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Maria Bonnafous-Boucher and Jacob Dahl Rendtorff

Stakeholder Theory
A Model for Strategic Management
Maria Bonnafous-Boucher
Full Professor Paris Chamber of Commerce and Industry, Paris, France

Jacob Dahl Rendtorff

Roskilde University, Roskilde, Denmark

ISSN 2211-8101 e-ISSN 2211-811X

ISBN 978-3-319-44355-3 e-ISBN 978-3-319-44356-0

DOI 10.1007/978-3-319-44356-0

Library of Congress Control Number: 2016956693

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Preface
It is a special pleasure and privilege to write this preface to Stakeholder
Theory. A Model for Strategic Management. While much of this book is
territory that is familiar to me, there is much new ground. They have built
on the contributions of many others, and suggested that stakeholder theory
can be pushed in new directions that are important to make societies better.
When they suggest that “Stakeholder theory examines the displacement
of traditional sovereignties towards other forms of institutional legitimacy”
they rightly understand the critical philosophical attitude which comprise
the origins of the theory from Rhenman onwards. Their conclusion is
equally powerful:

In the final analysis, stakeholder theory questions the traditional

frontiers between the public space and the private space; it
deconstructs the categories of political philosophy, ethics, the economy
of organizations, and corporate strategy; it suggests treating these
categories in a new way. It borrows the most classical concepts from
currents of liberal philosophy from Locke to Rawls in order to them in
contemporary forms of sovereignty, of government, of civil society, of
social contract, of the redefinition of the common good, of social
justice, of deliberation in the public space. In so doing, stakeholder
theory creates a current within contemporary political philosophy, that
of a critical philosophy of institutions, particularly the corporation.

Seeing the development of stakeholder theory as a way to set business

within society, rather than in some fictional space of abstract economics or
“free markets disconnected with the humanness of real business” is an
achievement of the first order.
It is my sincere hope that this book catalyzes a line of research that
connects business theory with political philosophy. For too long business
theory has been separated from the rest of the human sciences, especially
those who recognize the normative as fundamental. And equally, for too
long the first question of political philosophy has been, “how is the state to
be justified”. Stakeholder theory as interpreted in this volume has the
potential to build more useful theories about the connections between
business and political life, between business theory and political philosophy
and ethics, and between the practical worlds of business and civil society.
Such as task may turn out to be central to building a world that is worth
leaving to our children.
R. Edward Freeman (University Professor)
December, 2012
Introduction
Between 1984 and 2012, much has been written and said about stakeholder
theory. Published in 2010, R. E. Freeman’s Stakeholder Theory: The State
of the Art provides an overview of the major contributions in the field. The
uninterrupted and increasingly rapid flow of publications up until that time
attests to the importance of the theory.
This book puts the importance of stakeholder theory into perspective,
first as a negotiated model of governance; second, as a descriptive,
explicative, and interpretative framework for modalities of decision-making
and action in management; and third, as a local theory, developed in the
field of strategic management, extending beyond the confines of the
discipline in which it originated. The principal objective of this book is to
highlight the philosophical (political and moral) issues inherent in a
management model.
Stakeholder theory is without doubt a local theory in that the sources of
the notion of the stakeholder are to be found in a specific form of
organization – the multinational company – in a particular context, the
globalized economy of the 1980s and 1990s. Stakeholder theory is
concerned with the representation of decision-making mechanisms and
power relations within such organizations; it offers a way of reappraising
the models of governance of the multinational and, consequently, the
possibility of redistributing the wealth it creates taking into account the
parties which interact with it directly or exert an influence over it indirectly.
Moreover, stakeholder theory reappraises the corporate environment by
introducing a series of sometimes converging, but often conflicting,
interests; it deepens the notion of the strategic environment by extending
the postulate according to which doing business is more than just making
money. Consequently, it attempts to better situate the place and role of the
corporation in society and to analyze the impacts of its activity on the
economic, political, social, legal, cultural, and ecological environment. In
short, stakeholder theory reconciles business ethics and strategy.
However, there is no denying that, although anchored in research
focusing on corporate life, the notion of the stakeholder is enjoying growing
influence beyond the frontiers of management. What, then, is the real scope
of the notion and the theory that has emerged from it? Deriving from
management, can it impact on other fields of knowledge and other
practices? Such a hypothesis may corroborate the idea according to which
our systems of thought are fed by a managerial tropism (Gary S. Becker’s
Foucauldian reading). Is the corporation, now a fundamental economic unit
of society, destined to become a fundamental social unit too? Indeed,
according to some commentators, the underlying intention of stakeholder
theory is to affect this transformation. That is why it is legitimate to ask
questions about the extension of the theory beyond the field of management
science. However, for good or ill, stakeholder theory rethinks and attempts
to resolve, in the sphere of business life, questions as decisive as those
concerning the interests of one or more social categories, or even one or
more social classes. It appraises the rise – through deliberative and
participative practices – of democratic processes in all organizations up to
corporate government. It reflects on the concrete consequences that this
phenomenon represents for the distribution of powers. It highlights, through
the necessary distribution of wealth, the possibility of a form of social
justice within the corporation. Lastly, it asks questions about the
contribution of commercial firms to the common good of society.
The reader will perhaps find it surprising that a theory and a concept,
the sources of which are to be found in management science, can be used to
explain situations not limited to either economic or corporate life. This
explanatory power, or what we refer to as the heuristic function of the
theory, is all the more penetrating in that it is based on a comparison of
current perspectives in management studies. Indeed, the fecundity of the
theory derives from its local precision, which encourages both critical and
constructive studies on democratic mechanisms and corporate governance
structures, as well as on organizational systems at the crossroads between
private and public life.
Thanks to its heuristic function (Bonnafous-Boucher 2011), 1 the value
of stakeholder theory is largely based on its capacity to develop notions
which transform our ways of thinking about the organization of power,
decision-making, and action. Whence its practical usefulness, which,
however, is often called into question. In this book, we propose a normative
heuristic approach.
Chapter 1 consists in an examination of the process whereby the notion
of the stakeholder became a theory. A number of definitions are addressed,
including the now well-established conceptual framework first mooted in
the 1960s and developed in the 1980s. This brief panorama provides an
outline of the parameters of the theory and contextualizes the
epistemological debates that have arisen around it, debates that have led to
the development of a kind of theoretical pluralism and to the emergence of
a number of critiques. The scope and potential for extending the theory to
other fields are also discussed.
Chapter 2 provides a description of the theory’s roots in strategic
management and outlines how it reflects a historically constructed
conception of the corporation that differs from a financial or merely
competitive representation of the economic actor in an economic, social,
and cultural environment. Stakeholder theory situates the corporation
between a dependence on the environment and the possibility of
determining its own policy. Congruent approaches are examined, including
the French approach, which identifies the corporation as a political system;
the resource- and skills-based approach; and the approach representing the
corporation as a network of complex relations.
Chapter 3 deals with stakeholder theory’s contribution to organization
studies, an aspect ignored by the authors of the theory themselves.
Chapter 4 presents an overview of conflicts over legitimacy between
traditional public institutions and international organizations. The
possibility or impossibility of constructing a social contract on
contemporary foundations is examined, and the links between stakeholder
theory and theories of justice and the redistribution of wealth are discussed.
As an immediate consequence of these politico-philosophical and moral
considerations, stakeholder theory is, in this book, considered not as a
marginal approach to social questions affecting the corporation, nor as a
kind of borderless actor theory, but as a theory capable of regenerating
problematics as fundamental as those of the nature of the corporation and
the emergence of a transnational civil society.
Chapter 5 deals with the relationship between stakeholder theory and
ethics.
Acknowledgments
As the main contributor, I would like to take this opportunity to thank
everyone who helped to make this book possible, especially my coauthor,
Jacob Dahl Rendtorff. I would also like to thank Thomas Donaldson, the
professors at the Legal Studies and Business Ethics Department at Wharton,
as well as Albert David, Julie Battilana, Philippe Desbrières, Jean-Pierre
Bréchet, Isabelle Huault, Michael Lavin, Hervé Mesure, Arnaud Stimec,
Christian Thuderoz, William Zartman, Edward Freeman, and the
anonymous reviewers of the “Repères” collection.

Maria Bonnafous-Boucher
Contents
1 From “The Stakeholder” to Stakeholder Theory

Definitions

Conceptual Framework: R. E. Freeman (1984–2010) and His

Followers

Parameters of the Theory

Epistemological Debates and Theoretical Pluralism

Is Stakeholder Theory a Theory?

A Concrete Theory: Categorizing the Actors Who Count in

Corporate Strategy

A Theoretical Pluralism Revealed by Donaldson and Preston

(1995)

Critiques of the Theory

The Scope of the Theory and Its Potential for Expansion

2 Stakeholder Theory in Strategic Management

Representations of the Corporation in Strategic Management and

the Emergence of Stakeholder Theory (1980–1990)

Between 1950 and 1968, an Economistic Approach to the

Corporation

1968 and 1985: Strategic Representations of the Corporation

1985 and 1995: A Financial Vision Combined with Multi-

Criteria Performance and a Conception Offering an Alternative
to Financial Orthodoxy
 Since 1995: A Multitude of Different Perspectives

The Role of Stakeholder Theory in Corporate Strategy

The Corporation Between Dependence on the Environment and

Policy Self-Determination

Stakeholder Theory: Promoting Strategic Management, 1970–

1980

A Pluralist Representation of the Corporation and of the

Organization: Toward Partnership-Based Corporate
Governance

Strategic Models Which Are Not Congruent with Stakeholder

Theory: Michael Porter

Michael Porter’s Competitive Advantage

Richard D’Aveni’s Hyper-Competition Model (1994–2010)

Strategic Models Compatible with Stakeholder Theory

The Corporation as a Political System: The Francophone School

of 1980–2009

Resource and Skills-Based Strategy

The Relational View

Impact of Stakeholder Theory on Strategic Marketing and

Research in Negotiation

Conclusion

3 Stakeholder Theory as a Theory of Organizations

Stakeholder Theory, a Factor of Change in Organization Theory

 From Structure to Its Fragmentation: The Internationalization of
Organizations and of Inter-organizational Relations

The Increasing Internationalized of Firms: From Very Large

Companies to Companies That Are Born Global

International Regulatory Organizations with a Global Vocation

Public Organizations Undergoing Profound Changes

Organization Theory and Stakeholder Theory

The Organization as Relation and as Organized But Unexpected

Action

Organized Action as Sensemaking

Other Currents Relevant to Stakeholder Theory

The Neo-Institutionalist Current

Political Approaches

Conclusion

4 Political Philosophy Interpellated by Stakeholder Theory

Conflict Between Institutions and Organizations

From Civil Society to Stakeholder Society?

The Hegelian Theory of Civil Society

Three Factors of Correspondence Between Civil Society and

Stakeholder Society

Stakeholder Theory and the Social Contract

A Non-social Contract: The Firm as a Network of Contracts

 Stakeholder Theory’s Social Contract: An Alternative to the
Theory of the Firm

The Social Contract: From Rhetoric to Reality

The Relevance of the Social Contract to Stakeholder Theory

Conclusion

5 Stakeholder Theory and Ethics

Ethics: Justice, Equality and Fairness

From the Ethics of Discussion to Deliberative Rationality

The Paradox of Stakeholders in Business Ethics

Stakeholder Theory and the Common Good: Contrasting

Conceptions

Equity and Justice as Management Principles: Robert Phillips and

John Rawls

Deconstruction of the Paradigm of Justice and Ethics

Conclusion

General Conclusion

Bibliography
Footnotes
1 The references between brackets refer to the bibliography at the end of the book.
© The Author(s) 2016
Maria Bonnafous-Boucher and Jacob Dahl Rendtorff, Stakeholder Theory, SpringerBriefs in Ethics,
DOI 10.1007/978-3-319-44356-0_1

1. From “The Stakeholder” to

Stakeholder Theory
Maria Bonnafous-Boucher1 and
Jacob Dahl Rendtorff2
(1) Full Professor Paris Chamber of Commerce and Industry, Paris, France
(2) Roskilde University, Roskilde, Denmark

Definitions
The term stakeholder (“partie prenante” in French) is used in different ways
by specialists and members of the public. For the wider public, it is a
generic term, equivalent to “citizen,” to anyone taking part in public life.
For specialists, it refers to people who are not shareholders. In fact, “partie
prenante” is an imperfect translation of the English stakeholder, literally the
“holder” of a “stake.” Less literally, stakeholder means he, or she, who has
a stake in something. More broadly, it means someone who participates or
“takes part” in something (“prendre partie,” hence “partie prenante”). In
English, the term stakeholder is a neologism which plays on the term
stockholder (designating those who share the profits, including the
shareholders). The term indicates that parties other than stockholders can
have a say and that their stakes and interests in the activities of the firm
should be recognized (Freeman and Reed 1983). It defines individuals and
groups of individuals indispensible to the survival of the firm and who are
either consulted or participate directly in decision-making processes or
arbitrage. But from which point of view is the question of survival to be
considered: from that of the firm or that of the stakeholder? It is for this
reason that some Francophone authors prefer the term “partie intéressée”
(“interested party”) (Benseddik 2006) or “ayant droit” (“rights holder”)
(Mercier 2006). Perhaps not surprisingly, for the Swedish administrative
research school of the 1960s, represented by Rhenman and Stymne (1965),
the notion of the stakeholder is seen as reciprocal relationship in which a
stakeholder is a group which depends on the firm in order to achieve its
own objectives and on which the firm depends for its survival.
Officially, the term “stakeholder” was first used in public at a
conference held at the Stanford Research Institute in 1963 to refer to “all
groups on which an organization is dependent for its survival.” But it was
only 20 years later that the term “stakeholder” was popularized by Freeman
(1984) who, at that time, used it to mean: “an individual or group of
individuals which can affect or be affected by the achievement of
organizational objectives.” Only those who cannot affect (due to an
incapacity to do so) and those who are not affected by the actions of an
organization (due to the absence of any form of relationship) are excluded
from this definition. It should also be noted that a stakeholder can be
affected by the corporation without being able to affect it in turn (and vice-
versa). Potentially, and alternatively, it can contribute to or threaten the
organization.
In the final analysis, while the term “stakeholder” is closely associated
with the private sector and the corporate world, it is also revealing in terms
of the relationship between the business world and public life: it illustrates
the difficulty of dissociating various interests, since the environment within
which corporations act is not only economic and legal, but also social,
political, cultural and ecological. In fact, the term “stakeholder” has crossed
the borders of corporate governance and is now frequently used by political
analysts, as evidenced by the White Book on European governance
(Candela 2006), and by numerous political scientists (Ackerman and
Fischkin 2004). Nevertheless, the decision-making processes of national
public organizations (states, public authorities), regional public
organizations (the European Union), and para-public organizations
(associations, international NGOs) has little to do with the corporate
governance model.
Consequently, it is difficult to determine a priori who is a stakeholder
and who or what is not. It depends on a concrete analysis of the precise
situation in which an organization or, more specifically, a corporation, finds
itself. Whether in public debates or in debates on corporate management,
the notion of the stakeholder is generally associated with that of the actor
concerned with a decision or a project. It seems to complement the notions
of the historical social actor (Bourdieu), the strategic actor (Crozier), the
identity-creating actor (Sainsaulieu), the group actor (Kaes, Anzieu), and
the impulse actor (Enriquez), a family of concepts traversing many of the
social sciences. Stakeholders are constantly implicated in collective, public
action in terms of both analysis and practice. It is as if, in order to govern,
or quite simply to win agreement to a reform, it is sufficient to be aware of
the interests and influence of various groups. Thus, in a neo-liberal context,
integrating stakeholders into an action framework takes the form of a
pertinent, actionable theory (Audier 2012) in which everything is negotiable
in a context in which decisions are made in function of events and their
impacts (Bonnafous-Boucher 2004). But who or what is a stakeholder and
who isn’t? If everything, either in an absolute or relative manner, is a
stakeholder, is the fact of acting tantamount merely to establishing degrees
of engagement or disengagement? In many regards, stakeholder theory
bears witness to a desire for change in approaches to governance, decision-
making, acting, feeling or wanting to be part of a project. It reflects a shared
aspiration to participate; it highlights the questionable nature of the
distinction between those who have rights and those who do not. It takes
into account the blind spot constituted by those who do not express an
opinion. That is why, although it undeniably derives from management
studies, it can also be regarded as a theory critical of neo-liberalism.
In a well known article, Mitchell et al. (1997) attempted to put an end to
the debate on the identity of stakeholders once and for all. The authors
suggested that the problematic should be reduced to the following question:
who really counts for the firm? Clearly, the authors consider stakeholder
theory exclusively from the point of view of usefulness to the corporation
(Table 1.1).
Table 1.1 What is a “stakeholder”? A chronology
Source Stake
Stanford “those groups without whose support the organization would cease to exist” (cited in
memo Freeman and Reed 1983; Freeman 1984)
(1963)
Rhenman “are depending on the firm in order to achieve their personal goals and on whom the
(1964) firm is depending for its existence”
Source Stake
Ahlstedt “driven by their own interests and goals are participants in a firm, and thus depending
and on it and whom for its sake the firm is depending” (cited in Näsi 1995)
Jahnukainen
(1971)
Freeman Wide: “can affect the achievement of an organization’s objectives or who is affected
and Reed by the achievement of an organization’s objectives”
(1983: 91) Narrow: “on which the organization is dependent for its continued survival”
Freeman “can affect or is affected by the achievement of the organization’s objectives”
(1984: 46)
Freeman “can affect or is affected by a business”
and Gilbert
(1987: 397)
Cornell and “claimants” who have “contacts”
Shapiro
(1987: 5)
Evan and “have a stake in or claim on the firm”
Freeman
(1988: 75–
76)
Evan and “benefit or are harmed by, and whose rights are violated or respected by, corporate
Freeman actions”
(1988: 79)
Bowie “without whose support the organization would cease to exist”
(1988a, b:
112, Note
2)
Alkhafaji “groups to whom the corporation is responsible”
(1989: 36)
Carroll “asserts to have one or more of these kinds of stakes” – “ranging from an interest to a
(1989: 57) right (legal or moral) to ownership or legal title to the company’s assets or property”
Evan and contract holders
Freeman
(1990)
Thomson et In “relationship with an organization”
al. (1991:
209)
Savage et “have an interest in the actions of an organization and … the ability to influence it”
al. (1991:
61)
Hill and “constituents who have a legitimate claim on the firm … established through the
Jones existence of an exchange relationship” who supply “the firm with critical resources
(1992: 133) (contributions) and in exchange each expects its interests to be satisfied (by
inducements)”
Source Stake
Brenner “having some legitimate, non-trivial relationship with an organization (such as)
(1993: 205) exchange transactions, action impacts, and moral responsibilities”
Carroll “asserts to have one or more of these kinds of stakes in the business” – may be
(1993: 60) affected or affect …
Freeman participants in “the human process of value creation”
(1994: 415)
Wicks et al. “interact with and give meaning and definition to the corporation”
(1994: 483)
Langtry “the firm is significantly responsible for their well-being, or they hold a moral or legal
(1994: 433) claim on the firm”
Starik “can or are making their stakes known” – “are or might be influenced by, or are or
(1994: 90) potentially are influencers or some organization”
Clarkson “bear some form of risk as a result of having invested some form of capital, human or
(1995: 5) financial, something of value, in a firm” or “are placed at risk as a result of a firm’s
activities”
Clarkson “have, or claim, ownership, rights, or interests in a corporation and its activities”
(1995: 106)
Näsi (1995: “interact with the firm and thus make its operation possible”
19)
Brenner “do or which could impact or be impacted by the firm/organization”
(1995: 76,
Note 1)
Donaldson “persons or groups with legitimate interests in procedural and/or substantive aspects of
and Preston corporate activity”
(1995: 85)

Source: Mitchell et al. (1997: 858–859)

These contradictory elements provided the point of departure for an

intense debate in which the term “stakeholder” was transformed from a play
on words into a notion and, finally, into a strategic management problematic
which has, since 1984, generated a substantial amount of academic output.
Between the year in which Strategic Management: A Stakeholder Approach
was published, and 2010, which saw the appearance of Stakeholder Theory:
The State of the Art, Strategic Management, and Stakeholders, a plurality of
hypotheses and controversies were developed, illustrating how attractive the
theory is. At any event, the notion of the “stakeholder” makes it possible to
develop a theory which offers a representation of power within a structure
of governance, namely that of the corporation, thereby shining an analytical
light on corporate governance and the strategic decision-making processes
of the firm.

Conceptual Framework: R. E. Freeman (1984–2010)

and His Followers
Freeman, a philosopher and Professor of Strategic Management, has always
recognized the diversity of his intellectual heritage, which ranges from
Ackoff to the logical and pragmatic philosophers. Indeed, a certain number
of mostly American researchers and consultants have followed in his
footsteps, including Agle, Boatright, Bowie, Clarkson, Donaldson, Dunfee,
French, Goodpaster, Harrison, Jones, Kochan, Marens, Mitchell, Parmer,
Phillips, Venkataraman, Wicks and Wood.
But the role of the firm and the nature of its obligations to the rest of
society had been analyzed and discussed long before Freeman. After the
1929 crisis, Dodd (1932) and Barnard (1938) advanced the idea that the
corporation should balance the rival interests of its various participants with
a view to ensuring their continued cooperation. After the 1929 crash, a
number of major companies, including General Electric, recognized four
actors as stakeholders: customers, employees, the community and
stockholders (Hummels 1998). Other authors examined the question of the
identity of the main groups participating in the identity of the firm.
Rhenman and Stymne (1965, quoted by Carroll and Näsi 1997) describe the
firm as a social and technical system in which stakeholders play a decisive
role; they are, for example, at the origin of experiments in industrial
democracy in Scandinavia. Blair (1995) posits that the symbolic
foundations of the theory are to be found in the case brought against Ford
by the Dodge brothers in 1919, when the Michigan Supreme Court found in
favor of stockholders who had demanded that the company should share its
profits in the form of dividends. But surely this episode has only limited
relevance to a theory which makes a clear distinction between stakeholders
and stockholders.

