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Strategic Stakeholder Management


Summary of the Instrumental Approach to  Stakeholder Management. Abstract

Berman, Wicks, Kotha, Jones (1999)

Edward Freeman (1984)

strategic stakeholder managementStrategic 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).

In this formulation, stakeholder management is part of a company's strategy but in no way drives that strategy. Implicit in this perspective is the assumption that modes of dealing with stakeholders that prove upon adoption to be unproductive will be discontinued, as will those that involve resources that are no longer needed. The concerns of stakeholders enter a firm's decision-making processes only if they have strategic value to the firm.

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.

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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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