How key stakeholders can contribute to Reshaping Care Third/Community Group Impact
Group 4_CSR Theories & Stakeholders
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Transcript of Group 4_CSR Theories & Stakeholders
Group 4_Section C
Anand Kumar 12P127Bhoomi Ashwin 12P131Chirayu Gandhi 12P135Rakshit Sharma12P160
Saurabh Saxena 12P167Soumyajit Sengupta 12P171
Corporate Social Responsibility
Normative: Explains the logic as to why a manager should consider certain classes to be stakeholders
Descriptive: Explains the conditions under which managers identify certain classes to be stakeholders
Theories of Stakeholder Identification
Primary v/s SecondaryOwners v/s Non OwnersOwners of Capital v/s Owners of Less
Tangible AssetsActors v/s Those Acted UponVoluntary v/s InvoluntaryRight Holders v/s Contractors v/s Moral
ClaimantsResource Providers v/s DependantsRisk Takers v/s Influencers
Types of Stakeholders
Broad: Attempts to specify the empirical reality that virtually anyone can attempt or be affected by an organization’s actions
Narrow: Specifies the pragmatic reality that managers cannot attend to all actual or potential claims. It also proposes a variety of priorities for managerial attention.
Broad v/s Narrow definition of Stakeholders
Freeman’s Definition of Stakeholder: Any group or individual who can affect or is affected by the achievement of the organization’s objectives.
Premise for the derivation of a broad definition:
No stake-holder, potential or actual, is excluded from the analysis, arbitrarily or priori
Ways of Stakeholder Identification
Stakeholder’s power to influence the firm
Legitimacy of the stakeholder’s relationship with the firm
Urgency of the stakeholder’s claim on the firm
Proposal for Identification of Stakeholders: Attributes
Dynamic Model based on the identification typology
Permits explicit recognition of situational uniqueness and managerial perception to explain how managers prioritize stakeholder relationships
Allows predictions to be made about the managerial behavior with respect to each class of stakeholder
Allows predictions to be made regarding change of stakeholder from one class to another and its implications on the manager
Managers do not pay attention to all stakeholder classes equally but attach special attention to certain classes to achieve organizational objectives
Proposed Stakeholder Theory
1. Review of Literature listing the various explicit and implicit positions on “The Principle of Who or What really counts”
2. Present defense on the three key attributes: POWER; LEGITIMACY; URGENCY and examine major organizational theories to discern how these attributes are handled
3. Introduction of managers and salience in to the discussions
4. Presentation of Analysis of the Stakeholder classes and the implication of each on the manager
5. Demonstration of shift of stakeholder from one class to another and the consequences of the shift on managers and firms
6. Explore research questions and directions that consequently emerge
Sequence of Proposed Theory
Stakeholder Approach to understanding a firm in its environment has been a powerful heuristic device, intended to broaden the management’s vision of its roles and responsibilities beyond the profit maximization function to include interests and claims of non stockholding groups.
Stakeholder Theory attempts to articulate the fundamental question in a systematic way as to which groups are stakeholders deserving or requiring management attention and which are not?