Robert Edward Freeman

Robert Edward Freeman was born on December 18, 1951 in Columbus,
Georgia, USA. After studying Philosophy and Mathematics at Duke
University in the 1970s, he gained a PhD in Philosophy at Washington
University in St. Louis in 1978. In the early 1980s, he worked as a
researcher in the Wharton Business School’s Busch Center, directed by
Russell Lincoln Ackoff, a pioneer in operational research and systems
theory. He then moved to the Wharton Applied Research Center, recently
set up by Ackoff (an academic), and James R. Emshoff (a businessman).
These last set up and supported a research seminar on the notion of the
“stakeholder.” The mission of the center was to act as “Wharton’s
window on the world,” but after the initial seminar, the participants
asked themselves whether the subject was not too normative, revealing
as it did questions about distributive justice which no one present could
answer. It was then that the fortune of stakeholder theory was
indissociably linked to R. E. Freeman’s career trajectory.
Freeman, a philosopher, worked simultaneously with experts in
strategy and sociologists. The idea of stakeholder theory was congruent
with the ideas expressed by Ackoff in his 1974 book, Redesigning the
Future, written with Ian Mitroff and Richard Mason. Furthermore,
Wharton was in contact with the Stanford Research Institute where Igor
Ansoff, Eric Rhenman, Robert Stewart and Marion Doscher were
developing strategic planning and strategic assumptions analysis.
Emshoff, President of Indecap, encouraged Freeman to start writing
about stakeholder management. That was how he came into contact with
AT & T and Bell and, in conjunction with the center, produced an
evaluation of the strategy applied by a Mexican brewery.
Simultaneously, Freeman collaborated regularly with Bill Evan, a
sociologist from the University of Pennsylvania. Evan immediately saw
in the notion of the stakeholder the possibility of democratizing large
companies. He regarded it as a concrete idea that could be applied in real
life. The objectives of the Wharton seminar and those of the sociologist
coincided. Thanks to Bill Evan, Freeman learned to reconcile
philosophy, the social sciences and management and, as he later wrote,
“continue to be the philosopher that he was, rather than a positivist social
scientist.” In 1984, he published Strategic Management: A Stakeholder
Approach. In 1993, he co-wrote an article with Evan on Kantian
capitalism. Simultaneously, Freeman was appointed as Professor of
Management at the public sector University of Minnesota, an
establishment with over 50,000 students. In 1986, his appointment to the
 highly prestigious Darden School of the University of Virginia, itself
founded by Thomas Jefferson, saw him return to the southeast United
States. In the same year, the Olsson Center, focusing on Applied Ethics
was set up, and, in 2004, Freeman became head of the Business
Roundtable Institute where he taught business ethics to middle-managers
in large companies. In Virginia, a conservative state, at once the home of
American Republicanism and characterized by deep-seated religious and
ethical values, Freeman focused on business ethics and corporate
governance. It was thus that, in his wake, in 1999, A. C. Wicks, head of
the Olsson Center, produced a convergent theory of stakeholder theory,
which he has been developing ever since; J.S Harrison, Professor of
Strategy at the Robins School at the University of Richmond (Virginia)
defends Freeman’s vision in the Academy of Management, an
association of which most academics working in the field of
management are members. In 2010, the three authors published a State
of the Art of stakeholder theory. R. A. Philips, also a professor of the
Robins School, is one of the most productive researchers in the field. In
2010, conjointly with Freeman, he published a book simply entitled,
Stakeholders.

Russell L. Ackoff (1974, 1994) seems to have been the first to have
genuinely recognized the conceptual potential of the notion of stakeholders.
He oriented his research toward a representation of the corporation and
developed an embryonic form of stakeholder theory by defining the
objectives of organizations. According to Ackoof, the corporation should
reconcile the contradictory interests of groups to which it is directly linked,
adjusting its objectives with a view to satisfying the needs of those groups
in an equitable manner. Although profit is one of its objectives, it is not the
only one. But, with the exception of Ackoff and a number of authors
working between the late 1960s and the mid-1980s, the theory received
little attention in the fields of management, strategy and ethics. Indeed,
when Freeman presented an article on stakeholder for publication, the
evaluators suggested that he should perhaps use the term “stockholder”
instead.
The most all-encompassing version of stakeholder theory is the one
outlined in 1984 (republished in 2010) by Freeman in Strategic
Management: A Stakeholder Approach. In his book, Freeman suggests that
the generally separate concepts of the organization and the corporation
should be linked to produce a strategic, political and moral conception
which includes negotiation and communication. For the author, the
corporation is a wheel whose spokes represent particular interests (Aggeri
2008; Cazal 2011). This observation is based on the dependence of firms on
third parties, these last expressing requests concerned with risks engendered
by economic activity. It is in this context that Freeman’s key concept (1984)
acquires its full meaning: “Simply put, a stakeholder is any group or
individual who can affect, or is affected by, the achievement of the
organization’s objectives.” According to the American professor,
stakeholders include any group or individual who can either help or analyze
a corporation by calling its strategy into question. By focusing on these
groups and their wellbeing, whether they are internal or external to the
corporation, it should be possible for an organization to establish its
strategies by ensuring that they are consonant with societal expectations.
Nevertheless, this approach requires a theoretical framework in order to
deal with various groups, which are not merely aggregations of particular
interests. Thus, theoretical research into the role of stakeholders would
provide a concrete analytical context making it possible to examine in a
relevant way the relationship between the corporation and its internal and
external environment. With this in mind, Freeman starts by drawing up a
map of the stakeholders in a specific firm. He then analyzes potential
negotiation processes based on specific themes concerning particular
groups of stakeholders. Negotiation is, in this context, based on dialogue,
with a view to guaranteeing free and voluntary collaboration (Freeman
1984: 74). Later, Freeman (1984: 83) demonstrated that stakeholder theory
could be used to define the fundamental visions and aims of a corporation.
Analyzing stakeholders is the same thing as analyzing the values and social
problems by which the corporation is confronted. From the author’s point of
view, this analysis is a part of the value of the corporation, enabling it to
measure not just its financial value but also its social and societal
performance (Fig. 1.1).
Fig. 1.1 Impact of the corporation on stakeholders/Impact of stakeholders on the corporation
(Source: R.E. Freeman, Strategic Management, Pitman Publishing Inc, Boston, 1984)

With Strategic Management: A Stakeholder Approach (1984), Freeman

became a pioneer who, not content with underlining the need for a
theoretical framework (the creation of value by stakeholders versus the
creation of financial value) suggested new approaches to elaborating
corporate strategy. His approach to the objectives of the corporation and to
how it fitted into its environment overturned the traditional frameworks of
strategy. Responding to directors and shareholders who remained
unconvinced of the relevance of his representation of the firm, he
maintained that, in respecting stakeholders, the firm would be better able to
make profits. In sum, Strategic Management: A Stakeholder Approach
suggests a pragmatic approach. Indeed, Freeman has always claimed to
belong to a pragmatic current (Freeman et al. 2010). In this instance,
pragmatism means that identifying and negotiating with stakeholders is the
best way of advancing and developing business. Consequently, as Freeman
has explained on a number of occasions, stakeholder theory is an
operational theory enabling firms not only to define and develop their
strategy, but also to evaluate it.
Parameters of the Theory
After 30 years of controversy, we can now say that stakeholder theory is
principally a theory of corporate strategy which has been taken up by
researchers in the fields of business ethics, organization theory, political and
moral philosophy (Phillips et al. 2003), political sociology and political
science. In many strategic management encyclopedias, such as those
published in 2001 and 2005, stakeholder theory is presented as a promising
and idiosyncratic approach.
In effect, stakeholder theory is a recent and increasingly important
current in the field of strategy (Freeman 1984, 2001; Martinet 1984;
Martinet and Reynaud 2001). The current is concerned with reappraising
the concept of the corporation, dominated by agency theory (Jensen and
Meckling 1976; Jensen 2000), which considers the organization exclusively
in terms of its ability to create value for shareholders. Noble Prize-winner
Milton Friedman declared in the New York Times in 1970 that “the social
responsibility of business is to increase its profits.” Since profits are the
result of an implicit contract with non-shareholders, each group of non-
shareholders has a contractual relationship with the corporation in that they
all receive payment (employees) that they freely accept. The financial
objective not only serves the interests of the owners of the corporation but
also provides a framework which makes it possible to ensure that limited
resources are allocated, managed and deployed as effectively as possible
(Stewart 1994). But this approach describes the corporation as a
combination of production factors which transform “inputs” into “outputs,”
which, in turn, create value by being sold on competitive markets (Martinet
1984). In stakeholder theory, the corporation is not exclusively based on the
particular interests of its owners and stakeholders. Shareholder value (short
term) can thus be contrasted to stakeholder value (medium- to long-term).
That is why the choice of value creation through stakeholders is, above all,
strategic (medium-term, long-term), informed as it is by the twin objectives
of survival and development. But by making that choice, the corporation is
confronted with agents (other than shareholders) which limit its access to
resources. The presence of these agents obliges it to develop a competitive
strategy which satisfies a range of interests. The corporation thus attempts
to build within a society and not merely in a market (Martinet 1984).
The strategic management of stakeholders is primarily based on a
capacity to understand their expectations as a factor in the development of
the organization, and to acknowledge their contribution to value creation, be
they internal (investors, the ensemble of collaborators) or external
(consumers, suppliers, civil society, public authorities) to the corporation.
With this aim in mind, the corporation is encouraged to define the nature of
its relationship with its stakeholders (Thomson et al. 1991). These interests
are de facto “stakeholders” in the strategic policies of the corporation
(Freeman 1981, 1984, 2007, 2010; Hitt et al. 2001). The corporation thus
“manages” on behalf of its stakeholders (Freeman 2007). But what does
managing on behalf of one’s stakeholders imply?
Attempts to separate the economic from the social represent a stumbling
block which continuously threatens corporate legitimacy. While capitalism
guarantees the corporation a degree of autonomy based on an a priori trust
in economic actors – specifically, in private firms (which oil the wheels of
the economy), that autonomy is also based on an a priori trust in society,
since the corporation’s institutional legitimacy underpins its right to make
profits freely without the need for self-justification. However, the fact that
its pragmatic legitimacy is often contested encourages the corporation to
recognize its dependence on external factors. It is here that the idea of
corporate social responsibility emerges. Stakeholder theory is part of a
debate about the role of business in society. Like business ethics, it
highlights the way in which the economic sphere is socially embedded. In
effect, if one takes the view that the corporation exists not only in the
market, but also in society, then the sociality of the economy and the
embeddedness of the corporation in society is a given. This observation
originates in Karl Polanyi’s The Great Transformation (1944). The advent
of globalization has led to an increasing recognition of the embedded nature
of the corporation. But a variety of approaches are taken to the
phenomenon. More than a moralizing approach external to economic
activity, stakeholder theory deals pragmatically and strategically with the
issue. That is why business ethics encompasses, in the shape of stakeholder
theory, a strategic aspect (Fig. 1.2).
Fig. 1.2 A history of the stakeholder concept

Epistemological Debates and Theoretical Pluralism

While in the 1980s only one article on stakeholder theory was published in
a leading management journal, from the 1990s an increasing number of
articles and books on the subject began to appear. Between 2000 and 2007,
135 articles were published in the eight leading international management
and business ethics journals (Laplume et al. 2008). This trend gave rise to a
form of theoretical, methodological and practical pluralism.

Is Stakeholder Theory a Theory?

Is stakeholder theory a bona fide theory? In English, the term “stakeholder
view” is generally preferred. For Freeman, it is more of a “genre” than a
theory (Hitt et al. 2001). But could it not be seen as a as a kind of practical
methodology based on a more general theory, that of a civil society backed
up by the economic and geostrategic power of the multinationals
(Bonnafous-Boucher and Porcher 2010). If so, the corporation would have
to guarantee the rule of law in the same way that the state does in the
classical, Hegelian theory of civil society (Bonnafous-Boucher 2006;
Bonnafous-Boucher and Porcher 2010). However, as far as we are aware, it
is not the role of the corporation to guarantee the rule of law, even if certain
political scientists and legal experts attempt to replace civil society with a
society made up of stakeholders (Ackerman and Alstot 1999). It is thus
legitimate to question the unifying ambitions of a theory which is applicable
to numerous fields, including business ethics, strategy, law, economics and
organization theory (Freeman and Philips 2002: 333).

A Concrete Theory: Categorizing the Actors Who

Count in Corporate Strategy
The effectiveness of a unifying theory is conditioned by two issues, both of
which have been addressed by researchers, namely, the identity of
stakeholders, and who really counts and for whom (Mitchell et al. 1997).

Identifying the Stakeholders

First, it is evident that stakeholders are not necessarily individuals. They
can be a group, an organization, an institution, an association, or a thing, for
example an aspect of the natural environment. But if this is true, then surely
anything could be a stakeholder. Unsurprisingly, authors have asked who is
a stakeholder and who isn’t. The confusion caused by an exaggeratedly
broad conception of the notion prompted Bowie (1988a, b), Freeman (1994)
and Näsi (1995) to attempt to formulate a more specific definition. An
essential criterion was introduced: stakeholders were invoked when the
survival of an organization or a corporation was dependent on one or more
third parties. Although this definition is not often applied (stakeholders are
generally thought of as groups or individuals influenced by and influencing
the organization), it does nevertheless represent progress in terms of the
recognition of stakeholders. The task of strategic management is thus to
identify the third parties concerned and to decide how to work with those
parties. This approach means that the strategic context is no longer
exclusively associated with gaining a competitive edge (Porter 1985). The
corporation once again becomes the center from which expectations, stakes
and interests, be they convergent or divergent, are analyzed (Table 1.2).
Table 1.2 Specific expectations of different stakeholders
Partenaires Les attentes directes des Stakeholders Informations fournies par les
entreprises
Salariés Rémunération, sécurité de l’emploi, Rapports de l’entreprise, nouvelles
formation sur l’entreprise, négociations
Actionnaires Dividendes et appréciation du cours boursier Rapports et comptes annuels,
informations sur les fusions et les
OPA
Clients Qualité, service, sécurité, bon rapport qualité- Publicité, documentations, entretien
prix
Banquiers Liquidité et solvabilité de l’entreprise, valeur Ratios de couverture, nantissement,
des garanties, production de trésorerie prévision de trésorerie
Fournisseurs Ratation stable et durable Paiement dans les délais
Gouvernement Respect des lois, de l’emploi, de la Rapports aux organisms officiels,
compétitivité et données fidéles communiqués de presse
Public Sécurité des opérations, contribution à la Rapports sur la sécurité, reportages
communauté
Environment Substitution des ressources non durables et Rapports sur l’ environnement.
activités non polluantes Rapports de conformité

Source: Clarke T, “The Stakeholder Corporation: A Business Philosophy

for the Information Age”, Long Range Planning, 1998, 31/2,182–194. The
table was taken and adapted from Caby (2003)
Translation
Partners Direct stakeholder expectations Information supplied by firms
Employees Remuneration, job security, training Company reports, news about the firm,
negotiations
Shareholders Dividends and increase in share value Annual reports and accounts, information
about mergers and acquisitions
Clients Quality, service, security, value for Publicity, documentation, maintenance
money
Bankers Liquidity and solvency of the firm, Coverage ratios, collateral, cash flow
value of guarantees cash flow forecasts
Suppliers Stable long-term rotation Prompt payment
Government Respect for the law, employment, Reports for official bodies, press releases
competitiveness, accurate data
Public Operational safety, contribution to Safety reports, reportages
community
Environment Replacement of non-sustainable Environmental reports, compliance reports
resources, non-polluting activities
In the wake of these various clarifications, classifications designed to
identify stakeholders have given rise to an abundant literature. Aware of the
difficulty of identifying all the stakeholders in an organization, some
authors have attempted to establish categories of actors. These authors have
focused on the task of generalizing categories of actors beyond cases of
specific firms.

The Hierarchy and Typology of Mitchell, Agle and Wood

One of the most effective stakeholder classifications is that of Mitchell et al.
(1997). Their classification is based on three questions: What real or
potential power do stakeholders have in society enabling them to impose
their will on a corporation? What kind of legitimacy do they possess? And
how urgently does an organization have to respond to their demands? When
the interests of stakeholders do not converge with those of either the
corporation or other stakeholders, the parties are obliged to negotiate.
Negotiation can be approached in different ways depending on the
perceptions of various stakeholders and the way in which they themselves
are perceived. Groups possessing the three qualities (power, legitimacy,
urgency) are termed definitive stakeholders and are thus included in the
negotiation process. The degree of participation of various actors depends
on the number of qualities they possess. Those with two attributes –
urgency and legitimacy – are considered dependent stakeholders. But
stakeholders with power and urgency can be dangerous. Stakeholders with
power and legitimacy are termed dominant. Those with only one attribute
are termed dormant (power), discretionary (legitimacy), or demanding
(urgency) (Fig. 1.3).
Fig. 1.3 Stakeholder typology (Mitchell, Agle and Wood) (Source: Mitchell, Agle and Wood,
“Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and
What Really Counts”, The Academy of Management Review, 1997, 22/4, 874)

There are other, less operational and less relevant classifications than
Mitchell et al.’s (1997). These classifications are based on an initial
distinction between primary and secondary stakeholders. Some of them are
content to distinguish between internal and external stakeholders. While
this distinction is a practical one, it is also simplistic in that it does not take
the relational content of the theory into account. It also fails to take account
of the ubiquity of stakeholders (Martinet 1984) in the shape of actors within
the corporation and outside it. In effect, an employee can also be a
consumer of the products he or she manufactures. Thus, the relationship
between the stakeholders and the corporation takes on a particular
importance for Cornell and Shapiro (1987), Freeman and Evan (1990), and
Hill and Jones (1992). All of these authors talk of contracting parties. It
could also be added that the analysis of the relationship between
stakeholders (and not only between the corporation and its stakeholders)
establishes a non-dual explanatory framework which does not refer the
corporation back to a faceoff with all that is external to it. Thus, in its
diagnostic and management approaches, the corporation has to deal with
unusual alliances or with the divergent interests of individual stakeholders.
Two years before Mitchell, Agle and Wood published their typology,
Clarkson (1995) distinguished between stakeholders who take on risk by
investing human or financial capital, and those who do not take any risk.
For the author, stakeholders fall into two categories: voluntary and
involuntary. In this sense, a stakeholder is someone who has everything to
lose and who will thus make legitimate claims based on the risks he or she
has run. In this case, shareholders are clearly considered stakeholders, as
are entrepreneurs. Indeed, why not? But surely this veers away from the
stakeholder approach which, from the outset, has made a distinction
between stakeholders and shareholders and presented an alternative to the
orthodox vision of corporate governance.
Other, secondary, typologies focus on different categories of actors:
public actors (Tichy et al. 1997); archetypal actors (shareholders,
employees, clients, suppliers); recognized actors (banks, insurance
companies, enterprise networks, unions, public authorities, international
organizations, civic associations, NGOs); controversial actors (competitors,
the media, activists, the natural environment) (Lépineux 2005). Mention
could also be made of tertiary stakeholders, those which do not have the
capacity to speak for themselves, for example natural elements (oceans,
mountains, animals), and future generations (Starik 1994). Some authors
have also talked of silent or mute stakeholders represented by third parties
(NGOs) who plead on their behalf.
Typologies and classifications, particularly that of Mitchell et al., are
useful in that they furnish an actionable model which can be used to make
decisions and negotiate for and with stakeholders. But, let’s not be naive,
they can also be used against them. The theory can always be
instrumentalized. Regardless of their degree of sophistication, the limit of
such typologies is to be found in the way in which they represent society as
a series of actors of varying value (or threat) to the corporation (and
particularly to the very large corporation). One of the key factors in Agle et
al.’s typology is the hierarchization of categories of actors in function of the
interests of the firm. In this sense, although stakeholder theory makes it
possible to represent the actors, the typologies developed do not focus on
the interests and issues that they bring to the fore. From this point of view,
stakeholder theory can be criticized on the grounds that it offers only a
partial conception of civil society, which it considers as a series of self-
centered, interest-based struggles. In our opinion, an analysis of the
controversies and arguments on which the motivations of stakeholders are
based would make it possible to take into account issues originating beyond
specific groups of actors. In terms of typologies, it should also be noted that
exhaustive investigations of lists of actors are of only limited value, even if
probability calculus is used.

