strategy. In the moderation model, managerial orientation toward stakeholders does impact firm strategy by moderating the relationship between strategy and financial performance.
Compare with Strategic Stakeholder Management: Intrinsic Stakeholder Commitment | Normative Approach of Stakeholder Theory | Shareholder and Stakeholder Perspective | History of Value Based Management | What is Value based Management | Strategic Intent
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