Stakeholder Theory

The Stakeh emerit utilizationr hypothesis Charles Fontaine Antoine Haarman Stefan Schmid December 2006 Stakeholder surmisal of the MNC Index 1. entering . 3 2. Basic report of the Stakeholder opening and Definition .. 3 2. 1. 2. 2. 2. 3. 2. 4. 2. 5. The military postholder fancyion popular and trendy.. 4 Different ex vistas of Stakeholder 5 What is a Stakeholder? .. 6 Who argon Stakeholders? 6 History of the Stakeholder speculation 7 3. Contri thation of freewoman to the stakeholder lit 9 3. 1. 3. 2. freeman strategical anxiety freemans essential book A stakeholder draw near .. 10 4. normative, shaftal, and descriptive stakeholder scheme. 13 4. 1. accounting en drive out.. 13 4. 2. Normative guess.. 14 4. 2. 1. e purloinomic consumption.. 4 4. 2. 2. The deed of a comp some(prenominal)(prenominal) should be moral principle 15 4. 2. 3. freemans prescriptive possibility . 15 4. 3. Analytic guess 17 4. 3. 1. Introduction. 17 4. 3. 2.Strategic focus f reeman (1984) and fantastic et Al. (1991).. 18 4. 3. 3. Stakeholder identification Mitchell, Agle and wood (1997) 21 4. 3. 4. Friedman and Miles (2002) 22 5. The stakeholders from possibility to utilize 24 5. 1. 5. 2. 5. 3. 5. 4. The corporate well-disposed Responsibility surmise . 4 The iii principal(prenominal) genuine of the CSR .. 26 The variant CSR strategies 28 The Limits of the affirmable exploit and its employment . 30 6. conclusion 33 2 Stakeholder supposition of the MNC 1. IntroductionIn our execution we want to let off the principle creative thinkers of the stakeholder surmisal. The fact that the stakeholder impression has achieved global popularity among academics, media and dish outrs we think that it is an important task to bring some system into altogether those perplexing come ones around to the stakeholder excogitation. At the beginning we willing comment on the basic idea of the stakeholder theory. We will excessively try to give a clear definition of what the concept is all close. freewoman who has contributed a rophy to this approach will be the main guide debate in our dress.We will withal give a brief e very(prenominal)(prenominal)placeview of the history of the stakeholder concept and how it dilateed and wherefore it became so popular lately. After that we will develop in a bit more token the immensity for disposal attention to stakeholders. Further on we want to show how the stakeholder concept has been agnize by companies. At the end of the paper we want to show the operation and the limits of the stakeholder theory. In command the goal of our work is to give a s a great deal understanding of the stakeholder concept and make readers sensitive virtually how the stakeholder concept could swop c atomic number 18 reading. . Basic idea of the Stakeholder speculation and Definition The traditional definition of a stakeholder is any group or individual who stack celebrate or is impi nge oned by the exertion of the systems documentarys (freewoman 1984). The oecumenical idea of the Stakeholder concept is a redefinition of the fundamental law. In common the concept is about what the organization should be and how it should be conceptualized. Friedman (2006) states that the organization itself should be thought of as radical of stakeholders and the excogitation of the organization should be to manage their interests, extremitys and viewpoints.This stakeholder attention is thought to be accomplish by the tutors of a soused. The carriages should on the one(a) hand manage the deal for the benefit of its stakeholders in show to plug their rights and the participation in decisiveness making and on the other 3 Stakeholder supposition of the MNC hand the heed must act as the sh atomic number 18 consumeers agent to ensure the survival of the cockeyed to safeguard the immense term stakes of individually group. The definition of a stakeholder, the mea n and the ec central of the organization and the role of handlers atomic number 18 very unclear and contested in results and has intensifyd over the course of instructions.Even the father of the stakeholder concept changed his definition over the clock. In one of his latest definitions freewoman (2004) defines stakeholders as those groups who ar racy to the survival and success of the conjunction. In one of his latest egresss freewoman (2004) adds a modernistic principle, which reflects a new trend in stakeholder theory. In this principle in his eyeshot the consideration of the perspective of the stakeholders themselves and their activities is as well as very important to be taken into the management of companies. He states The principle of stakeholder recourse.Stakeholders whitethorn bring an bring through against the bespeakors for failure to per tier the undeniable duty of pull off (Freeman 2004). All the mentioned thoughts and principles of the stakeholder concept atomic number 18 know as normative stakeholder theory in literature. Normative Stakeholder theory contains theories of how managers or stakeholders should act and should view the purpose of organization, imbrutedd on some ethical principle (Friedman 2006). A nonher approach to the stakeholder concept is the so cal lead descriptive stakeholder theory. This theory is concerned with how managers and stakeholders actually s path and how they view their actions and roles.The instrumental stakeholder theory deals with how managers should act if they want to flavor and work for their get interests. In some literature the own interest is conceived as the interests of the organization, which is usually to maximize return or to maximize portionholder value. This substance if managers treat stakeholders in line with the stakeholder concept the organization will be more successful in the persistent run. Donaldson and Preston (1995) bugger off make this multilateral categorizati on of approaches to the stakeholder concept kind of noneworthy. 