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

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