A Theoretical Pluralism Revealed by Donaldson and

Preston (1995)
The perspective from which issues are identified, and from which the
relationship between stakeholders and the organization is dealt with, exerts
an influence on theoretical perspectives elaborated by researchers. Three
approaches to the theory have been identified.
The descriptive approach to stakeholders reveals a constellation of
cooperative and competing interests (Moore 1999). It describes the growing
complexity of organizations (multinationals, transnational companies,
subcontracting networks and associations). It explains the conditions of
emergence of new forms of organization that encompass multiple interests
(Kochan and Rubinstein 2000). It takes account of relationships between
the organization and the environment by calling into question the
environment as an objective given, or, in other words, as an ensemble of
forces external to the organization and beyond its control (Desreumaux and
Selznick 2009). And it helps to articulate various organizational levels –
intra, inter, external – by mitigating the dichotomy between the
organization’s internal environment (components), and its external
environment (degree of complexity, stability, availability of resources).
The advantage of the descriptive approach is that, despite its explicative
nature, it can also be applied instrumentally as a methodological framework
(Caroll and Bucholtz 2000). It provides strategic analysis since, while
dealing with the task of identifying stakeholders, it also attempts to manage
them. In this sense, the theory is a decision-making tool for directors.
The instrumental approach is close to the strategic vision of the
corporation: it aims to manage the firm vis-à-vis the stakeholders with a
view to reconciling its profit and performance with other interests which
influence it either directly or indirectly. It not only identifies stakeholders
but also measures their relative influence (Jones and Wicks 1999; Hosseini
and Brenner 1992), comparing the triple bottom line and the interests of the
corporation by postulating that the more it satisfies expectations, the more it
grows. However, the shortcoming of this approach is that it telescopes
divergent interests into a knot of contracts between shareholders, directors
and stakeholders. The arena of negotiation is triangular, open only to the
interests of the three parties. Nevertheless, advocates of certain currents of
the instrumentalist approach attempt to reconcile this paradoxical aspect of
the theory (Goodpaster 1991) by claiming that the idea according to which
shareholders and stakeholders have specific obligations is contradictory.
The concept of the “balanced scorecard” means that the corporation must
take into account three areas of performance: environmental, social and
economic. Another instrumental application is based on the profit a
corporation can pass on to its stakeholders. This approach was described by
Jones (1995). However, it is legitimate to ask if an operational conception
of the theory is necessarily associated with an instrumental approach.
The normative approach insists on the intrinsic legitimacy of the
expectations of stakeholders even when the response to those expectations
is not closely linked to the survival of the corporation. The normative
approach becomes an ethical theory when it enjoins the corporation to act
responsibly vis-à-vis its stakeholders (corporate stakeholder responsibility).
Several professional codes, values and corporate missions are inspired by
the concept of stakeholders, for example those promoted by the Caux
Roundtable (1994). Clarkson (1998) develops responsible management
principles based on the notion of the stakeholder. According to these
principles, managers must be aware of the legitimacy of interests external to
the firm because its activities represent a risk to society. Since stakeholders
are vulnerable, managers must be aware of any conflicts that they might
engender. This conception gives ethics a strategic dimension.
In affirming the intrinsic legitimacy of stakeholders (Donaldson and
Preston 1995), the normative approach provides them with access to
corporate governance, thus once more linking business ethics to strategy
(Gibson 2000). But we are touching here on the limits of the normative
approach in that governance is exercised within the framework of asset-
based salaried capitalism. “Asset-based” because shareholders traditionally
invest capital in order to increase their assets. “Asset-based and salaried”
because the capital invested does not only come from professional investors
but also from private individuals, for example pension funds created by
commercial banking products (life insurance, retirement savings plans), and
human capital in the form of the corporation’s human resources. While
stakeholder theory is associated with a break with the traditional (and often
simplified) representation of shareholder value (Charreaux and Wirtz 2006),
it nevertheless adheres to a contemporary framework of governance, that of
an asset-based salaried capitalism, presupposing open participation on the
part of stakeholders. The presupposition is that all stakeholders can become
shareholders. The theory aims to broaden the scope of asset-based
capitalism. What, then, is the future of the normative approach? The
formation of a collective interest in the activities of the corporation
expressing itself in the form of a recognized objective accepted by the
stakeholders? (Aglietta and Rebérioux 2004).
The three approaches suggested by Donaldson and Preston provide a
reassuring framework for those willing to immerge themselves in an
abundant, often iterative, and sometimes confusing literature. Unifying its
various aspects, Wicks (1999) provides a convergent theory of the
stakeholder approach. But the question remains – are the three approaches
(descriptive, instrumental and normative) irreconcilable or can a synthesis
be achieved? In the same year, Freeman addressed the entire academic
management science community, asserting that there was no neutral form of
stakeholder theory and calling for divergent approaches (Freeman 1999).

Critiques of the Theory

In 2010, at the start of his book on the state of the art of stakeholder theory
(Freeman 2010: 3), the author identifies his adversaries as Milton Friedman,
Michael Jensen, Michael Porter, and Oliver Williamson. Let us examine the
main critiques levied at Freeman.
First, stakeholder theory is criticized on the methodological level:
without identifying stakeholders precisely and defining their role in
corporate governance, everything and everyone is a stakeholder and the
frontiers of the theory are so porous that any number of interpretations are
possible, thus depriving the theory of all credibility. Second, the normative
and ethical approach to the theory (Phillips et al. 2003) has been called into
question by the advocates of an orthodox style of governance – a focus on
stakeholders enables managers pursuing their own personal interests to
make subjective choices. According to this perspective, the theory offers an
excuse for managers not to promote the interests of the corporation’s
shareholders and owners. If the expectations of stakeholders are taken into
account, the corporation no longer has a single objective (profit) and it
becomes impossible to manage by applying an approach based on economic
rationality (Jensen 2000: 236). (To this it can be objected that, in spite of its
complexity, stakeholder theory serves the cause of the maximization of
corporate profit). Third, from an opposing viewpoint, the theory often
provides a fragmentary vision of the relationship between stakeholders and
the organization. The relationship is generally seen from a single
perspective whether in terms of the relationship of the corporation vis-à-vis
its stakeholders (instrumental approach) or of the stakeholders vis-à-vis the
corporation (normative approach). Relationships between the stakeholders
themselves are rarely envisaged. However, the social and democratic
conception which attempts to render social justice possible in a capitalist
system of production in a social democracy makes it possible to take into
account the inter-relationship between a plurality of stakes and interests by
relativizing the dualism of interests between the corporation, on the one
hand, and stakeholders, on the other. Fourth and last, stakeholder theory
calls into question the meaning of a regional ethics, such as business ethics.
In effect, in our view the theory possesses a universal value even if it is
associated with a particular ethical perspective (business ethics) (Table 1.3).
Table 1.3 The limits of stakeholder theory. What the theory isn’t
Critical distortions Friendly misinterpretations
Stakeholder theory is an excuse for managerial Stakeholder theory requires changes to current
opportunism (Jensen 2001; Marcoux 2000; law (Hendry 2001a, b; Van Buren 2001)
Sternberg 2000)
Stakeholder theory cannot provide a sufficiently Stakeholder theory is socialism and refers to the
specific objective function for the corporation entire economy (Barnett 1997; Hutton 1995;
(Jensen 2001) Rustin 1997)
Stakeholder theory is primarily concerned with Stakeholder theory is a comprehensive moral
distribution of financial outputs (Marcoux 2000) doctrine (Orts and Studler 2002)
Allstakeholders must be treated equally (Gioia Stakeholder theory applies only to corporations
1999; Marcoux 2000; Sternberg 2000) (Donaldson and Preston 1995)

Source: Stakeholder Theory and Organizational Ethics, Robert Phillips,

Berrett-Koahler Publishers, San Francisco, 2003
 By comparing a number of critiques, we have obtained a clearer image
of stakeholder theory, which displays a certain degree of porosity in regard
to fields which are generally kept separate: the market and politics;
philosophical theories of action, on the one hand, and theories of
management, on the other; various fields of knowledge. Stakeholder
theory’s conception of management thus implies a recognition not only of
the corporation’s place in the economic market but also of the social
structure of society.

The Scope of the Theory and Its Potential for

Expansion
Stakeholder theory is at its apogee and the range of interpretations to which
it has been subject means that it possesses significant heuristic capacity and
potential for expansion. However, these qualities were not noticed
immediately and the theory is still almost exclusively viewed as an
alternative to the orthodox financial approach (agency theory) to corporate
governance. Inscribed from the outset in the fields of administrative and
management science (disciplines long depreciated by other disciplines on
the grounds that they are too performative), its scope, or one would have
imagined, could only have been local. But while the theory was developing,
the role of the corporation at the center of the public space was posing
questions that called for answers. Far from being marginal, the theory, with
its multiplicity of variants and currents, is fecund in a number of different
ways; indeed, over the course of the years, it has imposed itself as an
explanatory vector of contemporary currents of liberalism and capitalism.
From the point of view of stakeholders (whether those influenced by the
activities of organizations or the “damned of the earth”), the theory touches
upon political philosophy, political sociology and studies in international
relations by pointing civil society toward a civil society of international
stakeholders in which negotiation becomes a flexible regulatory framework.
Consequently, it is based on a potentially voluntary agreement between
stakeholders with divergent interests (social contract theories). Moreover, it
reappraises the nature of theories of distributive justice popular in certain
currents of liberalism (Rawls, Theory of Justice). Still from the point of
view of political philosophy, Philips, following Rawls, appeals to the idea
of fairness, and develops the possibility of achieving a greater degree of
equity and justice by accommodating stakeholders within the management
process. “Organizational justice” (Philips 2003b) implies that the interests
of all members of the organization, as well as all those outside it should be
respected. The concept of fairness becomes an essential component of
stakeholder theory. From the point of view of moral philosophy, it partakes
of the traditional theory of the common good. Although the common good
is a common denominator that individuals living in society seek out and
define for themselves, it cannot be viewed purely and simply as an
aggregation of the needs and interests of individuals. It is a political, moral
and practical quest for the smallest and largest common denominator
enabling us to live together (sovereign good). Dialoguing with stakeholders
would be the best gauge of access to a definition of the common good. By
extension, the quest for the common good is associated with an approach to
political and moral philosophy based on Aristotelian propositions
(Nicomachean Ethics). Although, in the social sciences, stakeholder theory
poses an open question to the sociology of actors (Crozier and Friedberg
1977), it is closer to Actor-Network Theory or ANT (Latour 1984; Callon
1986; Akrich 1987). In effect, the essential problem addressed by
stakeholder theory is not related to the identification of groups, but, rather,
to the concept of “relationships” and actor networks (for example, the
relationship between the organization, powerful stakeholders and dormant
stakeholders). As such, stakeholder theory questions the systemic
conceptions of organization theory. As in the systemic approach to
engineering, biology and sociology of the post-war period (Wiewer 1948;
Bertalanffy 1968; Crozier and Friedberg 1977), it represents the
organization as a coherent ensemble in dynamic interaction with its
environment. But what creates a system is the combination and association
of mediations which hold it together by translating arguments and enabling
actors (individuals and groups) to define themselves.
In the final analysis, the theory serves as a bridge between
contemporary political and moral philosophy, economic policy and
management.
From the point of view of the corporation, stakeholder theory provides
an alternative conception of corporate governance; it accords business
ethics a strategic role; it offers a new, systemic theory of organization which
accords a place to ecological concerns; it contributes to research in the field
of marketing (Knox and Gruar 2007); and it can be applied to developing a
strategic vision of human resources in which the corporation as a social
body is reflected in all its diversity, with all its roles receiving due
consideration. Last, far from being an abstract theory, it seeks to be
actionable. Freeman is a philosopher and researcher who bases his
analytical method on pragmatism. He has given his theory a universalist
aspect (Evan and Freeman 1993). He supposes that the theory defends the
universal rights of stakeholders.
Could the theory be exported to disciplines in which it has not yet found
its place, such as the study of public policy? Although the term
“stakeholder” is much used by both theorists and practitioners of political
life, they are not necessarily referring to the theory, whose central focus is
on the relationship between the corporation and its environment. Care
should be taken in regard to the extension of the theory, for such an
extension would risk encompassing not only the relationship between the
corporation and its stakeholders, but also the whole of society conceived of
as stakeholders. This may lead to society being represented, in the
American manner, as being composed of pressure groups and interest
groups (Courty 2006). But as Phillips and Freeman observe (Freeman and
Phillips 2002), there is a difference of principle between the organizational
level and the social level. The view taken here, however, is that the most
promising interpretation of stakeholder theory is as a political and moral
philosophy providing democratic foundations and principles relevant to all
forms of governance.

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© The Author(s) 2016
Maria Bonnafous-Boucher and Jacob Dahl Rendtorff, Stakeholder Theory, SpringerBriefs in Ethics,
DOI 10.1007/978-3-319-44356-0_2

2. Stakeholder Theory in Strategic

Management
Maria Bonnafous-Boucher1 and
Jacob Dahl Rendtorff2
(1) Full Professor Paris Chamber of Commerce and Industry, Paris, France
(2) Roskilde University, Roskilde, Denmark

Strategy consists in making choices and taking decisions involving an

organization while being aware of the interactions between the corporation,
its environment, and its existing or potential resources. Linked to corporate
policy, it is an activity which requires reflection and action. As practice, it
“gradually constructs ensembles of opportunities and imagines trajectories
of development in a rapidly changing and partially unpredictable
environment” (Desreumaux et al. 2005, 2006). As reflection, it “renders the
world comprehensible, simplifying it with a view to facilitating action”
(Desreumaux et al. 2005, 2006). As such, it is praxeological reflection
because it seeks efficacy and efficiency (yields and the relationship between
assets and results) (Martinet et al. 1990). From the outset, stakeholder
theory has cast itself as a practical and useful theory associated with
strategy, as is demonstrated by both the oldest and most recent publications
on the subject, those of Freeman and his co-authors: Stakeholder Theory,
written by Phillipps and Freeman (2010); Stakeholder Theory: A State of
the Art, coordinated by Freeman et al. (2010); The Handbook of Strategic
Management, edited by Hitt et al. (2001); Strategic Management: A
Stakeholder Approach (1984); “Manager les parties prenantes” (1982); and
Manager pour les parties prenantes: survie, réputation et succès (2007). To
this list can be added the recent book by Wicks, Freeman and Werhane:
Business Ethics: A Managerial Approach (2009). For the advocates of the
theory, the managerial or strategic management approach encompasses
planning, systems theory, corporate social responsibility, and organization
theory.
But in spite of its origins and embeddedness in strategy, stakeholder
theory has long been contested as an operational model for corporations.
Yet, over the course of the last decade, many companies (from those listed
on the CAC40 to mid-sized firms and small family enterprises (Bingham et
al. 2010) have drawn up stakeholder maps, identifying stakeholders in order
to negotiate with them in function of strategic priorities. These maps are an
acknowledgement of the theory’s usefulness. But other advantages should
be highlighted: (1) Stakeholder theory reconciles strategy and ethics to
provide an approach to analyzing the purposes of economic action rather
than merely attempting to moralize the actions of business leaders. (2) It
offers a representation of the “management of management” (Perez 2003)
and of governance as a space of negotiation and deliberation about value
creation. In other words, it defines corporate governance as something more
than just the rules pertaining in boards of directors, and this when most of
the finance literature (Shleifer and Vishny 1997) restricts it to the dominant
definition of governance [which] covers all the mechanisms that guarantee
various lenders a return on investment, while preventing directors and
dominant shareholders from appropriating excessive value (Wirtz 2008).
(3). It focuses on a conception of economic activity and strategy that
depends on (because it is related to) its environment. Before being a group
or individual that influences or is influenced by the corporation,
stakeholders are “symbiotes,” or, in other words, “those elements of the
environment on which the corporation is dependent for inputs” (Freeman
2010, 86, quoting MacMillan 1978: 66). The term “symbiote” means that
each element pursues a sort of symbiosis with the environment. (4). This
aspect of the theory is a rich source of information for management science
and entrepreneurship, this last field promoting above all the heroic action of
free and voluntarist creators whose actions are not dependent on any social,
legal or cultural context. This did not escape Venkataraman (2002: 46) for
whom, “the essence of the corporation is the competitive claims made on it
by diverse stakeholders. It is a fact of business life that different
stakeholders have different and often conflicting expectations of a
corporation.”
Consequently, stakeholder theory is, with the blessing of Ackoff (1919–
2009), a concrete theory which enables corporations to represent
themselves and to act on their environment. As such it functions on two
levels: as corporate strategy and business strategy.

Representations of the Corporation in Strategic

Management and the Emergence of Stakeholder
Theory (1980–1990)
Over the course of the years, the discipline of strategic management has
gradually constructed a representation of the corporation and of the
legitimacy of its action. The various representations of the corporation
proposed in the field of strategic management outline power relations that
fashion legitimacy (Martinet and Reynaud 2001) and which, rather than
being associated with a specific, all-powerful industrialist, are linked to
negotiations with public opinion and institutions (legal, social, political).
Following A.-C. Martinet (1990), the following schema outlines the
evolution of those representations and traces the emergence of stakeholder
theory.

Between 1950 and 1968, an Economistic Approach

to the Corporation
Due to the financial demands of shareholders, the objectives of corporations
were economic reconstruction, expansion and an emphasis on growth.
Within the corporation, the gap between leaders and led was wide, and
clashes between bosses and unions were harsh.

1968 and 1985: Strategic Representations of the

Corporation
In the period situated between the euphoric crisis of 1968 and the
globalization of the mid-1980s, multiple strategic representations of the
corporation emerged. Monetarism and its guru, Milton Friedman, who
asserted that the corporation should almost exclusively meet the
expectations of society by “serving the interests of shareholders as
effectively as possible” (1962), was called into question. A number of
approaches to the organizational design of corporations emerged, with
global enterprises and firms based on the idea that “small is beautiful”
existing side-by-side. Between 1968 and 1985, emphasis was placed on
strategic visions of the organization, with its fundamental choices
constituting the corporation’s raison d’être, an approach which ran counter
to the financial vision which, according to Martinet, was largely indifferent
to the substantial content of the firm’s choices: What activities? What
products? What clients?

1985 and 1995: A Financial Vision Combined with

Multi-Criteria Performance and a Conception
Offering an Alternative to Financial Orthodoxy
Two contradictory tendencies co-exist. On the one hand, preventive
strategies concerning other firms and a substantial focus on shareholder
value, and, on the other, an emphasis on societal performances and
sustainable policies.

Since 1995: A Multitude of Different Perspectives

The leading model among those which have emerged since 1995 is based
on an economy of knowledge and learning combined with the corporation’s
reactivity and ability to adopt simple, readily understandable rules
governing their actions in the multiple channels of global distribution (Table
2.1).
Table 2.1 Another summary of currents in strategic management
Courants et Modèles représentatifs Auteurs Observations
écoles représentatifs
Design School SOWT (Forces, Andrews équipe Approche rationnelle
de Harvard Faiblesses, Menaces, de Harvard «conceptuelle» pour Mintzberg
Corporate Opportunités) 1960–1965
Strategy
Planification Modèle de planification Ansoff Ackoff Approche systématique et
stratégique 1965–1975 analytique «formelle» pour
Mintzberg
Courants et Modèles représentatifs Auteurs Observations
écoles représentatifs
Business Modèles de portefeuille Levitt, Kotler Grilles, check lists Processus
Strategy Modèles de Henderson «analytique» pour Mintzberg
Stratégies positionnement Stratégies 1965–1980 Abell
opérationnelle génériques
Marketing
stratégique
Management Domaines d’activités Hofer et
stratégique stratégiques Schendel 1978
Stratégies de Modèles de croissance: Ansoff, Marris, Forte diversité des approaches.
développement Économiques, financiers, Penrose 1960– Non mentionné par Mintzberg
organisationnels, etc. 1970
Courant Modèles d’économie et Porter 1975– Conflit entre les approaches
environnemental d’organisation industrielles 1990 déductive (déterministers) et
Approche évolutionniste Nelson, Winter empiriques (contingentes) qualifié
Transaction 1980–1990 de « processus passif » (?) par
Mintzberg
Williamson
1975–1990
Courant Modèle de capacitiés Mintzberg Grande diversité des approches.
organisationnel Modèles contingents Lawrence et Mintzberg retient I’approche «
Transaction (interne) et Lorsch Chandler, politique » et « culturelle »
économie des Cyert et March
organisations 1960–1990
Courant Modèle IMC et heuristique Simon et Aproche empirique. Mintzberg
décisionnel de la décision. Processus Mintzberg distingue les approches
de prise de decision Crozier 1955– «cognitives» et «d’apprentissage»
individueks et 1990
organisationnels
Courant Typologies Smith, Gasse Approche typologique Processus «
entrepreneurial d’entrepreneurs 1960–1990 visionnaire »

Source: Marchesnay M, Management stratégique (2002: 38)

Translation
Currents and Representative models Representative Observations
schools authors
Harvard SWOT (Strengths, Andrews’ team at For Mintzberg, a rational,
Design School Weaknesses, Harvard (1960– “conceptual” approach
Corporate Opportunities, Threats) 1965)
strategy
Strategic Planning model Ansoff, Ackoff Systematic, analytical approach,
planning 1965–1975 “formal” for Mintzberg
Currents and Representative models Representative Observations
schools authors
Business Portfolio model Levitt, Kotler Grids, check lists
strategy
Operational Position-based models Henderson 1965– For Mintzberg, an
strategies 1980
Strategic Generic strategies Abell “analytical” process
marketing
Strategic Strategic fields of activity Hofer and
management Schendel
Development Growth models: Ansoff, Marris, Wide range of approaches, not
strategies economic, financial, Penrose 1960– mentioned by Mintzberg
organizational, etc. 1970
Environmental Economic, organizational Porter 1975–1990 Conflict between deductive
current industrial models Nelson, Winter (determinist) and empirical
1980–1990 (contingent) approaches described
by Mintzberg as “passive [?]
Williamson 1975– processes”
1990
Organizational Capacities model Mintzberg Wide range of approaches
current Contingent models Lawrence and Mintzberg retains the “political”
(Internal) transactions and Lorsch Chandler, and cultural approach
economy of organizations Cyert and March
1960–1990
Decional IMC model and heurist Simon and Empirical approach. Mintzberg
current decision-making. Mintzberg Crozier distinguishes between “cognitive”
Individual and 1955–1990 and “learning” approaches
organizational decision-
making processes
Entrepreneurial Entrepreneurial typologies Smith, Gasse Typological approach
current 1960–1990

The Role of Stakeholder Theory in Corporate

Strategy
The Corporation Between Dependence on the
Environment and Policy Self-Determination
As a discipline, strategic management evolved from general corporate
policy or “corporate strategy” (1908–1959) to strategic planning, or
“corporate planning” (1960–1969) to “business strategy” (1970–1979). But
it was in the 1980s that it became established as “an object of research in
the sense of autonomous practices and normative prescriptions” (Laroche
2007). Stakeholder theory was at the heart of a number of currents and
controversies within strategic management. In effect, it was defined both as
a field of research within strategic management (an explicative framework
of the environment) and as a toolbox for managers (a map of stakeholders
providing a model of the competitive advantage of a firm on a particular
market and determining its capacities for negotiation. It also reintroduced
the possibility of corporate policy and of the prescriptive role of the
corporation vis-à-vis public organizations and associations. Indeed, for
corporate policy, stakeholders are a constrictive factor in terms of the
strategy of the firm. In sum, the theory is located at the heart of strategic
management (as is witnessed by the title of Freeman’s 1984 book), since it
is based on the most operational level of the corporation and seeks an
improved articulation between the group as a whole and each of its product-
market divisions. The theory’s flexibility prompted a number of different
interpretations within the field of strategy. For some authors, it encourages a
“regeneration of strategy by means of the positive and normative
actualization of policy in terms of ethics, styles of governance,
responsibilities and operational approaches” (Martinet 2006). In the view of
others, Freeman and his co-authors were thinking less about the frameworks
of strategy and more about liberating managers from Porter’s competitive
approach and Pfeffer and Salancik’s resource dependence theory (RDT)
(Aggeri 2008). Furthermore, it has often been suggested that stakeholder
theory is an alternative to a restrictive conception of strategy focusing on
relations between managers and shareholders (agency theory) (Fig. 2.1).
Fig. 2.1 Comparison between the economic paradigm and the stakeholder paradigm (Source: Sachs
S. and Ruhli E., Stakeholders Matter: A New Paradigm for Strategy in Society (2011: 76))

These interpretations address the dilemma within strategy involving the

choice between a deterministic and a proactive approach, a dilemma
reflected in the famous debate, which took place in Pittsburgh in 1978,
between, on the one hand, Ansoff and his content-based analysis, and, on
the other, Pettigrew and his process-based approach (Dery 1996). However,
when stakeholder theory emerged in the 1980s it was influenced by both
content-based and process-based approaches in strategy. Moreover,
stakeholder theory is still an object of debate in corporate strategy between
authors who advocate a relatively deterministic and adaptive vision (a
descriptive stance which accords great importance to questions of
positioning and the implementation of strategy), and scholars who support a
more voluntaristic and proactive approach (a prescriptive stance
encouraging strategic prescription).