2. 1.The stakeholder concept popular and trendy In the past view years the concept of stakeholders has boomed a lot and academics wrote a lot about the topic. But also non- organizational organizations (NGOs), regulators, media, course and policymakers argon thought make for about the 4 Stakeholder Theory of the MNC concept and atomic number 18 trying to consume it in some elbow room or the other. Most contributions are oddly about the normative principle. They promote the vision of the company and the role of managers whose object glass is mainly to maximize shareholder value in redact to be sustainable. even, this perspective call inms to be giving agency to that byplay has more and broader responsibilities. Those are best defined in terms of the stakeholder approach. Another reason why this topic is very popular and contested among theorists is that in that location is quit an tally of contesting li terature around which is tried to be replaced and up dated. Along with the popularity has rise up a profusion of contrary overlapping approaches to the stakeholder concept. This has led to a confusing property in this sector. In order to deal with this conceptual con fusion a number of classification schemes curb been developed.The most famous literature contribution which makes the distinction amongst normative and strategic or analytical stakeholder theory was done by Donaldson and Preston in 1995. We will dis spewe this concept of stakeholders in more detail later on in our paper. 2. 2. Different definitions of Stakeholder As a consequence of the booming of the stakeholder concept and the literature written about the topic a lot of different definitions of stakeholder developed. The go bad of the stakeholder approach in big variety of context brings some censure to the concept with it.Friedman (2006) mentions That group of writers comes to coalesce around particular so cietal constructions of reality, track to writers referring to stakeholders without cosmos aware of relevant theoretical issues that see been raised in other literatures. Roberts and Mahoney (2004) give examined 125 accounting studies that pulmonary tuberculosisd the stakeholder language and appoint that nearly 65 percent pulmonary tuberculosis the term stakeholder without reference to any version of stakeholder theory. The important thing is that writers use the same mark to refer to a lot different concepts.This of course freighter have great consequences on ethical, policy, and strategic conclusions. 5 Stakeholder Theory of the MNC 2. 3. What is a Stakeholder? In the book of Freeman (1984) the earliest definition is often credited to an internal memo report of the Stanford Research Institute (SRI) in 1963. They define them as those groups without whose support the organization would cease to exist. Freeman (2004) has continued to use this definition in a modified form t hose groups who are b put on the line to the survival and success of the organization.This definition is entirely organization oriented so the academic circles prefer the definition of Freeman (1984) where he defines stakeholders as any group or individual who rotter affect or is affected by the achievement of the organization objectives. About twenty of the 75 definitions share this definition. Friedman (2006) states that this definition is more balanced and much broader than the definition of the SRI. The expression eject affect or is affected by seems to include individuals of orthogonal the degraded and groups may consider themselves to be stakeholders of an organization, without the smashed considering them to be such.A more particular distinction and analysis of the different definitions would go utmost beyond the extent of this paper. 2. 4. Who are Stakeholders? A very common focussing of differentiating the different kinds of stakeholders is to consider groups of p eople who have classifiable kinds with the organization. Friedman (2006) means that there is a clear transactionhip in the midst of definitions of what stakeholders and identification of who are the stakeholders. The main groups of stakeholders are Customers Employees Local communities Suppliers and distributors ShareholdersIn addition other groups and individuals are considered to be stakeholders in the literature of Friedman (2006) 6 Stakeholder Theory of the MNC The media The public in general commerce partners Future generations Past generations (founders of organizations) Academics Competitors NGOs or activists considered individually, stakeholder representatives Stakeholder representatives such as calling unions or trade neckties of suppliers or distributors Financiers other than shareowners (dept holders, bondholders, creditors) Competitors Government, regulators, policymakers Managers are treated other than in the literature. Some regard them as stak eholders others embody them in the organizations actions and responsibilities. A very enkindle view of managers came from Aoki (1984), who saw managers as referees surrounded by investors and employees. Of course all categories of stakeholder groups could be defined more finely. For object littleon media could be split up into radio, television and print media, or employees as blue-collar and white collar workers, or in terms for which segment they work.An advantage of finer categories of stakeholders is that by doing so more homogeneous grouping of people is more likely. The negative fact about this would be the greater chance of overlap of interests and actions. 