A Theory of Stakeholder Identification and Salience

Ronald K. Mitchell,

Bradley R. AgleDonna J. Wood

Outline

• Introduction

• Definitions

• Stakeholder attributes

• Stakeholder classes

• Case analysis

• Conclusion

Stakeholder

Employees

Manager

Owners

Society

Suppliers

Government

Creditors

Shareholders

customers

Company

Focus on….

Who are the stakeholders of a firm?

• Normative ( -

Logic to consider certain classes as

stakeholders

To whom do managers pay attention?

• Descriptive )-

conditions to identify stakeholders

Broad v/s Narrow definition

• Broad view-The empirical reality

Who can affect the organisation-Influencers

Who are affected by the organisation-Claimants

• Narrow view-Pragmatic reality that managers can‟t and don‟t consider all stakeholder claims(risk factor)

Voluntary and involuntary stakeholders

Stakeholder

Any group or individual who

can affect or is affected by the

achievement of the organisation‟s

objectives

(Freeman, 1984)

What is a stake?

• The things that you loose or gain by

taking the risk.

Eg: Monetary share in a business

Internal stakeholders

• Stake may go beyond ownership

Eg:-Environmental hazards for public

External stakeholders

1. 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”(Dahl et al, 1957)

“to influence the firm”

STAKEHOLDER ATTRIBUTES

Types of Power

1. Coercive Power : Based on the physical resources of force, violence or restraint

2. Utilitarian Power: Based on material or financial resources

3. Normative Power: Based on symbolic resources

A generalized perception or assumption that

the actions of an entity are desirable, proper or

appropriate within some socially constructed system

of norms, values and beliefs (Suchman, 1995)

1. Individual

2. Organisational

3. Societal

“It is the legitimacy of the relationship in terms of desirability or appropriateness with the firm”

2. Legitimacy

Urgency is defined as the degree to

which stakeholder claims for immediate attention

(Mitchell et. al, 1997)

The degree depends on

A) When a relationship or claim is of time sensitive

B) How critical/ important is the claim to the stakeholder

“ Calling for immediate attention or pressing”

3. Urgency

SALIENCE

The degree to which managers give

priority to competing stakeholder claims.

• The more the attributes the more the salience

• They are group of stakeholders who enter

into a contractual relationship with all other

stakeholders

• Direct control over the decision-making

apparatus of the firm (Hill & Jones, 1992)

• They determine which stakeholders are

salient and to whom they should pay

attention.

Role of manager?

Stakeholder salience will be positively related to

the cumulative number of stakeholder attributes –

power, legitimacy, and urgency – perceived by

managers to be present.

Three classes

1. Low Salient Class (Latent)

2. Moderate Salient Class (Expectant)

3. High Salient Class

Stakeholder Classes

Stakeholder Classes

Dormant

DiscretionaryDemanding

Power

LegitimacyUrgency

Dep

en

den

t

Definitive

Class I-Latent Stakeholders

• Only one of three attributes & Low salience

• No attention from managers

1. Dormant

2. Discretionary

3. Demanding

1. Dormant

• Little or no interaction/involvement

Eg: Those who spend a lot of money

Dormant

DiscretionaryDemanding

Power

Urgency

Legitimacy

2. Discretionary Stakeholders• Likely to be recipients of corporate philanthropy

• No pressure on managers

• Eg. – Beneficiaries of charity,

Schools and hospitals

Dormant

DiscretionaryDemanding

Power

Urgency Legitimacy

3. Demanding Stakeholders• Those with urgent claims but no legitimacy or power

• Irritants for management but not worth considering

Eg:-People with unjustified grudges, serial complainers

Dormant

DiscretionaryDemanding

Power

Urgency

Legitimacy

Class 2 - Expectant Stakeholders

• 2 Attributes & Moderate Salience

• Active rather than Passive

1. Dominant

2. Dependent

3. Dangerous

1. Dominant Stakeholders

Only stakeholders of an organisation/formal

Possess Power + Legitimacy

Eg:-Board of Directors, HR Dept.

2. Dangerous Stakeholders• Those with powerful and urgent claims

• Coercive and Violent

Eg:-strikers and terrorists

3. Dependent Stakeholders• Dependent on other bodies to carry out their will

• Lack the power to enforce their stake

Eg: – Residents & animals impacted by incidents like

Oil Spill, Mining etc.

Class 3 - Definitive Stakeholders

• Possess the three attributes

• Top priority by the managers

Eg:-Democratic legitimacy achieved by a

„Dangerous‟ nationalist party by winning national

elections

DYNAMISM in RELATIONS

• A stakeholder can increase/decrease their salience by acquiring or losing one of the attributes: power, legitimacy or urgency

• Example: When DB receives a complaint, it moves from being a expectant to a definitive stakeholder

Non-stakeholder

Latent Expectant Definitive

• Stakeholders possess combination of three critical attributes- power, legitimacy and urgency

• Salience of a stakeholder is low when one attribute, moderate when two attributes and high when all three attributes

• As there is change in these variable- dynamic model

• Attributes are not objective, but based on human perception.

Case:-

• Multinational oil & gas company

• Upstream segment -oil and natural gas exploration, field development and production.

• Downstream segment - product and service-led arm of focused on fuels, lubricants and petrochemicals.

• Shareholder-driven company (bottom-line)

• Attempted to gain higher stock values through higher profits at the expense of safety concerns

Stakeholders of BP

Deepwater

Horizon oil Spill

•20 April 2010

• Gas release and

explosion

•Macondo exploration

well for BP in the Gulf

of Mexico

Deep Water Horizon

Oil Spill

Deepwater Horizon Oil Spill

• Biggest hit for BP and its public relations

that had a direct impact on its share prices

• Killed 11 people and injured many others

• Environmental, health & economic

consequences.

• Most importantly, it was not the first

disaster linked to the BP brand.

Failed in stakeholder identification and prioritisation!

1. Undermined the extent of the damage!

2. No empathy with those affected!

3. It was too late to take moral responsibility

before dealing with legal liabilities

4. Given priority to the company‟s shareholders

and managers after those of the environment

and the communities affected by the spill!

5. Denied various claims made by researchers

Stakeholders of BP Identified

Government(federal and state)

Employees

Shareholders

Environmentalists

Businesses along the coast

Coastal Residents

Customers

Activity (as on 31 December 2013) Funding

Response and clean-up $14 billion+

Claims, advances and settlements $12.5 billion

Funding for the natural resource damage assessment

process

$1 billion+

Early restoration projects

(Reflects projects that BP and the trustees

have reached agreement or agreement in principle)

$698 million

State-led tourism campaigns $178 million

State-led seafood marketing programmes $47 million

State-led seafood testing $24 million

BP's payments related to Gulf Coast recovery

Stakeholders and their Classes for BP

Stakeholders Attributes

Power Legitimacy Urgency

Stake holder class

Government Definitive

Employees Expectant (Dependent)

Shareholders Expectant (Dominant)

Environmentalists Expectant (Dangerous)

Businesses along the

coast

Expectant (Dependent)

Coastal Residents Expectant (Dependent)

Customers Latent (Discretionary)

* * *

- * *

* * -

* - *

- * *

- * *

- * -

• 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

• Enables a more systematic classes of

stakeholder-manager relationships

Conclusion

Thank you

Raghavan Sathyan Archana

PhD student

Agricultural Economics

JLU, Giessen.