Stakeholder Theory: Promoting Strategic

Management, 1970–1980
In terms of the evolution of strategic currents, the strategic planning of the
1960s and 1970s gave way to the strategic management of the 1970s–
1990s.
Strategic planning is often confused with the development of plans and
the implementation of budgetary procedures. The plan, a general policy
tool, is used for predicting (fixing objectives, organizing resources) and
monitoring (ensuring that objectives are met). In the 1970s, corporations in
mass consumer goods industries were faced with a decline in the market.
This decline prefigured trade competitiveness problems between 1975 and
1985 and, later, in the second decade of the third millennium. As early as
1984, strategic planning no longer exactly corresponded to the needs of
large companies in which strategy was situated on two levels: the ensemble,
or group (corporate strategy) and individual product-market divisions
(business strategy).
In the period in which globalization first took hold, corporate strategy
was criticized on two grounds: first, because planning pre-supposed a stable
and predictable environment, while conditions were increasingly less stable
and predictable; moreover, activities, including operational activities, are
permanently subject to strategic thinking and adapted, on a day-to-day
basis, to new external factors (the expectations of clients and suppliers, the
perception of strong or weak signals about the emergence of new
technologies). Furthermore, during this period, multinational companies
were organized into product-market divisions, thus acquiring a degree of
autonomy in the decision-making process (product life-cycle). Seeking
support and information from operational collaborators, strategic
management was applied first and foremost to unstable contexts
characterized by continuous change. Thus, strategy was not defined once
and for all for a 3- or 5-year period but continuously through successive
approximations, errors and corrections. The corporate level increasingly
focused on the ways in which decisions were taken at all levels. Second,
corporate and business aspects were combined and articulated (Hofer and
Schendel 1996). The term strategic management was used because it is in
fact a question of coordinating decisions characterized by uncertainty. The
approach attempts to establish a correspondence between global aims and
fields of strategic activity. Third, corporate and business strategy
increasingly focused on market expectations. Emphasis was placed on
marketing aspects; first product-market, and second, product-market-
technology (Abell 1980).
Stakeholder theory emerged against the backdrop of the kind of issues
that strategic management attempts to resolve by focusing on decision-
making processes and negotiation processes between parties. The notion of
“internal” and “external” stakeholders became centrally important (Figs. 2.2
and 2.3). It was applied in order to ensure that the expectations of the
market, consumers, suppliers and publics in general corresponded to the
offer. Consequently, stakeholder theory is useful in terms of strategic
marketing. However, an original aspect of the theory is that it is able to
provide a guide for strategic marketing by identifying what, in the market,
does not represent a threat to society. It is not, therefore, merely a question
of constantly renewing products, or increasing market share, or anticipating
the time at which a particular product enters its saturation phase, but,
instead, of developing responsible products.
Fig. 2.2 The stakeholder wheel (1984–2007) (Source: R. Edward Freeman, Jeffrey S. Harrison, and
Andrew C. Wicks, Managing for Stakeholders: Survival, Reputation, and Success (2007), New
Haven: Yale University Press)
Fig. 2.3 Another version of the stakeholder wheel (2011) (Source: Sachs S and Rühli E,
Stakeholders Matter: A New Paradigm for Strategy in Society (2011: 83))

A Pluralist Representation of the Corporation and of

the Organization: Toward Partnership-Based
Corporate Governance
We have already highlighted the fact that stakeholder theory was, above all,
an alternative to the orthodox, or rather, monist, theory of corporate
governance according to which the corporation is a contractual relationship
between shareholders and directors (Jensen and Meckling 1976; Shleifer
and Vishny 1997). Although alternative, stakeholder theory has sometimes
been reduced to a dual relationship between shareholders and non-
shareholders. But value also depends on cooperation (Aoki 1984) not only
between stakeholders, shareholders and directors, but also creditors,
employees, suppliers and public authorities.
Freeman made a major contribution to changing approaches to
corporate governance (Freeman and Reed 1983; Freeman and Evan 1990).
Other authors have supported him, notably Cornell and Shapiro (1987),
who compared the advantages of a corporate model based on stakeholders
with a financial model. Indeed, in terms of research into strategic and
financial management, shareholders have gradually lost their primacy to
stakeholders (Caby 2003) since, if all individual categories of stakeholders
have their expectations vis-à-vis the corporation, it is because each one of
them contributes, or believes that they contribute to value creation.
However, one current of the French school of management science – G.
Charreaux, P. Desbrières, P-Y Gomez, F Parrat, J.M. Plane, P. Wirtz –
paints a less utopian picture than Freeman’s of the rootedness of
stakeholders in corporate governance (Table 2.2).
Table 2.2 Typology of strategies in function of relationships between stockholders and stakeholders

Narrow Stakeholder Strategy

Maximize benefits to one or a small set of stakeholders
Stockholder Strategy
Maximize benefits to stockholders
Maximize benefits to «financial stakeholders»
Utilitarian Strategy
Maximize benefits to all stakeholders (greatest good for greatest number)
Maximize average welfare level of all stakeholders
Maximize benefits to society
Rawisian Strategy
Act to raise the level of the worst-off stakeholder
Social Harmony Strategy
Act to maintain or create social harmony
Act to gain consensus from society

Source: R. E. Freeman, Strategic Management (1984: 102)

Charreaux and Desbrières have worked since 1998 on developing a

method for measuring and maximizing partnership value with a view to
promoting a pluralist vision of the corporation. In 1999, Parrat (1999)
published an overview of the various contributions of stakeholders. He
defined value creation as the difference between opportunity costs for the
client and the sum of opportunity costs for partners as a whole (clients,
suppliers, shareholders, employees, directors). In the traditional financial
approach, the value created is equal to the rent received by shareholders.
Partnership value measurement is based on the overall measurement of the
rent generated by the corporation in relation to the various stakeholders
(Charreaux and Wirtz 2006). The authors highlight a form of managerial
slack, or, in other words, an excess representing the leeway enjoyed by the
director in his or her negotiations with various partners. This “slack,” which
is not shared by all the stakeholders, is reinvested or conserved in the form
of liquidities. What distinguishes the pluralist view of Charreaux and
Desbrières from Freeman’s perspective is that Freeman specifically calls for
corporate democracy (Freeman and Reed 1983), while the French
partnership value current is situated in a normative perspective of corporate
governance informed by the objective of guaranteeing the viability of
coalitions favoring wealth creation (Charreaux 1997).

Strategic Models Which Are Not Congruent with

Stakeholder Theory: Michael Porter
Michael Porter’s Competitive Advantage
While stakeholder theorists attempted to make a breakthrough in strategic
management, Michael Porter’s theory of competitive advantage, elaborated
in his books Competitive Strategy (1980) and Competitive Advantage
(1985) was recognized by many managers, consultants and academics as
THE leading theory in the field. Even today, Porter’s competitive advantage
is a dominant model in management strategy, as if all thinking in the field
had come to an end in 1985. Competitive advantage was a development of
the LCAG model (Learned et al. 1965), which gave rise to SWOT analysis
(Strength, Weakness, Opportunity, Threat). In an approach based on the
product-market relationship, Porter asks how a corporation can seek to
achieve a quasi-monopolistic position, thus guaranteeing substantial levels
of profit. In his view, corporations have a permanent objective, namely to
increase their size, and, consequently, negotiating power and economies of
scale by boosting production and thereby decreasing marginal costs. In fact,
the more product the corporation produces, the less the unit cost will be. To
the LCAG model, which diagnoses the corporation on the basis of its
market share and its rate of growth in a specific sector with a view to
managing a portfolio of areas of activity, Porter adds five forces competing
with the SWOT model: (1) rivalry between competitors in the market; (2)
clients’ negotiating power (demand for a reduction in cost price and,
consequently, a reduction in margins); (3) suppliers’ negotiating power
(demand for an increase in sale price and thus a reduction in the firm’s
margins); (4) the threat represented by substitute products, and, (5) potential
entrants on the market. Commentators talk of competitive advantage when a
firm has the capacity to increase its negotiating power vis-à-vis suppliers
and clients and, therefore, vis-à-vis competitors. Nevertheless, this kind of
negotiation is based on a simple dominant-dominated relationship and not
on a relationship between parties who are potentially equal in terms of the
pressure they are able to exert.
In spite of an efficient conceptual framework (the industrial structure
influences the rules of the competitive game and the strategies potentially
available to the firm), the theory has been criticized on a number of
grounds. The environment is presented in a fragmentary manner: only the
industrial structure of the sector in which the firm in question operates is
taken into account, while convergence phenomena between industries are
neglected. Relationships between firms are exclusively competitive, as are
relationships between large companies and small enterprises, and between
clients and suppliers. Porter thus confines himself to the market
environment, or, in other words, to a standard representation based on a
belief in a kind of pure and perfect, monopolistic or oligopolistic from of
competition (Marchesnay 2002).
Stakeholder theory provides a broader vision of the strategic
environment by encompassing factors that are not purely competitive. It
focuses on the articulation between the structural parameters of the macro-
environment and the corporation, while at the same taking into account the
role of institutions, regulations, the emergence of new actors, and the
impact of technological breakthroughs. Above all, stakeholder theory
refutes the idea that relations between competitors are merely hierarchical.
It describes an environment characterized by an increasing number of
relations and, consequently, a potentially infinite number of interactions. To
relations with clients and suppliers are added relations with economic,
political and administrative institutions at various levels. This is why
Freeman (2010) suggests that Porter’s well known value chain should
include the stakeholders who compose it. In this regard, Porter himself
believes in the value of an enriched representation of the strategic
environment no longer exclusively made up of competitors, a viewpoint he
expresses in The Competitive Advantage of Corporate Philanthropy (Porter
and Kramer 2002) and “Creating Shared Value” (Porter and Kramer 2011).
In effect, the concept of “shared value” means implies that the corporation
should meet vital social needs (health, habitat, care, environment) that can
be described in terms of stakeholder theory. It should be acknowledged that
the strength of the theory to which Porter has partially rallied is its emphasis
on the corporation’s dependence on its multiple relations with other entities.
This aspect of the theory differs from numerous currents in strategy and
management for which entrepreneurship is a relatively autonomous activity
(Fig. 2.4).

Fig. 2.4 Competing stakeholder networks (Source: R. E. Freeman and al, Stakeholder Theory. The
State of the Art, Cambridge University Press (2010: 118))

In spite of these rapprochements, it is unlikely that stakeholder theory

will ever be entirely appropriated by the competitive advantage perspective.
Other currents have more in common with stakeholder theory, including the
relational view (Dyer and Singh 1998) and the coopetition model
(Brandenburger and Nalebuff 1995). To paraphrase these last we could say
that: “making the biggest cake is cooperation; sharing it is competition”
(quoted by Desreumaux et al. 2006).
According to the coopetition model developed by Bradenburger and
Nalebuff (1995), competition is compatible with selective cooperative
projects, including, in terms of products, substitutes (substituor) and
complements (complementor) that are relative values. More concretely, in
coopetition, the type of behavior to be adopted in regard to “S”s and “C”s is
a choice (linked to the creation or capture of value). For example, Lancôme
and Estée Lauder are substitutes from the point of view of their customers.
The concept of “S” is more wide-ranging than that of the direct competitor.
The “C”s are firms from whom clients buy complementary products or to
whom suppliers sell complementary resources. This relationship makes it
possible to describe the interdependence of certain sectors, something that
Porter has found it hard to do. Recourse to the concepts of “S” and “C”
makes it possible to identify certain organizations, interdependent vis-à-vis
a given firm, which create or recuperate the value associated with that firm.
The value created is greater than the interactions outlined in the value chain.

Richard D’Aveni’s Hyper-Competition Model (1994–

2010)
To talk about hypercompetition is to describe an economic context in which
competitive advantages such as cost, price, time, quality, technological
advantages, innovation and funding have been replaced by ephemeral and
variable combinations. Richard D’Aveni writes of an “age of temporary
advantage” (2010). “Strategy is no longer based on the construction of
sustainable advantages, but on the art of continually challenging the status
quo: speed and aggression in terms of action taken, multiple initiatives, a
constant modification of the rules of the game and arenas of competition is
the leitmotiv of competitors who spend a great deal of time imitating one
another” (Desreumaux et al. 2006).

Strategic Models Compatible with Stakeholder

Theory
As is by now clear, the emergence and development of stakeholder theory
took place against a backdrop of multiple strategic theories elaborated in
response to the globalization of trade and profound transformations in
private organizations. In the words of Franck Aggeri (2008), an attempt was
made to “regenerate the frameworks of strategy.” The author adds: “To the
different Porterian, post-Porterian and anti-Porterian currents, should be
added approaches to strategy applying a multi-level reading (Pettigrew,
Mintzberg) based on a collective construction of meaning (Weick 1995), or
on an institutional construction of meaning (Desreumaux 2004; Hualt 2004)
implying the in situ application of cognitive resources” (Aggeri 2008).
Some approaches are strikingly congruent with stakeholder theory,
particularly the French current led by Jarniou (1981) and Martinet (1984),
which developed the work of Tabatoni and Jarniou (1975). This current was
pursued by Baron in Quebec (1995). Its advocates’ intention is to
deconstruct the deterministic aspects of corporate policy or, in other words,
to rethink corporate strategy. At the same time, R.E. Freeman (1984) in the
United States, and A.-C. Martinet in France developed the foundations of
an alternative corporate strategy. Another model, this one based on the work
of Edith Penrose (1959), developed by Birger Wernerfelt (1984) and J.B.
Barney (1989) came to challenge Porterian orthodoxy in the 1990s.

The Corporation as a Political System: The

Francophone School of 1980–2009
The Corporation as the Fundamental Unit of Social Organization
A site of production and work, the corporation is a source of creativity and
wealth. It has become common to consider it as a fundamental organization
within society (Hafsi and Martinet 2007; Gomez and Korine 2009; Aymard-
Duvernay 2004) in the same way as other institutions. The fact that external
actors demand that it meets expectations previously associated with the
public good is a symptom of major institutional changes. In effect, the
corporation is located at the heart of displacements of legitimate and
political powers, of the emergence of new organizations which are neither
public nor private (see Part 3). The legitimacy of the sovereign entities that
are the nation-states was long based on the exclusive right to exercise
political authority (legislative, legal and executive) in a given geographical
area or over a give population. This legitimacy persists, but is now
counterbalanced by organizations already located on a level that is at once
regional and international. Thus, international organizations, for example
the European Union, possess some degree of sovereignty due to their
substantial legislative competencies in highly strategic areas such as energy,
the environment, chemicals and agriculture, in which it passes between 60
and 70 % of new legislation To this it should be added that, in most of the
EU, trade is conducted in a single currency, the euro. The erosion of
national public legitimacies can above all be observed in three regards: first,
the development of the activity of international organizations (IOs),
principally those which exist to promote inter-state coordination. As well as
international organization designed to defend the interests of major
geographical regions like the Association of Southeast Nations (ASEAN),
there are also international organizations whose mission is to reduce the
level of global economic disparities, like the EBRD (European Bank for
Reconstruction and Development), the Ibrd (International Bank for
Reconstruction and Development), and the IDB (Inter-American
Development Bank). Second, the development of inter-governmental
organizations (IGOs), for example, the WTO, as well as organizations like
the IFAD (International Fund for Agricultural Development), the IMF
(International Monetary Fund), the ICAO (International Civil Aviation
Organization), the ILO (International Labor Organization), and the
UNITAR (United Nations Institute for Training and Research). Third, non-
governmental organizations (NGOs). Fourth, multinational companies
which are powerful actors, since most political organizations are either
limited to a specific territory (the nation-state) or are under construction.
Moreover, multinationals possess human resources quantitatively superior
to most public administrations of nation-states and their turnover figures are
often higher than the GDP of some countries. We believe that, confronted
with multinational organizations that are over a 100 years old, most regional
organizations are still under development. This is true of the EU. Private
organizations, particularly very large companies, negotiate directly not only
with all these organizations (IOs, IGOs, NGOs), but also with the
individuals who either affect or are affected by them.

The Political Firm

The idea of a political company was very far from familiar, either to
members of the public or to members of the academic community when, in
1981, Pierre Jarniou published L’entreprise comme système politique, which
followed in the wake of the sociologist and economist, Pierre Tabatoni
(Tabatoni and Jarniou 1975). These authors advance the idea of a crisis of
legitimacy of public institutions (Laufer and Paradeise 1982). Researchers
in strategic management, Alain-Charles Martinet in France (1984), and Jean
Pasquero in Quebec (1980, 2008), underline the importance of describing
the social and societal environment. Alongside competitive forces,
alongside the structural variables of change, be they societal (demographic
evolution), political (new regulations), economic (interest rates, exchange
rates), competitive (the impact of new technologies, price variations, new
products), or market-related (new product uses, new markets), an increasing
number of socio-political pressures are emerging in the shape of demands
made on the corporation by specific sectors of society. These last generate
new social costs, generally borne by the corporation’s production activities.
Beyond the Francophone world, other researchers have applied similar
hypotheses and come to similar conclusions (Preston and Post 1975; David
P. Baron 1995, 2006). Baron underlines the importance of non-market
strategies, particularly the 4Is, namely “issues”, or questions to be resolved;
“interests”; “institutions”, or relevant institutional actors; and “information”
to which the corporation has only partial access. Corporate policy includes
lobbying, or efforts by groups of activists to control market opportunities,
as distinct from market strategy, which focuses on the relationship between
products and markets. In this sense, there is a political aspect to strategy
corresponding to the corporation’s political strategies. Thus, while the
corporation is often presented as a technico-economic unit or a local social
organization, stakeholder theory presents it as “an entity in a political
space” (Martinet 1984, 2006). Much more than this, the corporation is
transformed into a specific institution.

Resource and Skills-Based Strategy

While Porter’s competitive analysis was sweeping all before it, a less
deterministic model, focusing on the specificities of the firm rather than on
the sector in which it operated, emerged in the wake of research carried out
by Edith Penrose. This model is based on resources and skills. Instead of
emphasizing growth in terms of size, proponents of the approach focus on
exploiting and intensifying the corporation’s main skills and resources,
leaving other activities to partners or sub-contractors. Resources in this
context include not only human resources, but also raw materials, labor,
capital, equipment, knowledge and market opportunities for products and
services. Resources include tangible and intangible assets possessed by a
firm that enable it to determine its strategy and improve its performance.
Managers must envisage ways of counterbalancing the firm’s dependence
on its resources.
Stakeholder theory is close to Barnay’s model in a number of respects:
first, because it focuses on a sustainable competitive advantage that is not
exclusively constituted by business opportunities; and second, because its
value is based on resources. This unique combination of the firm’s skills
and resources associated with their intrinsic characteristics is at the origin of
competitive advantage. Because skills are rare, they are strategic; they can
only be imperfectly imitated by existing or potential competitors. Such
skills are hard to exchange because they are the result of a long individual
and collective learning process that integrates the knowledge and aptitudes
of individuals, specific kinds of management, values, norms, and the way in
which knowledge is monitored.
In Stakeholder Theory: The State of the Art, Freeman et al. (2010: 95)
recognize that “resource-based and stakeholder perspectives are
complementary rather than competing [even though] the links between
stakeholder theory and the resource-based view have not been adequately
established in the minds of many strategic management scholars.” In effect,
the firm is also dependent on the resources acquired from its stakeholder
network.