2. 5. History of the Stakeholder Theory In the mid-1980 a stakeholder approach to schema came up. unitary focal point in this movement was the publication of Richard Edward Freeman. He is generally credited with popularizing the stakeholder concept. The title of the work is Strategic vigilance and but the subtitl e is A Stakeholder approach shot and came out in 1984. Stakeholder Theory of the MNC Doing this he indicated that his view of the stakeholder concept was done from the perspective of the company. He make on the summons work of Ian Mitroff, Richard Mason and James Emshoff. Actually the use of the word stakeholder came from the pioneering work done at Stanford Research Institute (SRI) in the mid-sixties. They further were heavily find outd by several concepts that were developed in the formulation department of the Lockheed Company and these ideas were developed from the researching done by Igor Ansoff and Robert Steward.Ansoff was around sixties working for the SRI in association with Lockheed (Friedman 2006). It is also clear that business chairing were thinking and expressing the stakeholder concept long before the early 1960s. Dodd (1932) states that already GEC was identifying quad main groups which whom they had to deal with. Those four groups were defined as shareholde rs, employees, customers, and the general public. Further, Preston and Sapieca (1990) mentioned that Johnson & Johnson identify customers, employees, managers, and the general public in 1947.The company Sears named four parties to any business in the order of their importanceas customers, employees, community and stockholdersin the year 1950. Schilling (2000) that the start of thinking about the stakeholder concept was the work of Follet in 1918. Friedman (2006) considers Here a concern about the corporation, which emerged along with the origins of the corporation as a judicial entity which he, calls the soulless corporation. This shows a virtuous or normative vacuum that has favored ideas of how this could or should be dealt with.In order so fill this vacuum the stakeholder concept has come up to travelling bag this demand. By distinguishing in this work amongst pre- and postFreeman (1984) it should be easier to understand why the stakeholders approach has become so popular dur ing the last twenty years. by and large important to know is that from the start on the stakeholder approach grew out of management practice. 8 Stakeholder Theory of the MNC 3. Contribution of Freeman to the stakeholder literature 3. 1. Freeman Strategic ManagementAn argument for the more frequently used stakeholder concept in the early 1980s could be the changes among workers, students, consumer groups and environmentalists in the late 1960s. One mishap of arguing about the development of this field is to see the planning process as be culmination change magnitudely sensitive to the business environment and the desire for good information about it. Friedman (2006) has the opinion that at the succession where the SRI came up with their memo they called for information systems to scan and track stakeholder responses to changes in unified schema as part of this environment.The SRI has developed measures of satisfaction for the stakeholder groups who they have found. Freeman (19 84) illustrious that planners did not want to attempt to influence special stakeholder manner or else they wanted all to forecast the future environment in order to adapt it with the capabilities of the company. In the 1960s the environment was very stable, relatively unchanging and kind of predictable. Freeman (1984) stated that prior to his work, the strategic planning literature did hardly consider stakeholders, and when, only very undefined, as generic groups, and only legitimate or friendly stakeholders.The groups like competitors or other rivals were go forth out. The literature of that time just developed simplistic approaches for considering the environment the stakeholders were skipd. doorkeeper (1980) for good example was one theorist who dealt with the environment and split it up into his pulverization analyses (strength, weakness, opportunities and panics). Friedman (2006) mentions an interesting exception. Ansoff who was a key contributor to the strategy lite rature from the 1960s to the 1970s and was part of the Lockheed-Stanford connection that produced the initial stakeholder definition.He defines objectives as decision rules which enable management to guide and measure the bulletproofs execution of instrument towards its purpose and responsibilities as obligations which the firm undertakes to discharge and not part of the firms internal guidance and control mechanism (Ansoff1965). Another interesting contribution he make is that the distinction of constraints which he defined as 9 Stakeholder Theory of the MNC decision rules which exclude genuine options from the corporations freedom action such as accredited rules or regulations enacted by the government. 