Stakeholder Management And Theory Of The Firm Introduction - Corporate Governance and Business Ethics

In this article, I want to focus on the economic concept of stakeholder management and deal primarily with the company as a form of governance of stakeholder relations. I propose to define the governance of stakeholder relations as a two-step process of first identifying and then prioritizing the relevant stakeholders of a team, regarding both the team’s constitution and the execution of its specific transactions. The nature of the company can then be defined as a contractual nexus of stakeholder resources and stakeholder interests, whose function is the governance, i.e., leadership, organization and control, of the resource owners with the aim of creating economic added value and distributing a cooperation rent. The focus is on the problem and form of cooperation, which is denoted by the phrase “firm as a nexus of stakeholders”. The following diagram illustrates these definitions by making clear three separate facts:

  1. First, each stakeholder invests his/her specific resources in a collaborative team intended for infinite stability (arrows pointing to the center).
  2. Second, each stakeholder, in addition, cooperates not only with the team, but potentially also with all other stakeholders of the team (ruled lines), whether bilaterally or multilaterally.
  3. The value of the stakeholder resources is thus defined both by the stakeholders position in the team and the stakeholders network.



Based on these definitions, we can develop suggestions to address the central but not yet satisfactorily resolved problem of identifying and prioritizing stakeholders. I am not interested in a normative approach to this issue, which is logically possible based on both Rawls’s theory of fairness and contractual ethics (van Oosterhout et al. 2006). My only concern is in reconstructing stakeholder management in the context of an economics of governance theory of the firm. The economics of governance is the theory of the leadership, organization, and control of collaborative relations and adaptively efficient governance structures (Williamson 1996, 2005; Arena and Longhi 1998).

This constitutes a radical change of perspective compared to the relatively widespread notion that the identification and prioritization of stakeholder interests is essentially necessary because of the fact that the companies’ decisions have consequences for them as interest groups. According to the concept of stakeholders as interest groups, stakeholders have to be able to proactively bring to bear their interests on the companies, i.e., without having suffered a prior infringement of their interests or rights. Looking at the issue of identifying and prioritizing stakeholder relations in this light, the first problem that arises is, of course, identifying all those who are potentially “involved”. However, this is consistently frustrated by the incomplete information we have about both the potential candidates and the future consequences of action.

Moreover, it does not yet address at all the problem of prioritizing the interest groups; the prioritization, after all, cannot be inferred from the mere existence of a claim or demand but requires its own decision-making algorithm. Confronted with these difficulties, one can refer to corporate monologues, i.e., to self-exploration and self-questioning characterized by fairness, or to aspects of practicability, which only means, however, that the theoretical problem gets postponed to the next round. Even if one agrees that stakeholders, aside from their passive claims and demands, are also able to actively harm or even benefit companies, the theoretical and operationalizable deficiencies do not go away; rather, one ends up with power-strategic but completely inconsequential considerations about stakeholders’ potential to cooperate and to threaten (Carroll and Bucholtz 2008; Mitchell et al. 1997). In addition, Jones, Felps, and Bigley (2007) point out correctly that there is a broader and more differentiated range of stakeholder cultures in the management of companies than is suggested by the dichotomy of threat and benefit. But I do not intend to explore these aspects in greater detail. My main contention with this conceptualization of interest groups or power groups is that both versions, in spite of their differences, share the notion that stakeholders have to be understood as entities that are foreign to and not constitutive of the company, towards whom the company therefore has or fails to have a moral responsibility or a utilitarian relationship determined by economic or power-strategic considerations.

What if one drops this idea of positive or negative externalities and sees stakeholders as resource owners without whom a company could not be constituted and operationally reproduced? Seeing the company as a nexus of stakeholder resources, the efficient and effective identification, prioritization and governance of these resources and competencies is an essential prerequisite for a company’s competitiveness and ability to create added value. Whether and to what extent the cooperation and the generation of a cooperation rent succeed depends on the characteristics of the governance form of this nexus, i.e., on the concrete configuration of the governance structure regarding the selection, hierarchization, and integration of stakeholders. I will come back to this in greater detail at the end of this article. In the following sections, I want to propose several arguments in favor of this theoretical concept, hoping to make a contribution to an economics of governance view of the firm. Although this article will deal only cursorily with some ethical and moral aspects of this problem, it outlines the economic context (Wieland 2008, 2009) in which these aspects actually can become effective. Governance ethics and the economics of governance are complementary research strategies, which only in combination help to analyze and shape the phenomena of the governance of modern societies.

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