The Relational View

Freeman et al. (2010: 108) claim that the relational view is an extension of
stakeholder theory. In effect, Dyer and Singh (1998: 661) underline the
importance of routines and processes in networks as a source of
competitiveness. In this regard, inter-organizational relationships take
center stage. This model is based on research on partnerships, joint-projects
and alliances that can improve performance by reducing costs and risks, as
well as by increasing value for clients. The cooperative relationship takes
the form of a partnership, increasing potential for relations based on
reciprocal trust as a gauge of performance. The relationship is defined by a
collective approach to problem-solving; the sharing of knowledge
(particularly tacit knowledge); the reduction of uncertainty associated with
business relations; the development of a common language; the acceptance
of routines reducing transaction costs; and the shared quest for a
satisfactory price with a view to safeguarding the relationship rather than
focusing on maximizing profits. Negotiation is about more than just the
economic criterion of price. For Freeman too, the concept of the
relationship assumes a strategic aspect, especially when it is associated with
negotiation. In effect, the agendas of company directorates contain issues
which do not concern them directly, but on which they are asked to express
their opinions: questions of a socio-political order encompassing issues
such as the status of minorities (recruitment, skills and career development),
ecological movements, the decline of unionism, and the legitimacy of
negotiations. To this can be added the emergence of new actors, as in
Brandenburger and Nalebuff’s model. Stakeholder theory could be applied
to substitutes (substitutor) and complements (complementor), thus
relativizing the importance of central actors.

Impact of Stakeholder Theory on Strategic Marketing

and Research in Negotiation
In strategic marketing, the notion of the dependence of the corporation on
its environment has not escaped the attention of researchers active in the
field who deal with the multiple links between the firm and its customs,
suppliers, manufacturers and distributors (Kotler 2005). A number of
marketing researchers take an interest in stakeholder theory (Roper and
Davies 2007; Miller and Lewis 1991). The corporation creates value not
only for itself, but also for specific clients, whose expectations and the
levels of performance required to satisfy it attempts to define. The value
created by the corporation is derived from the modification of its initial
strategy and the emergence of a degree of empathy between prospects and
clients on the one hand, and the brand on the other. Christopher et al. (1991)
describe a six markets framework (the customer market, the referral market
– or, in other words, the market of consumers recommending the
corporation –, the influence market, the supplier market, the recruitment
market, and the firm’s own internal market. Whatever the case, thanks to
this new approach, the corporation has more options at its disposal and
more opportunities to create value (Colla 2011). Nevertheless, stakeholder
theory is used in other ways in marketing, for example to analyze customer
resistance and develop strategies to take it into account (Holt 2002; Heath
and Potter 2004; Roux 2007).
The vast field of negotiation associated with management research
(international strategy and management, strategic marketing, human
resources), as well as political science and the sociology of politics, also
bear witness to the theory’s robust character. In effect, if stakeholder theory
aims at consensus, why bring up issues, rights and interests? In short, why
negotiate? It has often been suggested that stakeholder theory avoids the
idea of conflict by positing a necessary conciliation between market and
society. Although a number of studies on negotiation focus on joint research
on mutual gains (the Harvard School), the diversity of approaches to
negotiation and their applications (in international relations, political
science, social relations, sales management, law and psychology) suggests
that research in negotiation would considerably enrich the theory.
Such a development would shift the emphasis from an integrative
perspective (integrating stakeholders) to a generative one (Thuderoz 2010).
In effect, for many researchers, conflicts – considered as interactions – can
be either constructive or destructive (Senghaas 1973; Krippendorf 1973).
Indeed, serve to differentiate various positions, intentions and interests
(Fisher and Ury 1981; Susskind 2000).

Conclusion
The advocates of stakeholder theory have always claimed that its origins are
to be sought in strategic management. In this section, we have examined the
most important currents in the discipline, both those with which stakeholder
theory has a number of affinities, and those with which it is not congruent.
Some of these currents are seen as extensions of the theory, while others are
regarded as complementary to it. Indeed, some authors, for example Sachs
and Rühli (2011), see the theory as a new paradigm in strategic
management that redefines the corporation and the organization (Post et al.
2002). In entrepreneurship, it is possible to demonstrate that activity is not
only dependent on groups or individuals, but also on rules implied by
legislation and norms. In this regard, stakeholder theory is similar to neo-
institutionalism.
In order to enter this paradigm, it is necessary to move beyond an
exclusively economic model based on the maximization of profit and take
into account the wealth, diversity and complexity of the social dynamics
surrounding and affecting the corporation. In this sense, stakeholder theory
is congruent with the view of Gioia and Pitre (1990), for whom strategic
management is deployed in a multitude of perspectives. Far from being an
obstacle to the measurement of corporate performance, stakeholder theory
proposes multi-level performance criteria which presuppose a long-term
vision (Freeman et al. 2010: 117). Nevertheless, for most authors associated
with the theory, the integration of stakeholders implies a cognitive
revolution in the corporation and its structure (Gersick 1991), as well as in
its instances of governance, and its decision-making and learning processes.

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© The Author(s) 2016
Maria Bonnafous-Boucher and Jacob Dahl Rendtorff, Stakeholder Theory, SpringerBriefs in Ethics,
DOI 10.1007/978-3-319-44356-0_3

3. Stakeholder Theory as a Theory of

Organizations
Maria Bonnafous-Boucher1 and
Jacob Dahl Rendtorff2
(1) Full Professor Paris Chamber of Commerce and Industry, Paris, France
(2) Roskilde University, Roskilde, Denmark

There have been so many studies on organization between the 1980s and
2010, borrowing from so many different sources, that it would be vain to
attempt to demonstrate how stakeholder theory has attempted to appropriate
or influence any given model. Nevertheless, 30 years were needed to
jettison the evolutionist notion of the “one best way” in organization
studies, a notion that can be traced from Max Weber to Henry Mintzberg.
Stakeholder theory has contributed to this process of deconstruction. In
effect, systemic approaches (other than Gestalt theory and theories related
to Michel Crozier’s “concrete action system”) have cast the organization,
and particularly the corporation, as an ensemble of independent parties
articulated with a single objective in mind. Thus, the vast majority of
studies produced in the field of organization studies have promoted an
essentialist view of an entity focused on its own mode of functioning,
describing a structure centered on determinants (Mintzberg 1979, 1983;
Mintzberg et al. 1998). In this regard, the objectifiable and finite character
of the organization suggests “a coordinating entity with identifiable
frontiers functioning in a sustainable manner while at the same time
attempting to achieve one or more objectives shared by the participants”
(Robbins 1987). But structure is not appropriate to a fluid (and
fundamentally plastic) conception of the organization based on
stakeholders. Far from being a fortress founded on structural determinants,
the organization is porous. And stakeholder theory dispenses with the
biological and engineering foundations of systemic analysis, reconstructing
the approach on properly managerial and political bases. With stakeholder
theory, the study of organizations turns its attention to the notions of
interest, the negotiation of issues, and the management of more or less
stable relations both within and outside the organization. In this sense, the
organization is a kind of “collectivity sharing one or more common interests
and engaging in shared activities.” It is thus “a coalition of groups with
variable interests which elaborates objectives by means of negotiation”
(Scott 1987).

Stakeholder Theory, a Factor of Change in

Organization Theory
The French tradition of organization theory is generally more closely
associated with the sociology than with the economics of organizations
(Chabaud et al. 2008). It is relatively untouched by the fruitful debates on
organization studies carried out between 1980 and 2000 by economists,
sociologists, psycho-sociologists and linguists, who chose to study the
process of organizing rather than the organization as an entity. However, a
number of research projects have radically altered the field. One thinks, of
course, of the work of C. Casey (2002), of S. R. Clegg (1979, 1981, 1996),
and R. Westwood and S. R. Clegg (2003) not only on rules and monitoring,
but also on the extra-organizational aspects of organizations. One thinks
also of the neo-institutionalism of W. W. Powell and P. J. DiMaggio (1991)
and of W. R. Scott (1995); of the work of K. E. Weick and D. A. Gioia
(1986) on the construction of meaning in small groups; of the work of
Granovetter (1985), Tsoukas and Knudsen (2003), and Brunsson and Goran
(2008) – introduced into France by Dumez (the Le Libellio of the Ecole
Polytechnique’s Management Research Center, 2005–2011) – on
incomplete organizations and meta-organizations; of the work of A. Strati
(1999) on the power of form in organizations; of the work of Nicolini et al.
(2003), for whom organizing is an activity which creates an indissociable
link between doing and knowing. But the French approach to organization
theory sometimes produces an erratic image of itself and tends to focus on
autonomous entities, considering the organization as an ensemble or a
system (an approach which makes it hard to describe complex external
situations). It is hardly necessary to recall that the systemic analysis
inherited from Bertalanffy (1951) and Lussato (1977) describes an
ensemble made up of inter-dependent sub-systems. This approach was used
to emphasize the importance of internal coordination mechanisms on the
structure of the organization (Mintzberg 1979). But in spite of its
remarkable contributions to the discipline, the approach nevertheless
fostered a dichotomy between private and public organizations, and under-
estimated the impact of the internationalization of the economy and
commercial trade on both private and public organizations, and on the
creation of new organizations in the interstices between the public and
private sectors (international organizations, public organizations with a
global vocation). The growth of hybrid organizations combining objectives
of a public and private order has also been under-estimated, as has the
importance of competitiveness clusters operating in regional or national
spheres and informed by global aspirations: exporting innovation from one
country to the rest of the world (Figs. 3.1 and 3.2).

Fig. 3.1 An example of a representation of complexity (Source: R. E. Freeman, Strategic

Management, A Stakeholder Approach (1984))
Fig. 3.2 Stakeholders map of a major oil company in the 1980s (Source: Freeman (1984))

Stakeholder theory veers away from an exclusive emphasis on structural

determinants by embedding the organization within companies and markets
and by temporalizing that embeddedness. Stakeholder theory has the effect
of altering the perspective of organization studies, obliging its practitioners
to take new factors into account, namely, (1). the increasing number of
private and public global organizations; (2). the emergence of hybrid
organizations; and (3). the importance of issues concerning inter-
organizational coordination, agreements, regulations and negotiation.

From Structure to Its Fragmentation: The

Internationalization of Organizations and of Inter-
organizational Relations
In stakeholder theory, the environment is often represented as a core (the
firm) surrounded by a constellation of stakeholders. It is true that the
schematic nature of this representation has come in for a substantial amount
of criticism. But the remarkable thing about such schemas is not that they
identify stakeholders, albeit in an approximative manner, within society.
Since the 1980s, research has no longer focused exclusively on the internal
coordination of manufacturing-type organizations, but has also taken into
account non-hierarchical (network) coordination between organizations
whose missions are international and whose objectives are often very
distinct in commercial, strategic and political terms. However, such
organizations share a common concern: the capacity to coordinate other
entities or other actors in terms of transnational activities. These changes in
scale of analysis are the result of at least three factors: the
internationalization of private organizations; the growing number of
international organizations with a regional or global vocation; and a
profound transformation within public organizations.

The Increasing Internationalized of Firms: From Very

Large Companies to Companies That Are Born
Global
Global trade has led to the development of transnational and multinational
organizations. In effect, most corporate functions are now linked to
international trade. Even very small companies and medium-sized
enterprises have not been spared by this trend toward internationalization:
some companies are now “born global” or, in other words, are located in an
international market from the moment they are first set up. This situation
has engendered new kinds of demands on the part of collaborators,
consumers and all those who are indirectly affected by the activities of these
organizations.
However, the impact of internationalization on organizations, some or
all of whose activities are carried out in global markets, should be examined
from the point of view of the various phases of the process. Some
organizations focus exclusively on export (selling to foreign markets),
others are becoming international (producing and selling in limited areas
abroad), and some are going global (with a worldwide presence guaranteed
by their subsidiaries). These various approaches to the process of
internationalization imply a range of different perspectives on
organizational. Thus, given that export (selling products manufactured in a
particular country in foreign markets) is often the beginning of the process
of internationalization, one of these methods is export focusing on
commercial trade networks. This approach can involve brokers, purchase
divisions, “piggy tracking” (in which firms use the commercial services of
larger companies to sell their products abroad), economic interest groups
active in the export market, and sub-contractors. Legal procedures
(licenses) are also used. In a more advanced phase, agents, customs officers,
franchises, subsidiaries and joint-ventures are often more appropriate.
Subsidiaries can take different forms; they can, for example, be commercial
or integrated. Concessions represent another approach. Delocalization, or,
in other words, the transference of activities to a country other than the one
in which production initially took place, is motivated by a desire to reduce
production costs, be nearer to end consumers and sidestep customs levies.
Lastly, multinationals are situated at the top end of the spectrum of
commitment, control and organization. They produce and sell in the
numerous countries in which they have subsidiaries. They take a global
approach to financing strategy, production and distribution. They harmonize
structures and procedures between countries, optimize localizations by
region, integrate networks by transforming them into internal sub-
contracting systems, and ensure that their IT systems are unique and
centralized. Corporations choose to take this step in order to distribute risk,
create economies of scale (reducing unit production costs by increasing the
size of the production plant), and boost their negotiation potential.
The various actors in a transnational market are confronted by
organizational issues of an entirely different order from those faced by
manufacturing companies in the early twentieth century. Organization
theory, therefore, not only deals with the determinants of internal structures
but also attempts to describe and interpret inter- and intra-organizational
relations, which are often framed within networks and which are not
characterized by hierarchical links.

International Regulatory Organizations with a Global

Vocation
Corporations are not the only organizations to have become
internationalized; many public organizations have taken a similar course.
The International Law Commission (ILC) defines an international
organization as “any organization instituted by a treaty or other instrument
governed by international law and equipped with its own international legal
personality. An international organization can include amongst its members
entities other than states.” International organizations have a legal
personality distinct from that of member states. An international
organization can be an association of sovereign states established by an
agreement, or by an international treaty which defines its status. It is
equipped with an apparatus of permanent, shared bodies. There are two
types of international organization:
– International organizations with a global vocation such as the United
Nations, the International Labor Organization (ILO), the
International Atomic Energy Agency (IAEA), the World Health
Organization (WHO), the European Organization for Nuclear
Research (CERN), the Organization for Economic Co-Operation and
Development (OECD), and the International Organization of Legal
Metrology (IOML). Some have a well-defined geographical field,
for example the European Union, OPEC, the OECD and NATO.
– Non-Governmental Organizations. Currently, there are some 3000
NGOs around the world. In 1996, there were 320, and in 1950, only
100. Private law associations, and, as such, moral entities with an
international scope, NGOs are associations which act in the public
interest without being attached either to a state or to an international
institution.

Public Organizations Undergoing Profound Changes

Public organizations are undergoing profound changes associated with the
management of the public debt. For example, in France, the Incorporating
Act relative to the Finance Laws of August 1, 2001, and the General
Revision of Public Policy (or “RGPP” launched in 2007, and implemented
in early 2009) have profoundly transformed the way in which public action
is organized within structures tasked with non-commercial and commercial
missions carried out in the public interest. Among the bodies impacted are
government administrations, territorial authorities (regions, départements,
communes), public administrative establishments (EPAs), public
establishments of an industrial and commercial character (EPICs), and
private law public commercial enterprises most of whose capital is supplied
by the state.
In addition to these national organizations, public organizations with a
global mission have also emerged – the WTO, the International Criminal
Court, the International Monetary Fund, UNITAR (the United Nations
Institute for Training and Research), and many others. Moreover, there are
also a number of sector-based international organizations working in the
public interest, including the International Development Agency, the
International Fund for Agricultural Development, the International Civil
Aviation Organization, as well as the European Bank for Reconstruction
and Development and its international homologue, the International Bank
for Reconstruction and Development, and the Inter-American Development
Bank. Coordinating organizations such as ASEAN (Association of
Southeast Asian Nations), whose mission is to defend the interests of major
world regions, should also be taken into account. A number of the
organizations listed above did not yet exist at the beginning of the twentieth
century. All of them help define the historical conditions in which
coordinating and regulating mechanisms can be implemented. They also
provide competitive opportunities for the deployment organizational skills.
That is why economists are so concerned with the role of international
economic organizations in inter-governmental cooperation (Jacquet et al.
2002). A common theme of such economists is that the political regulation
of globalization is based on the optimization – based on a distribution of
tasks – of relations between international organizations, with the objective
of developing a political model capable of guaranteeing the efficiency of
inter-governmental institutions. The emphasis of organization theory thus
shifts from the internal analysis of organizations to an examination of
coordination and arbitrage in raw materials markets, and the division of
labor among international organizations.
Stakeholder theory should make it possible to take into account three
major factors in the transformation of organizations: the internationalization
of private organizations; the growing number of international organizations;
and the profound transformation undergone by public organizations.
Consequently, it makes an active contribution to redefining the organization
as an object of study within a broader environment. Thus, in terms of the
concept of the environment, while it is true that states benefit from
globalization, it cannot be said that they control it. Comprises are struck in
the form of public, national, regional and international norms, as well as
private norms. This intertwining of rules is the constant object of flexible
negotiation. And the stability of the international system derives from a
network of international regimes providing a permanent, organized
(although unstable) framework for states. The paradigm of regimes useful
for the analysis of international relations becomes pertinent in organization
theory, with the “regime” consisting in “networks of rules, norms and
procedures that regularize behavior and control its effects” (Keohane and
Nye 1977). Within this framework, stakeholder theory is particularly
appropriate in that one of the major currents of regime theory focuses on
interests. In effect, as Chavagneux (2004) notes, regime theory is
characterized by three major approaches (Hasenclever et al. 1983): (1) the
interest-based approach regimes are the result of the interests of states; they
generate the information required to reduce uncertainty and make
cooperation possible; (2) the power-based approach (regimes result above
all from the relative power of different states and are more stable when one
of those states is in a dominant position); and (3) the knowledge-based
approach (the way in which states define themselves in relation to one
another and determine their interests depends on the normative beliefs and
knowledge of decision-makers).

Organization Theory and Stakeholder Theory

Any examination of organization theory outside France would reveal, to use
the phrase employed by Linda Rouleau (2007), that “heterodoxy is
dominant.” Attempting to take on board the diversity of organizational
situations (local-global, individual-collective, practical-theoretical),
organization theory sometimes takes on the appearance of a conceptual
melting pot or frontier-free field of inquiry. Stakeholder theory accompanies
this pluralist movement. There are clearly a number of tangible elective
affinities between stakeholder theory and neo-institutional theory, and
between the former and a large number of so-called political approaches to
the organization, notably the coalition approach. Stakeholder theory is also
inhabited by two powerful paradigms which emerged in organization theory
in the 1990s: the social construct and organized action.

The Organization as Relation and as Organized But

Unexpected Action
Stakeholder theory seems to express a dynamic conception of the
organization. It does not cast the organizational entity, or at least does limit
itself to doing so. In effect, the impact of stakeholders on the organization
means that it is difficult to reify this last and present it as a finite entity with
stable frontiers. Consequently, stakeholder theory has two notable
paradigms corresponding to its own postulates.

Unexpected Organized Action

In Berger and Luckmann’s The Social Construction of Reality (1966), a
central place is accorded to action and “to context seen as the unachieved
result of an ensemble of interacting phenomena” (Rouleau 2007: 164). The
organization emerges from the complex interaction between pressure
groups, the environment, and past factors (the identity of the organization,
its beliefs, values and the ways in which it has resolved previous problems).
The social contract model because it takes into account dialectical aspects
existing in reality.
In this perspective, stakeholders do not determine the strategy of an
organization by purely and simply attempting to push it in a particular
direction. In fact, the stakeholders’ projects are the result of the interactions
between a complex constellation of phenomena which render the result
random in that intentional action rarely produces the expected results, for
the simple reason that action encompasses opposing external forces. Thus,
results are explained neither by the composition of well identified groups
nor by the characteristics of the environment.

The Organization as Relation

With the notions of interests and issues, stakeholder theory provides the
organization with a multi-faceted representation of itself. The incentive-
contribution model may suffice to describe the organization in relation to its
stakeholders:
“An organization is thus a system of interconnected social behaviors
involving several categories of participants and stakeholders”
(Desreumaux 2005). The organization’s participants, personnel,
partners, shareholders, directors, clients, suppliers, distributors, etc.
receive advantages from the organization (salaries, products and
services against the payment of a price, dividends or interest
depending on the amount of capital invested) in line with their
contributions. This representation combines two major issues that all
organizations have to face: that of acquiring a knowledge of the useful
functions of its members, and that of the skill with which the
organization transforms contributions into products destined to
 generate anticipated profits. There is said to be a permanent tension
between these two dimensions, a tension which is always negotiable:
“we touch here on questions of coordination and the efficiency of the
organization, both internally (the maximization of the output/input
ratio and the minimization of conversion costs) and externally (seeking
out the best negotiating position for obtaining inputs)” [Desreumaux
2005]. The always possible negotiation between knowledge about
stakeholders’ potential usefulness (proximate or distant) and the
transformation of contributions into products encourages a
representation of the organization encompassing a scale of action
ranging from determinism to free will vis-à-vis its environment (Astley
and Van de Ven 1983). Consequently, stakeholder theory orients
organization studies toward strategy, regardless of whether the
organization is considered as being governed by exogenous forces (a
systemic/structural vision), modeled by deliberate and rational choices
(a strategic vision), characterized by a continuous process of
adaptation (natural selection), or, lastly, as acting within the framework
of a network (collective vision).
At any event, relations are not based on a knot of individual
contracts or a relationship between two parties. The corporation is
composed of an ensemble of individuals and of groups that have
formed coalitions or which are in opposition to one another, but which
nevertheless entertain contractual relations. In these relationships, it is
not only the interests of individual parties, but also those of groups that
are decisive. In this regard, stakeholder theory is different than agency
theory (Jensen and Meckling 1976).