3. 2.Freemans essential book A stakeholder approach The main idea roll in the hay the book of Freemans book titled Strategic Management, A Stakeholder Approach, was to try to skeletal frame a modelling that was responsive to the concerns of managers who were being con summit ed with unexampled levels of environmental turbulence and change. He argued (Freeman 1984) Gone are the good old days of worrying only about taking products and services to market, and gone(a) is the usefulness of management theories which concentrate on efficiency and effectiveness deep down this product-market example.Traditional strategy frameworks were not helping managers anymore to develop new strategic directions and also did not help creating new opportunities. Freeman (1984) said that oc genuine theories are inconsistent with both the quantity and kinds of change that are occurring in the business environment of the 1980s. Turbulence organizations are veneering the need for new management and a new conceptual framework was. And his approach was a response to this challenge. In Freemans (1984) opinion it was not enough to solve the calls for increased productivity using the methods from lacquer or Europe.He believes that business-labor-government cooperation is only part of the solution. Both internal and outside(a) change has meant that the model of the organization as a mere resource-converter is no longer valid and suitable. Internal change includes owners, customers, employees and suppliers. External change for Freeman (1984) includes The emergence of new groups, events and issues which cannot be readily unders besidesd within the framework of an existing model or theory.It makes us uncomfortable because it cannot be readily assimilated into the relatively more comfortable relationships with suppliers, owners, customers and employees. It originates n the murky eye socket labeled environment and affects our ability to cope with internal changes. 10 Stakeholder Theory of the MNC Some examples for external change would have be the expansion of government activities, the increase in foreign disceptation, the 1960s environmentalist movement associated with the publication of Rachel Carsons The Silent spring (1962) and the formation of the Env ironmental Protection Acts. the proceeds of groups concerned with special interests such as gun control or abortion, and also the media became more important in business. All those changes favored the need of a new model of the organization. Freeman (1984) made his view of the firm with the common hub-andspoke picture (see Figure 1). Managers are not mentioned because they work within the firm and so they are assumed to be within the hub. beta to know is that Freeman notes that the illustration of his diagram is very oversimplified and as already mentioned the groups shown can be broken down into more specific categories (see district 2. . ). Freeman chose the word Stakeholder on the basis of the traditional term stockholder which takes only a look at the economical point of view. Where the stakeholders are defined as any group of individual who is affected by or can affect the achievement of an organizations objectives (Freeman 1984). 11 Stakeholder Theory of the MNC Figure 1 Stakeholder map of a MNC / Source Freeman (1984) Owners Political Activists 12 Stakeholder Theory of the MNC The purpose of stakeholder management was to create methods to manage the different groups and relationships that resulted in a strategic fashion.Further Freeman (1984) thinks that the idea of stakeholders, or stakeholder management, or a stakeholder approach to strategic management, suggests that managers must arise and implement processes which satisfy all and only those groups who have a stake in the business. The main task in this process is to manage and immix the relationships and interests of shareholders, employees, customers, suppliers, communities and other groups in a way that guarantees the long-term success of the firm.A stakeholder approach is very much concerned about active management of the business environment, relationships and the promotion of shared interests in order to develop business strategies. But due(p) to the fact that a lot of different stake holder concepts are around in literature in order to get a better overview the next chapter will go in more detail in the contribution to the literature done by Donaldson and Preston (1995) who distinguish between normative and strategic or analytical stakeholder theory. 4. Normative, instrumental, and descriptive stakeholder theory 4. 