stakeholder

stakeholder, any individual, social group, or actor who possesses an interest, a legal obligation, a moral right, or other concern in the decisions or outcomes of an organization, typically a business firm, corporation, or government. Stakeholders either affect or are affected by the achievement of an organization’s objectives.

In a corporate context, the term stakeholder was introduced in the 1960s by the Stanford Research Institute (SRI) as a generalization of the terms stockholder or shareholder. SRI’s work was focused on firms, and the stakeholder concept was focused on the firm’s most closely related actors. From the mid-1980s, the meaning of the concept was stretched through the development of its social and political dimensions, making it a key concept for governance in general.

Stakeholder theory and analysis

Stakeholder theory proposes that stakeholding has a dual instrumental-normative quality. On one hand, incorporating stakeholders’ participation enhances the organization’s management capabilities in a globalized context characterized by increasing socioeconomic interconnectivity. On the other hand, promoting plurality and inclusivity and recognizing the intrinsic value of stakeholders’ interests makes it morally superior (e.g., in terms of democracy and social justice) to traditional managerial approaches based on the mere optimization of shareholders’ gains.

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In more practical terms, stakeholder theory seeks to describe and examine the connections between stakeholder legitimate interests, stakeholder management practices, and the achievement of the goals of an organization. This examination should lead to a better understanding of needs of stakeholders in order to set the bounds of operation and the formulation of recommendations for increasing governance efficiency.

Stakeholder analysis typically consists of the systematic identification and characterization of the most relevant stakeholders for an organization or initiative—that is, those stakeholders exerting, or trying to exert, influence on the company’s decisions and activities. Stakeholders with similar interests, claims, or rights can be classified into different categories according to their roles (e.g., employees, shareholders, customers, suppliers, regulators, or nongovernmental organizations). In corporate governance, stakeholders are often classified into primary or secondary groups. Primary stakeholders are fundamental for the firm’s operation and survival. Such stakeholders include owners, investors, employees, suppliers, customers, and competitors, as well as nature (physical resources and carrying capacity). Secondary stakeholders are those influenced by the firm’s operations but not directly engaged in transactions with the firm and consequently not essential for its survival. Examples of secondary stakeholders are local communities and local business support groups. Secondary stakeholders can be of high strategic importance for the success of particular operations and activities of a company. A second methodological step consists of determining the stake of a stakeholder. Stakes and groups can be categorized as threats and opportunities that build a stakeholder strategy matrix.

Business literature has focused heavily on assessing the differential threats caused by primary and secondary stakeholders. A major purpose of these developments is to help corporate managers understand their stakeholder environments and manage their relationships with external actors more effectively (e.g., by reducing unnecessary conflict). Through stakeholder analysis, corporate managers can improve the social value of the outcomes of their actions and minimize the disservice to, and from, stakeholders. Thus, stakeholder theory would provide tools for equipping managers to develop more effective relationships with the company’s environment (e.g., by reducing the firm’s vulnerability to stakeholder opposition).

Stakeholder analysis is also used for policy analysis, project management, and the generation of multistakeholder processes for participatory public decision making. Public institutions can be interested in generating multistakeholder initiatives in order to avoid conflict, gain legitimacy, and deepen democracy. However, in the context of public policy, the objectives of stakeholder analysis and management are related not only to the instrumental interests of public institutions but also to the common good and the reaching of fair decisions (e.g., by giving marginalized stakeholders a significant voice). Multistakeholder processes are associated with styles of governance that promote higher transparency, openness, and extended participation in public policy.

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Finally, stakeholder participation has been proposed in the context of decisions characterized by high risks, uncertainty, and complexity. In these contexts, purely technocratic approaches present fundamental limitations and may lead to misguided decisions. Stakeholders’ values can orient the type of scientific information (e.g., among several disciplines) that is more relevant for each decision. The identification of these values can facilitate the weighting of the criteria for reaching more representative decisions. Therefore, the identification of relevant stakeholders and their values is a preliminary step in making complex decisions. For instance, key decisions affecting water quality issues would require the identification of everyone who has influence upon the quality of the water (e.g., polluting industries, municipalities, and farmers) and anyone who is impacted by the quality of the water (e.g., fishermen, consumers, and waterfront owners). According to a stakeholder approach, these people are said to have a stake in any decision affecting water quality, and their involvement is considered crucial for water governance.