Organized Action as Sensemaking

One of the major contributions of Karl Weick’s Sensemaking in
Organizations (1995) is that it focuses on the organizational process rather
than merely on the result produced by specific forms of organization. Thus,
less emphasis is placed on real behaviors, events and structural
determinants, and more attention is paid to meanings, more particularly
equivocal meanings, “equivocacy being the multiplicity of meanings that
can be given to a situation” (Rouleau 2007). Stakeholder theorists have
been able to exploit Weick’s paradigm, and the theory can be applied to an
analysis of convergences and divergences between stakeholder interests.
 Organized action is divided into three phases: enaction; the
interpretation of the real and the attribution of meaning to it (sensemaking);
and the retention of that meaning in the form of schemas which have
become significant (organizational memory).
The stakeholders considered in a real or fictive situation are engaged in
continuous processes in which meaning is created and diffused. In addition
to the creation of meaning, diffusion processes include the act of
influencing other people by communicating one’s thoughts with a view to
gaining their support. It is less uncertainty (incomplete information) than
equivocality (multiple interpretations) which should be examined before
action is taken. Stakeholders create a consonance vis-à-vis the multiple
interpretations available to them. They attribute or impose meaning on
objects, events and what happens to them. These meanings are applied
when it comes to acting and understanding.
If the paradigms of social construct theory and of organized action are
common to organization studies and stakeholder theory, the currents with
which stakeholder theory shares most are, on the one hand, neo-
institutionalism, and, on the other, the so-called political approach to
organizations.

Other Currents Relevant to Stakeholder Theory

The Neo-Institutionalist Current
Stakeholder theory is in phase with what is generally referred to as the
Third Institutionalism. While for the First Institutionalism, that of Philip
Selznick (1957), an organization is different from an institution because it
has to deal with its institutional environment, and for the Second
Institutionalism, that of John W. Meyer and Brian Rowan (1977), an
organization is the result of processes by which actions are constantly
repeated, W.W. Powell and P. J DiMaggio’s new institutionalism (1991)
explains that, since organizations are open, they are faced with a series of
different pressures (coercive, mimetic, normative), which mean that they
often have to negotiate with or even conform to the demands of various
external stakeholders. These three forms of pressure are placed in
perspective by Meyer and Rowan (1977), who interpret the influence of
rules, beliefs and rational myths professed as management rationality. It
nevertheless remains that neo-institutional currents have been criticized on
the grounds of their determinism (Westwood and Clegg 2003) and their
shortcomings in terms of an over-emphasis on environmental structures and
a resultant inability to properly take into account free will (Scott and Meyer
1994).

Political Approaches
“Political analysis is a generic expression for the ensemble of organizational
analyses of the notion of power” (Rouleau 2007). It encompasses
theoretical approaches from the 1960s, including the analysis of coalitions
(Cyert and March 1963); the 1970s, including Crozier and Friedberg’s
strategic analysis; and the 1980s, including strategic contingency theories
(Hickson et al. 1971; Pfeffer and Salancik 1978, 1981). Stakeholder theory
is a major contribution to political approaches for which power is less an
attribute than a relationship.

Coalition Theories and Theories of Strategic Contingency

Three concepts are central to these currents, namely decision, rare
resources, and interests. For Pfeffer and Salancik (1978), power within the
organization is linked to a dependence on rare resources, which confer real
or perceived influence. Pettigrew (1985) analyzes the way in which the
interest groups of the British multinational, ICI, competed for control of
resources and the processes by which change was legitimized.

For strategic contingency and coalition theorists, the organization is a

system whose agents have such a large number of interests, which are so
diverse, that its inherent conflicts threaten to cause chaos and eventually
devour it (Hardy 1985; Narayan and Fahey 1982; Schwenk 1989). The first
postulate of such theorists is that, since individuals have divergent interests,
they employ agents to use their resources to influence decision-making
processes, especially when they are either distant or excluded from them.
The second postulate is that resources are rare (financial resources,
information, expertise, access to decision-makers, networks, etc.) and that,
consequently, potential for conflict is high. In these conditions, some
decision-makers occupy a privileged position. In order to understand how
actors use their resources to achieve their ends and influence decision-
making processes, coalition analysts accord a central role to symbolic and
legitimizing aspects of the processes by which power is mobilized. Such
analyses demonstrate that the power sought by actors generally results from
divergent interests. As Rouleau (2007) has pointed out, coalition analysis
has also given rise to a range of studies on the phenomenon of the
legitimization of power and the processes by which it is mobilized (Astley
and Sachdeva 1984). However, coalition analysis treats managerial power
and dominant coalitions as if they were sovereign within the context of the
organization. Meanwhile, the political analyses of Hardy (1995, 2000) and
Somech and Drach-Zahavy (2002) can be seen, on the one hand, as an
attempt to reconcile analyses of power and strategic change, and, on the
other, as an attempt to take into account the inter-organizational aspect of
networks.

Conclusion
Compared to the multiplicity of analytical perspectives developed in the
field of organization theory between 1980 and 2000, stakeholder theory is
relatively unified. It has manifestly been linked to many currents of thought
by dint of being contemporary to them or by having appropriated concepts
associated with research in the field of organization studies. But systematic
correspondences are still few and far between. It should nevertheless be
noted that stakeholder theory is part of a trend promoting systemic analysis:
it deconstructs the organization by focusing to a larger degree on a dynamic
conception of organized action which produces meaning. Secondly, it
enables researchers to more effectively analyze organizational, and more
particularly, inter-organizational contexts which are increasingly
international. It enriches the concept of the environment at the crossroads
between strategic management and organization theory. In fact, the plethora
of stakeholder maps including employees, clients and suppliers in the
managerial literature and within companies themselves not only suffer from
the drawback of not being applicable to all situations, but discourage
interpretations of the concept of the stakeholder from the perspective of
coalition analysis, strategic contingency theory, relational analysis, the
analysis of the type of pressure deriving from stakeholders or being applied
to them in view of achieving a result, analyses of the common good, and the
framework of negotiation, etc. It should also be noted that stakeholder
theory is linked to all currents of research focusing on factors of
coordination (economics), convention (economic sociology), negotiation
(international relations and political science), and theories of argumentation
(rhetoric and political philosophy).

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© The Author(s) 2016
Maria Bonnafous-Boucher and Jacob Dahl Rendtorff, Stakeholder Theory, SpringerBriefs in Ethics,
DOI 10.1007/978-3-319-44356-0_4

4. Political Philosophy Interpellated by

Stakeholder Theory
Maria Bonnafous-Boucher1 and
Jacob Dahl Rendtorff2
(1) Full Professor Paris Chamber of Commerce and Industry, Paris, France
(2) Roskilde University, Roskilde, Denmark

Because it articulates the existence of economic activities and agents in

both society and the market, stakeholder theory is generally associated with
a value-led approach to management, or, in other words, with business
ethics. It is considered to have made a major contribution to corporate
social responsibility. However, less interest has been taken in its
contribution to social and political philosophy. This chapter examines how
stakeholder theorists question contemporary political philosophy by
focusing on its unresolved issues. In effect, questions such as the social
contract, equality, and social justice are inherent to stakeholder theory.
Consequently, the theory is applied beyond the sphere of its original
management environment to question philosophical categories, while at the
same time acknowledging the differences between one field and another.
For stakeholder theory, the firm is the center; for political and social
philosophy, the construction of public life, of the common good, of the art
of living together has no center, and if one does in fact exist, it has nothing
to do with economic life. This section examines the borders established
between political, social and moral philosophy, on the one hand, and
management science on the other; in it, an attempt is made to highlight the
concept of “porosity” (Bonnafous-Boucher 2006).
The context in which the theory emerges is first envisaged in terms of
the displacement of sovereignty between public and private organizations.
Second, the issue of whether stakeholder theory suggests a new framework
for analyzing civil society or, indeed, provides a substitute for the still
operative Hegelian theory of civil society is addressed. Third, since
stakeholder theory runs counter to the economic idea of a simple contract
between individuals forming a pact defining a form of equality between
parties who deal with each other on an equal footing, it can be said to
propose a broader, more social vision of the contract: a social contract.
Fourth, in the great liberal tradition, stakeholder theory adjudicates on the
meaning of property and deals with the origin of equality, wealth
distribution, and distributive justice.

Conflict Between Institutions and Organizations

A new center of gravity, the corporation presents an alternative to public
sovereignty in the form of economic sovereignty; thus, the equilibrium
inherited from liberal philosophies of the eighteenth and nineteenth
centuries, formerly based on an alliance between a public space organized
and instituted by nation-states and a private space (exemplified by national
civil societies of which corporations are a part) is breaking down.
Stakeholder theory is accompanying changes in a landscape in which public
and private arenas were previously distinct. Stakeholders represent a sort of
globalized civil society engaging in a dialogue no longer primarily
conducted with national public or parapublic institutions but, instead, with
firms active in the global market. Up until now, the dual relationship
between liberal democracies and capitalist systems of production has been
based on a regulating exteriority, that of the rule of law, the guarantor of
civil society’s autonomy.
The gradual displacement of sovereignty’s center of gravity poses the
question of its legitimacy. Can multinational companies act as third parties?
Can they arbitrate between stakeholders? These questions show that
stakeholder theory is situated within a conflict of latent interests between
organizations and institutions, and that it describes power relations between
different organizations. As was mentioned above, numerous organizations
of various kinds now compete with old institutions which once produced
laws and norms and whose mission was to control the activities of private
organizations. Voluntary agreements, notably charters describing
commitments, translate this encroachment on prerogatives which were
previously the exclusive domain of public institutions. This change of
perspective expresses new needs within a framework of action in which, (1)
the distinction between the national and the international is no longer
meaningful (we act within an interior, globalized political sphere) (Beck
2005); and (2) the abolition of frontiers between the economy, politics and
society marks the start of a new struggle between power and counter-power
(Beck 2005) (Table 4.1).
Table 4.1 Understanding business ethics: an extended view of corporate citizenship

Source: Crane A, Matten D, Business and Ethics, Oxford University Press,

2007

From Civil Society to Stakeholder Society?

Stakeholders – the term covers a plethora of actors, individuals, groups,
associations and firms – surely resemble the idea of civil society. The
classical theory of civil society introduced by Adam Ferguson (1767) and,
above all, by Hegel (1821) in his Philosophy of Law, defines society as all
the intermediate groups between the two extremes represented by the
individual and the state. Symmetrically, a stakeholder society would be
made up of all the intermediary groups situated between the individual and
the firm and, more particularly, major companies. Thus, while civil society
is perceived in its relationship with the state, civil society made up of
stakeholders is perceived in its relationship with the corporation. The
question is thus whether stakeholder theory can be presented as a new
theory of civil society. However, an objection can be raised: while in the
classical theory of civil society the state enables members of society to
fulfill their potential for freedom, the corporation asserts its own freedom to
function and develop without the freedom of stakeholders being a necessary
precondition. Moreover, the corporation guarantees neither the rule of law
nor the kind of pluralism necessary for a civil society.

The Hegelian Theory of Civil Society

By defining civil society as all the intermediary groups situated between the
two extremes represented by the individual and the state, Hegel introduces a
separation between the sphere of the organizing state (the political state)
and the sphere of society (the external state), which includes the freedom of
the individual separate from the state but linked to it by positive law and an
awareness of the law. Later, Tocqueville asserted the autonomy of civil
society: a vehicle for political expression, it exerts control over the state by
means of its associative activism. Stakeholder theory reclaims the premises
and developments of civil society by no longer basing the separation
between organization and individuals on the state but, rather, on the
corporation. For stakeholders to be able to form a civil society, such a
society should be thought of as being built on an economic entity rather
than in relation to, but independently from the nation-state, as in the liberal
tradition. This change represents an important turning point in the history of
liberalism and capitalism.

Three Factors of Correspondence Between Civil

Society and Stakeholder Society
Recognizing Particular Interests
The recognition of individual interests in the cornerstone of civil society.
Civil society is characterized first and foremost by the egotistical tendencies
of individuals who seek to satisfy their needs (§182). These individual
interests are concrete, economic and social, for individuals in a modern
society are dependent on collective economic production. Thus, civil
society is a system of inter-dependencies between individuals in regard to
the collective, “where the wellbeing of the individual depends on the
standard of living of the entire community” (Fleischmann 1964). The
descriptive approach to stakeholder theory develops the same hypothesis
since each individual stakeholder represents a particular interest that has to
be taken into account and the aggregation of individual interests can give
rise to a kind of convergence (the convergent approach to stakeholder
theory). The primary principle of civil society is similar to that of
stakeholder theory in that, in both, individuals exclusively seek their
personal wellbeing by means of satisfying their vital interests. But a
superior common good is necessary to ensure that individual interests are
able to co-exist; those interests are socially organized by means of work.
Individual interests are linked to other, broader interests, which serve as
means of achieving individual objectives. Satisfaction depends on the
mediation of others.

An External State, Motor of a Liberal Society

As a state external to the political state, civil society is the basis of
individualistic, liberal society. “In effect, liberal society recognizes the
rights of the individual to procure material goods, and recognizes as an
objective right what the individual feels to be a duty, namely ensuring a
decent standard of living for himself and his family” (Fleichmann 1964).
Rights are identified with duties and the power of individualism is such that
the notion of the common good seems no longer to have any relevance. As
Hegel says, we are faced with a “moral reality lost in its extremes.”
Although the struggle between particular interests is justified (nothing
universal can be achieved by simply suppressing the particular), it is
nevertheless impossible to consider this playing field of interests as the
ultimate objective of civil society. In reality, civil society exerts pressure
and constraints on its members so that they are not merely individuals, but
also useful members of a community based on the universal principle of
work (§§186–187). Individual interest is neither indifferent nor abstract,
and neither are individuals, who define themselves as belonging to a social
category: for example, salaried industrial workers whose interests depend
on their social situation. This is what prompted Hegel to write that “the
family is the first precondition of the state, but class divisions are the
second.” In fact, civil society is accompanied by the emergence of a form of
modern poverty which manifests itself as a mass of individuals
(unemployed workers, peasants reduced to vagrancy, bankrupt artisans)
who are literally déclassés, ejected from the class system (Stande), and who
make up a paradoxical class (Klasse). If civil society is the mother of
modern man, it is also an evil step-mother (§245). Its members become an
aggregate of individualities deprived of the conditions which make it
possible for free individuals to satisfy their legitimate private interests and
their interests as members of a particular class through useful work. But if
this were all it was, civil society would be no more than a “battlefield of
individual private interests struggling the one against the other.” It is here
that we find the roots of the link by which personal interest is attached to
the universal, or, in other words, to the state, whose task it is to ensure that
this link is solid and long-lasting. Whatever the view of modern natural law,
which confuses civil society with the state, individual interest is
fundamental since the social contract, which is the genuine universal
interest, cannot derive from an agreement between calculating, individual
interests. Left to its own devices, the mechanism of the system of needs, the
market, and production for and by the market transformed into class
divisions, is likely to collapse.

The Universalization of Individual Interests

Without positive law and public authority it would be impossible to pursue
individual interests. Civil society perceives the gravity of the threat of the
emergence of a state of nature within civilization, and develops a defensive
strategy consisting of organizing individual interests within the corporation
(in the French sense of the term). The corporation, or, in other words, the
capacity to organize different individual interests, is the embryo of civil
society. The corporation makes it possible for individual interests to emerge
and organize themselves spontaneously, for example in the form of
professional associations, consumer associations, etc. Partial interests are
seen as always already social; they are linked to institutional regularities
and regulations which keep interests at a distance by channeling them into
external, relatively autonomous networks of solidarity. Civil society is thus
a kind of external state.
In civil society, the task of the legal apparatus (Hegel 1820: §208) is to
protect the common good – collective wealth, universal property – against
the arbitrary actions of individuals. The law contents itself with maintaining
the de facto situation created by the economic competitiveness of free men.
The task of law, in civil society, is to protect private property. For Hegel,
capitalism represents the conversion of private property into collective
wealth owned by the entire community. And awareness of the law
corresponds to civil society’s awareness of the economic necessity of what
it wants, or, in other words, of the universal goal by which it is motivated
and which, in turn, it brings to fruition. Otherwise expressed, law and
liberty exactly correspond to the extent that the laws necessary for the very
existence of civil society are produced by the dynamic of the individual
interests of which it is composed. Civil society is thus obliged by nothing
other than itself to become aware of the law. But the process of external
universalization which characterizes civil society is at once its strength and
its weakness. It underpins the constitution of the universal concept of man
as a rational subject with his own needs and interests, who is equal to all
others in that he possesses the same degree of liberty (Hegel 1820: §190).
This liberty defines the individual already determined as a legal and moral
entity.
An examination of factors of correspondence between the classical
theory of civil society and stakeholder theory reveals that of the three
foundations of civil society, only the first strictly corresponds to stakeholder
theory.

Partial Correspondence Between Civil Society and Stakeholder

Society
This examination of the classical theory of civil society demonstrates that
while there are similarities between civil society and stakeholders, the two
categories do not exactly correspond to one another. The old civil society is
not reborn, Cassandra-like, in the form of stakeholders. Of course, like civil
society, stakeholder theory recognizes the co-existence of an infinite
number of individual interests. But the mere existence of those individual
interests does not mean that stakeholders constitute civil society.
1. First objection. An initial objection can be made to the notion that civil
society and stakeholders correspond to one another. In civil society,
interests can be totalized in a universal (civil society itself), but
divergences between interests can only be resolved by positive law
(laws, courts) guaranteed by the rule of law. The descriptive approach
to stakeholder theory does not totalize divergent interests within a
framework encompassing them (even supposing a convergent theory of
divergent interests): unless the indestructible character of all claims by
all direct and indirect rights holders is recognized, stakeholders are
 mere aggregates. In this case, the intrinsic legitimacy of all
stakeholders is legitimate, but it is not totalizable in a regulatory entity
such as the state, complete with a positive law apparatus. The firm
negotiates with stakeholders, but it governs without being able to
totalize the divergent interests of consumers, suppliers, stakeholders
and employees. It can only recognize and prioritize its actions in their
regard: what does a supplier negotiating sale and purchase prices for
his products with a purchasing director have in common with a
consumer complaining about the quality of a product made by a
supplier and sold by a distributor?
2. Second objection. Another objection is that stakeholder theory does not
provide a mediating framework enabling stakeholders to express their
intentions coherently, and, above all, collectively. Individual
stakeholders express their intentions and rights, but corporate social
responsibility is based more on incentives than on real legislation. In
fact, the fragmentation of the law into regional jurisdictions prompted
Powell and DiMaggio (1983) to conclude that firms apply a number of
instrumental approaches to meeting stakeholder expectations. Firms
conform to rules for the following reasons: because they are laid down
by public and parapublic institutions (institutional constraints); because
it is the law (coercive constraints); because professional authorities
oblige them to do so (normative constraints); and, last, because they are
imitating partner companies or competitors (mimetic constraints).
In France, the law of 15th May, 2001 on new economic regulations
made it obligatory, from 2003, for firms to publish annual reports
concerning sustainable development (the annual reports of public
companies include information about how they manage the social and
environmental consequences of their activities). In the United
Kingdom, a law passed in July 2000 states that social, environmental
and ethical considerations must be respected in choices concerning
which types of investment are to be made, how they are to be made,
and over what period of time. However, in order to ensure that the
legislation was respected, it was necessary to set up the Association of
British Insurers in October 2001. In January 2002 in Germany, a law
was passed on social, societal and environmental criteria in the running
of private pensions funds. And in the Netherlands, pension funds have,
 since 2008, been legally obliged to invest 50 % of their capital in CSR
companies.
In July 2000, the UN published the Global Compact, a reference
work in terms of respecting shareholder expectations, the aim of which
was to define a framework for corporate social responsibility. In 1977,
the International Labor Organization (ILO) published a tripartite
declaration of principles on multinational companies and social policy.
The declaration was revised in 2000. However, it is a question here of
incentives rather than real laws. Nevertheless, although it is in the
interest of companies to satisfy their stakeholders, it is not a vital
necessity unless the firm takes on board the notion posited by
stakeholder theory that it is dependent on certain relationships without
which it could neither survive nor prosper. But the use of ratings
systems, be they declarative or solicited, seems to be a normative
method of constraint more effective than incentives.

3. Third objection. The intentions and interests of stakeholders are not

manifested in specific categories, or what Hegel terms “classes.” The
very possibility of social categories raises substantial methodological
questions. Thus, the identification of stakeholders is a recurrent
problem for advocates of the theory. If we (1) precisely identify
stakeholders influencing or being influenced by the activities of an
organization; (2) or if we also take into account the embeddedness of
the firm and, consequently, the way in which stakeholders are
articulated between moral persons, public interests, individuals and
groups of individuals; (3) if we discern the intentions of those parties;
and (4) if we take into account the specific, historical framework in
which the theory is deployed (an unusual type of capitalism, at once
salaried and asset-based), then we will be able to describe the
composition of the globalized stakeholder society and better understand
how the firm deals with stakeholders it assimilates to a national or
globalized civil society. The future of the theory, as well as its unity, is
linked to its capacity to adjudicate on this third objection.