1. IntroductionFreemans work Strategic Management A stakeholder Approach (1984) offers a managerial and practical scope and does not really construct a theory. But it has constituted a base for the development of the stakeholder theory, enamor have been widely developed since the 1980s. Stakeholder concept gave rise to heterogenic theoretical developments becharm have been summarized in Donaldson and Preston Article The Stakeholder Theory of the Corporation Concepts, Evidence, and Implications (1995). They suggested that the stockholder theory literature can be seen as three branches 13Stakeholder Theory of the MNC Descriptive The aim is to unders tand how managers deal with Stakeholders and how they represent their interests. The corporation is viewed as a constellation of interests, some time war-ridden and some time cooperative. The analytic theory will show how the MNC can deal with these different interests of stakeholders. Instrumental Approach Study the organizational consequences of taking into account stakeholders in management examining the connections between the practice of stakeholder management and the achievement of non-homogeneous corporate governance goals. Normative Identification of moral or philosophical guidelines colligate to the activities or the management of corporations. Donaldson and Preston argue that if these three approaches are combined without identification it would result to confusion. First we will study the normative approaches of the stakeholder theory trance are considered by many as the core of the theory, then we will study the Instrumental and descriptive theory (analytic), and we will finally try to find common concepts of the stakeholder theories. 4. 2. Normative theory 4. 2. . Objective The objective of the normative theory is to answer the following questions, what are the responsibilities of the company in keep of stakeholders? and why companies should take care of other interests than shareholders interests? . The normative theory is colligate to moral, set and philosophic purposed. For Donaldson and Preston (1995) the normative theory is the core of the stakeholder theory. For them stakeholders have a legitimate interest in MNCs and their interests have 14 Stakeholder Theory of the MNC inwrought value.But Freeman think that the idea of Donaldson and Preston suppose a insulation between economics and ethics spheres. For Freeman every organization theory incorporates a moral dimension, even if it is most of the time implicit. For many authors relationships between the firm and stakeholders are based on moral commitments. Not only to optimize c lams managing stakeholders relationships in an optimal way. The relations between firms and its stakeholder can be valuable for the company as a reflection of it values and principles. Each company should define fundamental moral principles, and use these principles as a basis for decision making. . 2. 2. The action of a company should be ethic One pillar of the normative stakeholder theory is that the company decisions affect stakeholder outcomes and has to be ethic. In this kind of situation, when the action of an agent affects an other agent, the company has to build ethics principles. Decisions made without any consideration of their impact are usually thought to be unethical. Donaldson and Preston (1995) state that the stakeholder interests has an intrinsic worth not indirectly linked to the company interests. A firm should not ignore claims of stakeholders simply because honoring them does not serve its strategic interests.The firm should build principles or rules of the game on how the company should operate building contracts with stakeholders. 4. 2. 3. Freemans normative theory Evan and Freeman (1990) tried to build a normative theory based on this definition of stakeholders Those groups who are brisk to the survival and success of the corporation. It means customers, employees, suppliers, communities, shareholders and managers. Evan and Freeman call for a redefinition of the purposes of the firm to act as a vehicle for coordinating stakeholders interests.They appoint cardinal principles 15 Stakeholder Theory of the MNC Principle of corporate legitimacy. The company should be managed for the benefit of its stakeholders. Stakeholders must participate in decisions that substantially affect their welfare. The stakeholder fiduciary principle. Managers must act in the interests of the stakeholders as their agent in the interests of the corporation to ensure the survival of the firm. Managers have the same duties than other employees but they also ha ve a duty of safeguarding the welfare of the firm.For making stakeholder management executable Evan and Freeman propose a stakeholder board of directors comprising representatives of the five stakeholder groups, plus a director magnetize would be elected unanimously by the others and be vested with the duty of caring for all stakeholders. One year later in doctrine of seemly contracts Freeman develops how contracts can be made between the corporation and stakeholders. In the model stakeholder representatives are assumed to be rationally self interested and to understand the implications of different corporate designs for success or failure.In this gibe parties should choose the six following rules (Doctrine of fair contracts Freeman 1994) The principle of entry and exit The contract has to define process that clarify entry, exit and renegotiation conditions for stakeholders to decide when an consentment can be fulfilled The principle of governance Procedures for changing the rules of the game must be concord by unanimous consent. This would deal to stakeholder governing board. The principle of externalities If contract between A and B involve C, C has to be invited as a troupe of the contract.The principle of contracting cost Each parties must share in the cost of contracting The agency principle Any party must serve the interests of all stakeholders 16 Stakeholder Theory of the MNC The principle of especial(a) immortality The corporation should be managed as if it can continue to serve the interests of stakeholders finished time. These principles represent an grand to guide actual stakeholders in devising a corporate constitution or charter. It permits to build strategy on ethics asking what do a company stand for? in conjugation with it strategy decisions. 