Stakeholder Theory-State of the Art
WHO is a stakeholder? Entities like persons, groups, neighborhoods,
organizations, institutions and natural environment generally qualify as actual or potential stakeholders
WHAT is a stake? Jones definition of CSR(1980): Notion that corporations
have an obligation to constituent groups in society other than stockholders, indicating that a stake may go beyond mere ownership
Alkhafaji definition of Stakeholders(1989): Groups to whom a corporation is responsible
Thompson,Wartick,Smith’s definition of Stakeholders(1991): Groups in a relationship with an organization
Stakeholder: WHO and WHAT
Windsor(1992) pointed out that stakeholder theorists differ considerably depending on the approach they take to define a firm’s stakeholder universe: broad or narrow
Broad Definition(Freeman,1983): Attempts to specify the empirical reality that virtually anyone can attempt or be affected by an organization’s actions(CLASSIC DEFINITION, Broadest Definition)
Narrow Definition(Freeman & Reed,1963): Groups on which an organization is dependant for its continued survival
Broad & Narrow View of Stakeholders
Basis of Stake in Freeman’s Definition: Can be unidirectional or bidirectional- “can affect or be affected by” and there is no implication or necessity of reciprocal impact as definitions involving relationships require
Excluded from having a stake are only those:
Who cannot affect the firm(no power)Who are not affected by the firm(no claim)
Stake Identification in Freeman’s Definition
Stakeholders are Voluntary or Involuntary risk bearers, as there is no stake without risk
Voluntary stakeholders bear some form of risk due to the invested capital
Involuntary stakeholders are placed at risk due to the activities of the firm
Thus, a stake is something which can be lostUse of Risk to identify stakeholders is very
narrow as it allows only for legitimate claims, regardless of the power to influence or relationship with the firm
Narrow Definition: Clarkson
Based on Practical Reality of Limited Resources, Time, Attention
Defines groups based on the direct relevance to the firms’ core economic interests
Searches for a “normative core” of legitimacy: to help managers focus on the claims of a few legitimate stakeholders
Based on Empirical Reality that a firm can vitally affect or be affected by anyone
Very complex for managers to apply
Comprehensive identification of stakeholder types leads to equipping the managers with the ability to recognize and respond to a set of entities who may not have legitimate claims but can affect the firm and vice versa.
Broad v/s Narrow Definitions: Differences
Claimants• Claim• Groups that have legal,
moral, or presumed claim on the firm
• May or may not have power to influence
• Have legitimate or illegitimate claims over the firm
Influencers• Ability to influence firm• Groups that have ability
to influence the firm’s behavior, direction, process or outcome
• Have power over the firm• May or may not have a
valid claim or any claim at all over the firm
Claimants vs. Influencers
Actual• Are influenced
by the organization
• Are the influencers of some organization
Potential• Might be
influenced by the organization
• Potentially may be influencers of some organization
Actual vs. Potential Relationship
Firm’s dependency on stakeholder’s for its survival
Stakeholder’s dependency on firm for upholding its rights
Mutuality of power dependence relations
Power, Dependence and Reciprocity in Relationship
The firm and stakeholder are in relationship
The stake holder exercises voice with respect to the firm
The firm is dependent on the stakeholderThe stakeholder has power over the firm
Sorting of Rationales for Stockholder Identification
A Relationship exists
Power Dependence: Stakeholder Dominance
The stakeholder is dependent on the firmThe firm has power over the stakeholder
The firm and the stakeholder are mutually dependent
Mutual Power-Dependence Relationship
Power Dependence: Firm Dominant
Sorting of Rationales for Stockholder Identification
The firm and stakeholder are in contractual relationship
The stakeholder has a claim on the firmThe stakeholder has something at riskThe stakeholder has a moral claim on the firm
The Stakeholder has an interest in the firm
Basis of Legitimacy of Relationship
Stakeholder’s Interest: Legitimacy not implied
Sorting of Rationales for Stockholder Identification
Shows how power and legitimacy interact and when combined with urgency create different type of stakeholders with different expected behavioral patterns
Value added by Theory of Stockholder Identification
Agency Theory: How principals control the behavior of their agent to achieve their interest
Resource Dependence Theory: Power accrues to those who control resource needed by the organization, creating power differentials
Transaction Cost Theory: power accruing to economic actors with small numbers bargaining advantages will affect the nature of governance and firm
Why power plays an important role in attention provided by managers to stockholders?
Institutional Theory: ‘Illegitimacy” results in isomorphic pressures on the organization that operate outside of accepted norms
Resource Dependence Theory: Power accrues to those who control resource needed by the organization, creating power differentials
Open System oriented theories: Understand the crucial effect of environment on organization.
Identification of attribute which profoundly influences managerial perception e.g.