Stakeholder Theory and the Social Contract

The notion of a form of civil society based on stakeholders working in
tandem with multinational companies rather than with the state should be
placed, once again, in the context of 1980s America. Some authors have
steered stakeholder theory in the direction of a theory of generalized agency
(Hill and Jones 1992). From our point of view, stakeholder theory is
dissimilar to agency theory because it attempts to build, from the
foundations up, a social contract rather than a contract between individuals.
The dominant current of the theory of the firm views social relations as if
society were organized by means of transactions between individuals and
institutions (Williamson 1985). This current is based on the sources of
American liberalism described in the Declaration of Independence of 1776
which casts democracy as the fruit of a natural contract between
individuals. The idea is relatively dissimilar to the social contract in that it
presupposes that, (1) relationships are the primary form of social contract
for which a legal contract is not required; in that, (2) the social contract is
different from the kind of contract signed by two parties; and in that it
stipulates, (3) an arbitrage between contracting parties or a guarantor of the
social contract which does not have the same status as the contracting
parties (particulars, members, individuals).

A Non-social Contract: The Firm as a Network of

Contracts
The theory of the firm is associated with the institutional economics and
transaction costs current (Williamson 1985; Aoki et al. 1990). It is
dominated by a conception of the contract which militates against the
possibility of a social contract in the full sense of the term. In institutional
theory, the contract is a network of contracts struck between individuals and
organizations (the salariat) or between organizations and other
organizations (supplier-client relationships). Since all transactions involve
costs (time, gleaning information on potential partners, etc.), opportunities
for contracts are dependent on costs inherent in transactions. The lower the
costs, the greater the pertinence of the contract. Williamson’s major
contribution is to postulate that the corporation (as an organization) is more
economic in terms of transaction costs than the market, in which agents
meet by chance in function of business opportunities. The organization-
corporation thus possesses several advantages over the market: (1) thanks to
its structure it has the capacity to draw up a contract and ensure that it is
respected over the long-term, or, in other words, beyond a single
transaction; (2) the raison d’être of such a structure is to minimize
transaction and production costs (several transactions between partners can
be carried out at one time). The advantage of the contract is that it defines
the manner in which it is to be respected (although, of course, uncertainty
regarding the behavior of the partners persists); (3) its essential advantage is
that, although it is not possible to predict all possible outcomes and the kind
of adaptations that will be required, the contract, at least to some degree,
reduces uncertainty. In effect, opportunistic behaviors are always possible
and conflicts can emerge over time. Even if it is contested by stakeholder
theorists, this conception of the contract is an integral part of the approach
in that it considers multinationals to be on an equal footing with
stakeholders – free will to free will – with the two parties united by shared
or divergent interests. It is as if a corporation were to strike contracts with a
group or with isolated individuals. But a social contract cannot be based on
an individualized civil law contract. For those interested in the plausible,
non-fictive character of a social contract and in the contemporary
foundations of such a contract, an analysis of the internal contradictions
inherent in stakeholder theory is, in this regard, a necessary task.

Stakeholder Theory’s Social Contract: An Alternative

to the Theory of the Firm
The Propositions of Donaldson and Dunfee
Between 1980 and the late 1990s a number of attempts were made to apply
the notion of the social contract to the fields of management science and
business ethics. In Corporations and Morality (1982) Donaldson sketched
out the terms of an agreement between the firm and society. In the same
year, Norman E. Bowie wrote a book entitled Business Ethics which
examined the possibility of a social contract. In La morale par l’accord,
Gauthier (1986) advanced the idea of a hypothetical agreement, the
cornerstone of a collective morality based on individual economic interests.
In 1988, Michael C. Keeley proposed “A Social Contract Theory of
Organizations” which, while veering away from a strict interpretation of the
social contract, presented a view of the corporation as “as series of contracts
which serves as ways of reaching agreement about social rules.”
From Contractual Agreement to the Social Contract
The most successful transposition (and also the most faithful to the
philosophies of the social contract) is that of Dunfee and Donaldson
(Donaldson 1982, 1989; Dunfee 1991; Donaldson and Dunfee 1995, 1999).
For the authors, the social contract is a kind of metaphorical glue – “ties
that bind”, according to the title of their book.

Like Rousseau and Locke, the authors regard the social contract as being
supported by a form of pre-existing sociality. While the idea of a sociality
existing before the contract is difficult to grasp, it is nevertheless the source
of social theories of the contract. Faithful to the tradition of the
contractualist philosophers of the Enlightenment, Donaldson and Dunfee
present pre-contractual social relations as the basis and preliminary of the
real contract, a kind of metaphorical “handshake” (1999). This notion
enables the authors to highlight the fictive status of the contract: “If the
contract were something other than a ‘fiction,’ it would be inadequate for
the purpose at hand, namely revealing the moral foundations of productive
organizations.” It is useful to assume this fiction and the implicit agreement
between stakeholders as the foundation of liberal societies: “The social
contract is a powerful image which supports all forms of democratic
government. In order for it to do so, we call upon a mythical agreement
which provides legitimacy to a wide range of laws and institutions”
(Axelrod 1986). In this vein, stakeholder theory “models” social contract
theory and provides the pre-conditions for an agreement. Just as
contractualists elaborate the ideal conditions of government in order to
replace monarchy with a rational representative political system, in the
business world some conditions are more equitable than others in terms of
creating productive organizations and conducting trade. These more
equitable conditions are expressed in a maxim: “Corporations should be
able to do business, use natural resources and own shares, in exchange for
which they should have ethical obligations toward all members of society”
(Donaldson and Dunfee 1999). Thus, any profits taken should not outweigh
the inconveniencies caused to members of society. However, it should be
noted that the parties to the contract are rational, autonomous people who
have given their consent freely and who have economic and political
preferences. Donaldson and Dunfee even suggest that “hypernorms,” or, in
other words norms by which individuals are governed, make it possible to
judge the actions of contracting parties. They apply the ideas of Charles
Taylor (1989), for whom the greatest good is justice, and of Michael Walzer
(1992), for whom there are nine basic criteria which render life in society
possible, including the interdictions to kill, torture, oppress, and so on.
This initial level of sociality precedes the real social contract by which
agreement is underpinned. However, some authors, like Kim Lane
Scheppele (1993), do not believe that implicit consent is possible and
question the likelihood of everyone having equal knowledge of and equal
access to the financial markets (one thinks of the sub-prime market crisis of
2008).

The Integrative Theory of the Social Contract

Donaldson and Dunfee have extended social contract theory to the
corporation. Since “corporations are based on an ensemble of relationships
and implicit moral obligations, this micro-social contract mirrors, at a
smaller scale, involving fewer participants, the general social contract”
(Cazal 2011). Distancing themselves from the both the classical social
contract and the social contract as defined by Rawls, the authors have
developed what they refer to as Integrative Social Contracts Theory (ISCT).

Integrative Social Contracts Theory juxtaposes the macro and micro levels.
While the macro level reflects a hypothetical agreement between members
of the community, the micro level bears witness to a real agreement
between professions and/or trades and/or activities categorized into around
forty different communities. This is how lobby groups are constituted with a
view to developing ethical norms and principles for individual professions
(lawyers, accountants), and how they are backed up by other political or
economic networks (the European Community, the United States, federal
states), industries (chemicals, software manufacturers), corporations
(Canon, Microsoft, United Way of America), organizational units (human
resources departments), and informal communities within organizations
(networks of female managers, networks of Afro-American managers).
There is no doubt that ISCT renders plausible a minimal level of agreement
between individual interests which are, in many ways, divergent. It should
nevertheless be observed that the institutional context of this social contract
is very different from that of contractualist political philosophy in both its
classical (Hobbes, Locke, Rousseau) and contemporary (Rawls) versions. It
is informed by a crisis of the nation-state. A number of questions arise: will
this kind of contract enable firms to form a “pact” with non-shareholders by
creating a framework for dialogue and deliberation in which the
expectations of non-shareholding stakeholders, who are subject to the
activities of the firm, are taken into account and met? Donaldson and
Dunfee’s response to these questions is normative. They stipulate a kind of
implicit contract between the corporation and society where the corporation
has obligations to society which, in turn, has the right to monitor the
corporation; however, they do not call into question stakeholders’ capacity
for arbitrage. In effect, Donaldson and Dunfee return to an idea of the social
contract based on a more detailed description of society than the one
proposed by stakeholder theory, which describes a more fragmented reality.

The Social Contract: From Rhetoric to Reality

Stakeholder theory offers a framework for reformulating the social contract.
However, a number of objections can be raised in this regard.
The main objection is that, without a body tasked with regulating
individual interests, there is a substantial risk that shareholders will lose all
form of unity; unless a pact between stakeholders and corporations of the
kind suggested by Argandona (1995) is implemented, the social contract is
no more than a mirage. But let’s, for a moment, imagine an extreme case of
major risk in which the contract implies that impacts should be shared on a
societal basis (large-scale pollution, for example). Let’s also suppose that,
on the one hand, there is an agreement between stakeholders, and, on the
other, between stakeholders and the corporation. Who would be the
legitimate arbiter in such a case? After many false starts, classical political
philosophy opted for two solutions. One consists in an abnegation of
decision-making powers in favor of a beneficiary third party (Hobbes); the
other encourages the people to strike a contract with itself (Rousseau). The
second solution guarantees the viability of the social contract based on the
equal reciprocity of the partners. A pact is struck in which the collective,
considered as an individual person, concludes a reciprocal agreement with
all its individual members. This idea pre-supposes that the sovereign is “a
collective, moral body” whose subjects are its members. Thus, “the social
contract needs no other guarantor than the collective will, because harm can
never come from individuals.” (Rousseau: 1762a, V; 1762b, I, 7). In the
absence of any common superior instance, the only guarantor of the
commitment of the citizens to the collective is public force. “The
fundamental pact tacitly includes this commitment, which alone can give
strength to all the others, since whomsoever refuses to obey the general
will, will be constrained to do so by the whole body.” (Rousseau: 1771, I, 3;
1762b, I, 7). The result is identical to the one described by Hobbes’s theory:
the sovereign instance is the only judge of the execution of the contract and
disposes of absolute power over all the members of the community.
Strangely, this notion is not to be found in any of the currents of
stakeholder theory, nor does it feature in business ethics. The contractual
proposition is a kind of “soft law” which does not constitute an alternative
to neo-institutionalism. In effect, business ethics stipulates an implicit
contract between the corporation and society; the corporation has
obligations to society, which, in turn, has the right to monitor it. But it is as
if business ethics were more concerned with being recognized than with the
response to its demands. Such is the distinction affected between corporate
social responsiveness and corporate social responsibility (Caroll 1979).
Corporate social responsibility consists of “addressing one’s obligations to
society; it encompasses all categories of economic, legal, ethical and
discretionary performance.” Corporate social responsiveness, meanwhile,
consists of “taking into consideration the fact that society makes certain
demands which organizations have to meet” (Wartick and Cochran 1985).
In the first case, the corporation shares values with stakeholders; in the
second, the corporation is the receptacle of societal expectations. Evidently,
the notion of a social contract encompasses both approaches.

The Relevance of the Social Contract to Stakeholder

Theory
Because it highlights the origins of inequality in contemporary capitalism,
stakeholder theory contains a form of social contract (which is not a
contract between individuals) and attempts to establish principles of justice.
The concretization of these principles is affected in an alternative model of
corporate governance and through representative bodies seeking, among
other things, to smooth out inequalities between owners and non-owners
within the framework of the pure contractualist filiation of Rousseau’s
Discourse on the Origin of Inequality (1755), which prefigures The Social
Contract (1762b).
 Stakeholder theory deals with the distinction between those who hold
shares and those who do not. From this distinction arise disparities that have
never been resolved other than by a redistribution of profits from
shareholders to non-shareholders who have either directly or indirectly
contributed to the activities of the firm. The social contract hypothesis
returns to the source of human inequality. The purpose of a social contract
is to escape from the origins of inequality. Two hypotheses present
themselves. The first corresponds to the idea of creating an equilibrium
between the parties, or, in other words, between owners and non-owners. In
this case, stakeholder theory focuses on extending shareholder rights to
everyone. The second tolerates a constitutive inequality within society and a
given mode of production if, and only if, that inequality does not prevent
stakeholders from exercising their fundamental freedoms; if, in other words,
that inequality is consonant with the idea of freedom as a primary,
inalienable value, comparable to other societal values.
The first hypothesis corresponds to the idea of creating an equilibrium
between stakeholders and shareholders by increasing the property rights of
the former (Bonnafous-Boucher 2004; Bonnafous-Boucher and Porcher
2010). By applying the second hypothesis, termed “tolerated inequality,”
stakeholder theory highlights a disparity between shareholders (who take
profits for themselves), and non-shareholders (who take no profits
whatsoever but who are subjected to the activities of the firm and who often
participate in them). This second hypothesis is directly linked to Rawls’
second basic principle of “tolerated inequality,” but the philosopher’s
responses to economic and financial disparities are only briefly evoked. The
Rawlsian principle of equity is more concerned with the social than the
economic circumstances of justice. In reality, socio-economic inequalities
and the ways in which they could, potentially, be corrected are, essentially,
considered in two circumstances, namely in conditions in which equitable
equality of chance exists, and in the quest to ensure that the least well-off
members of society receive the greatest benefit.
In the final analysis, stakeholder theory’s major realistic contribution to
political philosophy is to have risen to the challenge of a theory of justice
by emphasizing the democratic instances of corporate governance. In sum,
stakeholder theory seeks to establish an equality between shareholders and
non-shareholders by encouraging shareholders to strike a balance between
individual profit and the good of civil society as a whole.
Conclusion
Stakeholder theory examines the displacement of traditional sovereignties
towards other forms of institutional legitimacy. Taking into account the
upheavals of the institutional landscape, the theory requests that the global
corporation contribute to the elaboration of the common good as the public
good. This poses a major problem in terms of arbitrage and legitimacy,
especially if, following certain authors, it is stipulated that corporate social
responsibility provides the platform for a new kind of social contract.
From the perspective of stakeholder theory, the task of developing the
common good is complicated by a major issue, namely the origins of
inequality and the possibility of redistributing wealth (distributive justice)
between shareholders and non-shareholders. Serious efforts are now being
made to deal with this question by means of participative forms of
corporate governance and its democratization.

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© The Author(s) 2016
Maria Bonnafous-Boucher and Jacob Dahl Rendtorff, Stakeholder Theory, SpringerBriefs in Ethics,
DOI 10.1007/978-3-319-44356-0_5

5. Stakeholder Theory and Ethics

Maria Bonnafous-Boucher1 and
Jacob Dahl Rendtorff2
(1) Full Professor Paris Chamber of Commerce and Industry, Paris, France
(2) Roskilde University, Roskilde, Denmark

Ethics: Justice, Equality and Fairness

With its normative underpinnings, stakeholder theory can be thought of as a
philosophy of corporate or business ethics. Indeed, if we go back to its
Scandinavian origins, to Rhenman and others in the 1960s, we find that the
concept of the stakeholder has been subject to a constellation of normative
and ethical questions. During this period, the idea developed that the notion
of the stakeholder should be used to democratize business ethics, as the
foundation stone of a more just and responsible corporate world. In the
same way, the interest in corporate social responsibility mirrored the vision
of the German unions of 1970–1980, with stakeholders participating in the
management of the firm. Basically, business ethics has always been linked
to the philosophy of stakeholder theory.
This normative and ethical approach to business gave rise to the theory
of business ethics develops by Donaldson and Dunfee. However, as is
demonstrated in this chapter, this is not the only way of linking business
ethics to stakeholder theory. For example, business ethics can be considered
from the point of view of the political philosophy of John Rawls. This
perspective is not reducible to a description of the firm’s stakeholders, but
encompasses a reflection about the foundation of deliberation since it
concerns a specific manner of choosing between different opinions held by
the stakeholders themselves.
The Rawlsian perspective suggests an instrumental, strategic approach
that elaborates an ethical theory justifying the use of a given strategy, while
respecting the foundations of the theory. In effect, ethics determines the
values supporting stakeholder theory strategy. It should be added that there
is an intrinsic link between corporate social responsibility and the ethical
model provided by stakeholder theory. This link presupposes the possibility
of justice between stakeholders. We shall begin by discussing the main
justifications for stakeholder theory before outlining a concrete version of
this normative theory based on the notion of stakeholder responsibility
developed by Robert Phillips and R. Edward Freeman. We shall then take a
critical look at the limits of the notion of the stakeholder from the
perspective of the philosophy of deconstruction developed by Jacques
Derrida and Jean-Luc Nancy. A critical analysis of the foundations of the
ethics of stakeholder theory demonstrates how the concept of the
stakeholder community is based not only on the idea of justice and the
notion of ideal communication, but also on the idea that the question of
power and conflict can never be resolved in a normative stakeholder
philosophy (Table 5.1).
Table 5.1 Clarkson’s principles

Principle Managers should acknowledge and actively monitor the concerns of all legitimate
1 stakeholders, and should take their interests appropriately into account in decision-
making and operations
Principle Managers should listen to and openly communicate with stakeholders about their
2 respective concerns and contributions, and about the risks that they assume because of
their involvement with the corporation
Principle Managers should adopt processes and modes of behavior that are sensitive to the
3 concerns and capabilities of each shareholder constituency
Principle Managers should recognize the interdependence of efforts and rewards among
4 stakeholders, and should attempt to achieve a fair distribution of the benefits and burdens
of corporate activity among them, taking into account their respective risks and
vulnerabilities
Principle Managers should work cooperatively with other entities, both public and private, to
5 insure that risks and harms arising from corporate activities are minimized and, where
they cannot be avoided, appropriately compensated
Principle Managers should avoid altogether activities that might jeopardize inalienable human
6 rights (e. g., the right to life) or give rise to risks which, if clearly understood, would be
patently unacceptable to relevant stakeholders
Principle Managers should acknowledge the potential conflicts between (a) their own role as
7 corporate stakeholders, and (b) their legal and moral responsibilities for the interests of
all stakeholders, and should address such conflicts through open communication,
appropriate reporting and incentive systems and, where necessary, third party review

Source: Rendtorff (2009)

Clarkson’s principles are an illustration of a highly ethical and

normative approach to stakeholder governance as a communicative,
deliberative model of international management. The principles are as
follows: “While multinational companies develop their activities and
reciprocal links, managers and their critics seek principles of action that
transcend national borders and cultural values; multinational companies
attempt to develop a sustainable approach to achieving the firm’s general
objectives while avoiding conflicts associated with different human and
social norms.”

From the Ethics of Discussion to Deliberative

Rationality
It can legitimately be considered that a vital part of the normative approach
inherent in stakeholder theory derives from Jürgen Habermas’s deliberative
ethics of communication. In this perspective, all ideas are assessed in terms
of their rational scope, and it is thanks to this scope and the ground that it
covers that all partners in the dialogue can trust one another. The objective
of dialogue, which is based on a democratic process of deliberation and
discussion, is to create a consensus about the ends and objectives of the
organization (Rendtorff 2009).
From a normative point of view, it would appear that the values of
social dialogue are essential for promoting negotiation within organizations
and guaranteeing equitable relations between stakeholders. In effect,
dialogue between stakeholders goes beyond traditional dialogue with social
groups still constituted for the most part by unions.
Negotiations between employers, unions and social groups are
sometimes conflictual. But the way in which negotiation works differs
widely from country to country, depending on legal traditions. Examples of
different approaches include neomanagement, participative management,
and employee driven innovation (Høyrup et al. 2012). Stakeholder theory
introduces a change of emphasis from a focus on previously dominant
institutional entities to entities previously thought of as secondary. In effect,
stakeholder theory involves an integration of entities that are distant from
the concrete life of the firm, ranging from bodies ruling on working
conditions to decision-making bodies touching on corporate governance.
In the final analysis, the management rationality of stakeholder theory is
a kind of deliberative, practical rationality in which discussions concerning
management and governance invite the opinions of stakeholders,
representatives of the general interest, rather than just individual interests.
The ethics of discussion and deliberative rationality introduce a concern
with democratic principles within the organization to the degree that they
are informed by a participative approach (Rendtorff 2009). Nevertheless, in
terms of ethical principles, this ideal is not always respected. Examples of
this include forced participation in dialogue and the ideological use of
management-based values. In such circumstances, stakeholder theory is
turned inside out, transformed into a disciplinary technique applied as a tool
of legitimization (Fig. 5.1).
Fig. 5.1 Vision of ethical corporate management by stakeholders (Source: Rendtorff (2009))

The Paradox of Stakeholders in Business Ethics

There are three models of the deliberative conception of stakeholder theory:
Jensen (2001); Goodpaster (1991); and Solomon (1993; Bowie 1999; Ulrich
2008; and Rendtorff 2009).
For Jensen (2001), father of agency theory, the corporation has one, and
only one objective, namely to create value for shareholders, which, in the
end, creates value for society. For the author, the objectives of shareholders
and stakeholders are not mutually exclusive. The same kind of pragmatic
approach is to be found in the work of the economist, Milton Friedman,
whose position was similar to Jensen’s, and who claimed that “the social
responsibility of business is to increase its profits.” The underlying meaning
here is that there is a potential convergence between the interests of the
shareholders and stakeholders of the firm (Wheeler and Sillanpää 1997: 33).
For Goodpaster, the pluralism inherent in stakeholder theory reveals a
paradox – the “Goodpaster Paradox” – in that it encompasses the divergent
interests of both shareholders and stakeholders. He resolves this paradox by
stipulating the need to find a convergence between the interests of both
parties. According to the author, the firm is a tool at the service of
shareholders, which also has the obligation of serving the interests of
stakeholders by means of an ethics of social responsibility.
R. Edward Freeman often highlights the pragmatic dimension of
stakeholder theory, claiming that its objective is to find the best solution for
everyone in spite of the different interests of the various stakeholders. From
the point of view of long-term profit, stakeholder theory can be thought of
as a pro-shareholder theory, since the emphasis on the needs of all
stakeholders guarantees the organization’s stability and survival.
Robert Solomon (1993), Norman Bowie (1999), Peter Ulrich (2008),
and Jacob Dahl Rendtorff (2009) conceive of the firm of an organization
whose ethical objective is to increase the wellbeing of both itself and the
individual. When efficiency, rational care of the self, and strategy are based
exclusively on individualism, they cannot guarantee, in the long-term, the
economic growth of the corporation. These authors suggest an ethical and
philosophical conception of the organization that is not located in an
instrumental paradigm.
Stakeholder Theory and the Common Good:
Contrasting Conceptions
Taking inspiration from Aristotle, Robert Solomon (1993) asserts that an
organization that takes every stakeholder into account creates a shared
existence and, thereby, renders possible the common good. The idea
underpinning the common good is that it is possible to define a common
objective, encompassing all interests in order to form a unified vision of the
“good life” in the Aristotelian sense. From this point of view, stakeholder
theory is a way of integrating such interests into a shared culture (Solomon
1993).
On the other hand, Norman Bowie (1999) argues in favor of an
approach to stakeholder theory based on Kantian universalism. Reflecting
on and organizing stakeholder communities is less important than thinking
of them in terms of their global relations, or, in other words, in terms of the
universal rights of all stakeholders. For Bowie, business ethics follows
Kant’s ethical principles, namely the categorical imperative, the foundation
of the German philosopher’s morality. An action is moral if it can be
applied as a universal law and if it treats human beings as ends rather than
means. The precondition of such an action is a respect of human dignity.
The ideal of the moral law is the realm of ends in themselves (Bowie 1999).
This position can be compared to the concept of corporate citizenship,
which finds its roots in the Kantian and republican theory of the duties of
the firm in society in regard to its stakeholders (Fig. 5.2).
Fig. 5.2 Stakeholder management and corporate citizenship. The figure illustrates the close link
between values, ethics and social responsibility in the strategic development of CSR (Source:
Rendtorff (2009))

From this point of view, stakeholder theory is evaluated according to

rules of practical reason based on universal norms. The Kantian approach
presupposes both a critique and a delimitation of the concept of the
common good in the Aristotelian sense in that, for Kant, the idea of the
“common good” can never be realized, since a consensus on what is livable
is dependent on the views of discrete individuals.
Kant’s approach to society is closely linked to the concept of
deliberation and communication with stakeholders. In this context, attempts
to structure deliberation according to the principles of the categorical
imperative imply that actions must respect moral obligations and that moral
law must underpin all decisions taken in the deliberation process.
Stakeholders are considered as entities with their own dignity which must
be respected as ends in themselves in terms of their existence in society.
Bowie’s Kantian perspective provides stakeholder theory with universalist
foundations similar to those of the Habermasian ethics of discussion and
deliberation. This notion is foreign to the communitarian vision of the firm
defined as an ensemble of stakeholders encompassing convergent and
divergent interests both internally and with other, similar, group.
 Directly linked to this Kantian conception, a republican perspective
seeking to integrate ethics and stakeholder theory seems viable. This
approach is based on the republican, or democratic ideal of citizenship as
applied in the form of “good corporate citizenship” (Ulrich 2008; Rendtorff
2009). From this perspective, in societal terms, the firm not only has rights,
but also obligations. Consequently, the legitimacy of the firm is determined
by its ethical governance and the responsible management of its obligations.

Equity and Justice as Management Principles: Robert

Phillips and John Rawls
In Stakeholder Theory and Organizational Ethics (2003b), Robert Phillips
proposes an interpretation of stakeholder theory based on the moral and
political theory of John Rawls (1971). The concept of justice as equity – or
fairness – is the foundation of the notion of ideal, democratic and legitimate
citizenship, a notion that can be applied to the economic sphere. From the
point of view of economic activities, “ideal” means that citizenship of an
organization is, first and foremost, to be understood in terms of care of the
other rather than care of the self; in effect, applying the principles of social
responsibility to oneself improves one’s own competitiveness; “legitimate”
means that the firm’s behavior is moral and that it displays a degree of
principle-based tolerance in regard to the range of values existing within it.
However, “legitimate” does not imply displaying specific values (being a
Christian or Muslim company, for example). In the final analysis, for there
to be real legitimacy in the decision-making process, those taking part in it
must follow a democratic procedure that encompasses all points of view
(procedural morality v. substantial morality). The expression of such values
is the manifestation of a life lived in common in a Res Publica (Phillips
2003b: 51).
The various ethical and normative approaches within stakeholder theory
contribute to the elaboration of a framework of concrete principles
underpinning the responsibility of the firm vis-à-vis its shareholders.
“Company Stakeholder Responsibility” implies that ethics cannot be
separated from the firm’s other activities. This approach focuses not only on
the instrumental, descriptive and normative aspects of the firm, but also,
and above all, on its performance (Freeman and Velamuri 2006: 12).
 Freeman and Velamuri propose ten principles of Company Stakeholder
Responsibility. These principles describe an honest, pragmatic manner of
promoting a social approach to corporate responsibility. They can be
considered as tools for defining relations with stakeholders. The principles
are outlined as follows:

1. Bring stakeholder interests together over time.

2. Recognize that stakeholders are real and complex people with names,
faces and values.

3. Seek solutions to issues that satisfy multiple stakeholders

simultaneously.

4. Engage in intensive communication and dialogue with stakeholders –

not just those who are friendly.

5. Commit to a philosophy of voluntarism – manage stakeholder

relationships yourself, rather than leaving it to government.

6. Generalize the marketing approach.

7. Never trade off the interests of one stakeholder versus another

continuously over time.

8. Negotiate with primary and secondary stakeholders.

9. Constantly monitor and redesign processes to make them better serve

stakeholders.

10. Act with purpose that fulfills commitments to stakeholders. Act with
aspiration towards fulfilling your dreams and theirs (Freeman and
Velamuri 2006: 7–9).
 Freeman’s principles of company stakeholder management allow for a
thoroughgoing reappraisal of stakeholder theory. Instead of placing it in the
center of the diagram (Fig. 5.3), the firm could, here, be conceived of as
serving society and contributing to the common good. This conception of
stakeholder theory can be represented in the diagram below (Fig. 5.3).

Fig. 5.3 Freeman’s normative corporate stakeholder responsibility principles (Source: Rendtorff
(2009))

The concept of “fairness” developed by Phillips and Rawls can be

applied in management because is it serves to support the procedural logic
of the decision-making process. This approach is based on an equal respect
for all parties concerned. In effect, what differentiates fairness from the pure
principles of justice is the introduction of procedures for restoring equality
while taking into account stakeholders who were not previously included in
the dialogue (Phillips’s “derivative stakeholders”). It should be noted that
Phillips develops a conception of justice that is neither simplistic nor
egalitarian (2003a: 28). Fairness for stakeholders is more procedural than
distributive. In this perspective, what counts is the democratic capacity of
the economic activity and, more particularly, of the firm.
This procedural morality can be extended to organizations, even if, in
Rawls’s perspective, they are voluntary associations within society rather
than fundamental structures of it. Phillips translates this vision of
management by arguing that the individual is, first and foremost, a citizen,
and only then a member of the voluntary association that is the firm.
Consequently, although the association is voluntary, it has obligations to
society, and these obligations are concerned, de facto, with the common
good.
An equitable vision of the firm takes into account the situation of every
one of its members from the point of view of their original position
(Rawls). This means that, as in public life in general, potential members
decide on whether or not to belong to organizations, with their decision
based not on a desire to maximize their personal interest, but on their
conception of the common good. In this perspective, fairness applied to
stakeholder theory reverses the neoclassical conception of the firm:
agreement about the public objectives takes precedence over agreement
concerning its economic actions.
To the two concepts developed by Rawls (the voluntary association and
the original position of members in society), should be added a third,
namely that of difference. The difference between the members of a society
or an organization constitutes de facto inequality: people are blind or they
can see, born rich or poor, in an indebted post-industrial country or in an
emerging economy. But the dependence of the concept of fairness on that of
inequality is a paradox, since inequality is justifiable from the point of view
of the weaker members of society, who can draw some benefit from it by
finding more interesting employment or a better situation. In other words,
for Rawls, inequality is, paradoxically, justifiable because it can be
rectified: reducing inequality restores equality as fairness. Inequality is also
legitimized if it leads to an increase in wellbeing.
 According to Freeman and Rawls, at the heart of stakeholder theory is
to be found a respect for the principle of difference. Respect for difference
promotes fairness. This means not only that the organization should treat
stakeholders fairly – stakeholders including shareholders, clients, suppliers,
employees and public institutions –, but that this treatment of difference and
inequality will help boost profits. In fact, respecting the principle of
difference does not equate to a theoretical tolerance of all difference, but to
the possibility of improving the fate of weaker members of society
(Freeman 1993: 409–422) by taking their difference into account as, for
example, in the case of conflicts of interest between shareholders and
employees. From this point of view, it is a form of negative utilitarianism in
which dealing with the inequality and difference of the weakest members of
society takes precedence over addressing other forms of inequality and
difference.
If the principle of fairness is extended to encompass relations with
stakeholders external to the organization, it would seem that fair play is the
most effective approach in terms of ensuring that actions in the market are
just. The approach implies a virtuous respect for the rules of the game.
Rawls derives the notion and practice of fair play from John Stuart Mill
(Phillips 2003a: 86), defining it as a cooperative attitude to other people, the
objective of which is to produce a virtuous circle of cooperation and
responsibility. From this perspective, the notion of fair play is an ethical
response to the risk of opportunism. According to Phillips, the notion, as
developed by Rawls, is intended to generate “mutual benefit.” Fair play
implies that individuals limit their freedoms and respect the rules of a
system of fair cooperation to the mutual benefit of all parties concerned.
Consequently, fairness includes a reciprocal obligation to ensure mutual
profit. It is central to stakeholder management as the basis of business
ethics and Corporate Social Responsibility (Table 5.2).
Table 5.2 Corporate citizenship
Level Emphasis on Emphasis on activity Emphasis on implementation
strategy
1 Corporate Financing ethical missions Making ethical judgments = mediating
citizenship conflicts between ethical theories and
Elaborating strategy principles
Level Emphasis on Emphasis on activity Emphasis on implementation
strategy
2 Developing the Integrating individual and Elaborating value-based management
concept of collective responsibility, corporate ethics code programs.
institutional constituting an internal ethical Developing corporate social
responsibility corporate decision-making responsibility policies
procedure
3 Developing a Engaging in dialogue with Communicating with stakeholders with a
sustainable strategy stakeholders view to developing corporate citizenship
of corporate (focusing on triple bottom-line
development (triple Developing balanced management, reporting, transparent
bottom-line) scorecards and other tools accounts)
4 Corporate Integrating corporate social Communicating with stakeholders about
governance based responsibility, business ethics management principles, notably
on CSR and and values-based concerning the “good life” with and for
stakeholder management other people in just institutions
management
5 Stakeholder Promoting a Purpose, Integrating corporate citizenship and
management with a Principle, and People CSR through value-based management.
view to sustainable management approach Developing CSR and corporate
development citizenship accounting procedures
6 Developing value- Developing a collective Basing the identity of the organization
based management identity in view of promoting on the principles of corporate citizenship
in view of a respect for individual rights
promoting
corporate
democracy

Source: Rendtorff (2009)

Based on the above observations, the following table provides a

description of the various stages on the road to corporate citizenship. It is
evident how demands on the firm grow as it gradually fosters a democratic
idea of its relationship with stakeholders.

Deconstruction of the Paradigm of Justice and Ethics

John Rawls’s ideal conception, a conception shared by a number of his
commentators, including Robert Phillips, should be compared with a less
irenic representation of justice. In effect, the tradition of business ethics
often maintains a deafening silence about the tensions inherent in collective
life, instead presenting the firm as a community of “friends” characterized
by an ethos of cooperation. But, in reality, such communities are riven by
opportunistic competitive behaviors: conflict and enmities are embedded in
cooperation. The philosophy of deconstruction highlights the aporias and
dilemmas of procedural morality and offers alternatives in terms of
rethinking the very notions of the stakeholder, the community (and,
therefore, the organization), democracy, and responsibility.
The concept of the stakeholder as interpreted by Phillips is a kind of
metaphysics of justice. Now, in a deconstructivist perspective, stakeholders
are defined by the very conflicts and interests by which they are animated;
consequently, these conflicts and interests cannot be integrated into a
metaphysics of justice. In this sense, Jean-Luc Nancy prefers to talk of an
“inoperative community” which brings together independent individuals
with heterogeneous, sometimes antagonistic values very different from the
liberal society pictured by Rawls and Phillips. For these last, antagonisms
can be resolved by means of a procedural rationality (social dialogue,
representative instances) which lead to acceptable compromises (liberal
social society). On the other hand, according to Nancy’s concept of
désoeuvrement or “inoperativeness” (Nancy 1986), the individual is always
simultaneously inside and outside and, in consequence, always able to
avoid compromise. A theory of the firm should be able to address the
paradox of the tension between friend and enemy in reference to Derrida’s
Politique de l’amitié (1994).
For Jacques Derrida, a metaphysics of justice is impossible since justice
is something that cannot be deconstructed (Derrida 1994). Justice is an idea
of which all concrete manifestations are imperfect. Consequently, justice for
stakeholders is impossible or, at best, possible only in a “community of the
future” (Nancy 1986; Agamben 2011), since all so-called just decisions are
exclusionary and there is always a party who has not been heard.
In the same way, the notion of the legitimacy of the firm is called into
question on the grounds that it is a cosmetic metaphor that hides the power
relations operating within a given society; while claiming to observe the
rules of good citizenship, it simultaneously pursues its own private interests
in the form of profit. From a deconstructivist point of view, the legitimacy
of the firm masks the tension between personal interests and the public
good.
Insofar as economic agents acting with a sense of fair play are
concerned, the notion can be compared to “virtue,” a traditional concept in
moral philosophy reappraised by Derrida. The question is how does one go
about, without duplicity, being at once competitive and fair when
competition always presupposes the destruction of the other party?
Poststructuralist philosophers are dubious about the possibility of fair play
on resolving, on the one hand, conflicts between the firm and its
stakeholders and, on the other, conflicts between stakeholders that can
prompt them to say things like “we went to hell and back to win,” implying
that the victory was, in fact, a defeat.
Deconstruction calls into question the very idea of business ethics,
which attempts to make possible justice of and in the organization.
Poststructuralist philosophies insist on the irreducible character of power
conflicts, singularities and differences.

Conclusion
In this chapter, we have discussed the ethical foundations of stakeholder
theory. Our initial considerations focused on the way in which the theory
goes beyond economic conceptions of the firm like those of Friedman and
Jensen. Indeed, it also goes beyond a number of philosophical currents
dealing with economic activity (including the firm), namely pragmatism,
communitarianism, universalism and republicanism. In effect, these
currents contribute to the development of a foundation for stakeholder
theory by providing an alternative view of the activities of the firm. They
focus on the possibility of the firm acting in the same way as an honest
citizen. The approach, based on the philosophy of contract developed by
Rawls, Freeman and Phillips has served as a framework with which to
formalize this dominant perspective in stakeholder theory. However,
dominant ideas about stakeholder theory and business ethics are called into
question by a deconstructivist, poststructuralist critique. In our view, it is
possible to found corporate citizenship on the philosophy of difference
developed by Derrida, Nancy and Agamben. In fact, a stakeholder ethics
presupposes the definition of a strategy based on this approach the aim of
which is to ensure that the firm acts in a socially responsible manner, or, in
other words, in the way in which a democratic, republican citizen would act
in regard to the market and, more generally, within a democratic, republican
political society.
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Jensen, M.C. 2000. Value Maximization and the corporate objective function. In Breaking the code of
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General Conclusion
The essential objective of this book has been to gauge the scope of
stakeholder theory in terms of its heuristic capacity.
The heuristic capacity of the theory enables it to achieve a level of
generality encompassing the way in which the market and society are
represented, while dealing exclusively which the representation of the
corporation. Although a management theory, it possesses an interpretative
capacity: it places the corporation at the center of its analysis by taking into
account the porosity between the economy, society and politics (in the sense
of “the polity,” or living together). Stakeholder theory examines the
frontiers between the activity of the firm and other social activities.
This heuristic potential has been addressed by means of an exclusively
ethical approach to the theory. Readers coming to the end of the book might
well ask themselves why the authors decided to leave their analysis of
stakeholder theory’s contribution to business ethics to the last chapter. The
reason is that this is the most well known aspect of stakeholder theory,
which is generally considered to be a mainstay of research into corporate
social responsibility and business ethics (Anquetil 2011 ).
In sum, the task of analyzing the scope of the theory (and not only its
state of the art) is still far from complete. In this regard, more room should
be made for a constructive critique in that, as some authors (Acquier and
Aggeri 2008 ), have observed, the concept of the “stakeholder” has become
an ecumenical matter. And while the importance of a theory is often related
to the number of commentaries it attracts, in the case of stakeholder theory,
with a few, rare exceptions, commentators contributing to the academic and
management literature are content merely to illustrate rather than critique.
In this sense, the work of Orts and Strudler ( 2002 , 2009 ), and Cazal (
2011 ) provides a useful reference point. It can be demonstrated that:
– A sociological approach is required in order to make sense of a
constellation of fragmented interests, with neither history nor
context. This would make it possible to escape a holistic view of
stakeholders in which employees and shareholders represent
homogeneous groups; to better perceive coalitions struck between
stakeholders (Rowley 1997 ); and to take into account the American
 ethnocentrism of the theory, according to which society is made up
of competing interests represented by lobbies.
– The theory is characterized by a kind of heliocentrism, with the
corporation at the center of a model displaying direct dyadic
relations between the corporation and its stakeholders. The literature
is full of figures and illustrations highlighting this heliocentric
approach. What has been described as a bicycle wheel could also be
seen as a galaxy with the firm at its center. From this point of view,
it could be asked whether the theory is an attempt to encourage the
corporation to play a better role in society or an effort to teach it
how to defend itself more effectively from counter-powers (Acquier
and Aggeri 2008 ).
– Freeman’s critique of the shareholder approach is reversible: the
theory encourages the extension of shareholder powers to everyone
(Bonnafous-Boucher 2004 ).
– The theory’s normative postulates are problematic. In effect, the
equality in law and fact of individual stakeholders (the intrinsic
value of each one of them) makes it hard to justify a negotiation
based on priorities which are not always those of the firm. In order
to encourage a pluralist approach, it would be worthwhile comparing
the arguments of Bowie, the major advocate of Kantian capitalism,
with those of Mitchell, Agle and Wood, who promote the idea that
stakeholders should be defined in terms of management priorities.
– Freeman’s oft-repeated contention that he and his school subscribe to
a basically pragmatic approach is counterbalanced by a kind of
idealism apparent in his work. In effect, the idea of consensus, the
cornerstone of the social contract, itself a founding institution of
society, is bereft of tensions and of an exteriority guaranteeing
individual freedoms. But stakeholder interests are egotistical
interests. Thus, public organizations, public administrations, and
political scientists should take a prudent approach to the notion of
the stakeholder in that its origins are to be found in a representation
of society in which the corporation is the basic social unit.
Certain authors, including Hatchuel and Segrestin ( 2012 ) maintain that
stakeholder theory is incapable of “refounding the corporation,” primarily
because it is situated within the perspective of corporate governance. In
effect, stakeholder theory is a theory of the corporation – more specifically
a theory of the multinational company. It is, therefore, a local theory in that
this type of company does not cover all forms of entrepreneurship.
Nevertheless, the multinational is of particular interest, especially when one
considers that, while in 1970 there were only 7000 such companies, in 2003
there were 64,000, with 870,000 subsidiaries employing over 55 million
people. In many ways, the ownership structures and governance systems of
listed companies reflect the profound transformations in the representations
of capitalism mirrored in original theories of power and conceptions of
corporate delegation and representation. But stakeholder theory is more
than just a particular conception of corporate governance: it proposes a
heterodox version of that conception. Indeed, it is also a theory of the value
of the corporation. It has become almost a cliché in Europe to say that value
is the result of cooperative action. In stakeholder theory, stakeholders
represent this collective in their capacity as owners of interests, and
although Hatchuel and Ségrestin ( 2012 ) deny that the theory is designed to
foster or construct the collective, it nevertheless represents the corporation
as the construction of a dynamic capability (Helfat et al. 2007 ). It affirms
that, to exist and survive, the corporation and corporate governance must
recognize and promote pluralism.
Last, the primary objective of this book has been to highlight the ways
in which a management theory has been able to exert influence beyond its
borders, a rarity in that management studies borrow more ideas than they
propose. Second – and this is also a rarity – it is a management model that
paints a critical picture of the corporation: the issues and interests of all
those who are not shareholders or investors are primordial in terms of its
survival beyond the mere ownership of capital. Third, we have focused
primarily on the theory’s heuristic function. In our view, this capacity can
be exploited with a view to ensuring that the contributions of management
science and management studies are more than strictly performative.

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