Agency/Transaction theory: contribution and cost
Behavior Theory: consequence of unmet demands
Urgency adds a catalytic componentTell us about the role of power and
legitimacyHelps in understanding “Who and What
Really Counts”
Additional Value Added by Theory of Stockholder Identification
POWER“ A relationship among social actors in which one social actor A,
can get another social actor B, to do something that B would not otherwise have done”
Types of Power
A) Coercive Power : based on the physical resources of force, violence or restraint
B) Utilitarian Power: Based on material or financial resources
C) Normative Power: based on symbolic resources
“ A party to a relationship has power, to the extend it has or can gain access to coercive, utilitarian, or normative means. To impose its will in the relationship. “
Stakeholder Attributes
“ A generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions ”
Davis – “ In long run, those who do not use power in a manner which society considers responsible will tend to lose it.”
Legitimacy is a desirable social good, that is something larger and more shared than a mere self – perception.
Moreover the meaning of legitimacy is defined and negotiated differently at various levels of social organization.
Legitimacy
Urgency is defined as “ Calling for immediate attention or pressing.
Urgency exists under 2 conditions A) When a relationship or claim is of time sensitive nature B) When the relationship or claim is important or critical
to stakeholder
Time Sensitivity: The degree to which managerial delay in attending to the claim or relationship is acceptable to the stakeholder
Criticality: The importance of the claim or the relationship to the stakeholder
Urgency
It is not sufficient to identify a stakeholder’s claim or “manager relationship” as urgent. It should also be Critical.
Examples of a stakeholder viewing its relationship with the firm as critical:
A) Ownership : The stakeholder’s possession of firm-specific assets making it very costly for the stakeholder to exit the relationship.
B) Sentiment: Stock that is held by generations of owners within a family. Regardless of the stock’s performance.
C) Expectation: The stakeholders anticipation that the fir will continue providing it with something of great value.
D) Exposure: The importance the stakeholder attaches to that which is at risk in the relationship with the firm.
Thus the presence of both these factors TIME SENSITIVITY and CRITICALITY together captures the multidimensional attribute of URGENCY
Managers are the only group of stakeholders who enter into a contractual relationship with all other stakeholders. Managers are also the only group of stakeholders with direct control over the decision-making apparatus of the firm. (Hill & Jones, 1992)
Firm’s managers determine which stakeholders are salient and therefore will receive management attention.
Manager’s Role in the Theory
Proposition 1: Stakeholder salience will be positively related to the cumulative number of stakeholder attributes – power, legitimacy, and urgency – perceived by managers to be present.Based on this proposition, stakeholders have been divided into various classes as shown in Fig. 1.1, 2, 3 – Low Salient Class (Latent)4, 5, 6 – Moderate Salient Class (Expectant)7 – High Salient Class
Stakeholder Classes
Stakeholder Classes
1Power
2Legitima
cy3
Urgency
5 4
6
7
Qualitative Classes of Stakeholders
Latent Stakeholders are those possessing only one of the three attributes, and include dormant, discretionary, and demanding stakeholders
Latent Stakeholders are not likely to give any attention or acknowledgement to the firm
Proposition 1a: Stakeholder salience will be low where only one of the stakeholder attributes – power, legitimacy, and urgency – is perceived by managers to be present
Latent Stakeholders
Expectant Stakeholders are those possessing two attributes, and include dominant, dependent, and dangerous stakeholders
Level of engagement between managers and expectant stakeholders is likely to be higher
Proposition 1b: Stakeholder salience will be moderate where two of the stakeholder attributes – power, legitimacy, and urgency – are perceived by managers to be present
Expectant Stakeholders
Definitive Stakeholders are those possessing all three attributes
Managers have a clear and immediate mandate to attend to and give priority to the Definitive Stakeholders
Proposition 1c: Stakeholder salience will be high where all three of the stakeholder attributes – power, legitimacy, and urgency – are perceived by managers to be present
Definitive Stakeholders
Dynamism in Stakeholder-Manager Relations: Managers should never forget that stakeholders change in salience, requiring different degrees and types of attention (Eg: ANC)
This stakeholder approach can improve upon existing theories, which emphasize on power and interests
This model enables a more systematic sorting by managers of stakeholder-manager relationships
The given model permits managers to map the legitimacy of each stakeholder & become sensitive to the moral implications of their actions
Conclusion
THANK YOU!