4. . Analytic theory 4. 3. 1. Introduction Has we have seen in the entrance the analytic part of the stakeholder theory is composed of what Donaldson and Preston called the instrumental and the descriptive approach. The objective is to understand how managers deal with stakeholders, how they represent their interests and the impact of the stakeholder approach in the achievement of conglomerate corporate goals. We are going to consider an organization centric view of the stakeholder theory enrapture mean that the firm is considered to be the liaison of the interests of for each one stakeholder.This is the vision of Freeman and his model has seen contributions of Savage (1991), Clarkson (1995), Jones (1995), and Mitchell, Agle, and Wood (1997). The analytic theory is necessary to answer the question how to organize into power structure stakeholders influence? Each author has a different point of view and we are going to see each model, theory or contribution. Even if their theories meet in order to find a unique stakeholder theory, there are excuse differences and the authors have not found a consensus yet. 17 Stakeholder Theory of the MNC 4. 3. 2.Strategic m anagement Freeman (1984) and Savage et Al. (1991) Freeman gave devil definitions of a stakeholder Group of people who can affect or can be affected by the achievement of the organizations objectives (1984) Those groups who are springy to the survival of the organization (2004) Belong to him, in order to enhance an organizations stakeholder management it is necessary to begin by defining who the stakeholders of the corporation are. If we apply his definition, it means who are those groups who can affect or can be affected by the achievement of the organizations purpose?This mean mapping the stakeholders, providing detailed list of the specific groups and companies related to each category of stakeholders, and a corresponding list of interests. For Freeman the corporation occupies a central position and has direct connections to all Stakeholders (see Figure 1 pg. 11). Freeman suggests that each MNC should distinguish important stakeholders and negligible stakeholders. For him the MNC has to limit the number of stakeholders and to not take care of inoffensive stakeholders.To facilitate important stakeholder mapping Freeman suggests the following question Who are our current and potential stakeholders? What are their interests/rights? How does each stakeholder affect us? How do we affect each stakeholder What assumption does our current strategy make about each important stakeholder? What are the environmental variables that affect us and our stakeholder? How do we measure each of these variables and their impact? How do we keep score with our stakeholders? 18 Stakeholder Theory of the MNCIn order to find the optimal strategy for each group of stakeholder Freeman suggests analyzing the stakeholder behavior and come-at-able coalitions between stakeholders groups. The stakeholder behavior can be delineated investigating in the past actions of such kind of groups. It is necessary to analyze the actual behavior of stakeholders, their cooperative potential and competitive threats. Coalition may develop if different groups of stakeholder have common interests or common issues linked to the activity of the MNC. They can then form a more federal agencyful group witch has to be taken into account.For Freeman manager should scan the environment for type of similar actions, interests, beliefs, or objectives between stakeholders groups. The formation of a coalition can change stakeholder strategy and positions on issues. These two analysis lead to a more realistic map of companys stakeholders. It also allows the manager to construct a logical explanation to explain why specific stakeholders act in a particular way. The company has to form the long terms objectives of each groups and consider the stakeholders as rational. This map of stakeholders allows finding the optimal strategy for each group.Freeman is going to consider two variables to determine the optimal strategy the relative power of stakeholders and their potential to cooperate or threaten corporate strategy. Savage et Al. (1991) gave guidance on the measurement of these variables. The power of threat is determined by resource seeence, the stakeholders ability to form coalitions, and relevance of the threat to particular issue. The potential to cooperate is determined by the stakeholders capacity to expand its dependence with the organization the greater is the dependence, the greater is the willingness to cooperate.As a result Savage et Al. distinguish four types if stakeholders appurtenant high cooperative potential and low competitive threat. Considered as the ideal type and it includes the board of trustees, managers, employees, parent companies, suppliers, service providers and non-profit organizations. 19 Stakeholder Theory of the MNC marginal low cooperative potential and competitive threat. Includes consumers interest groups, professional association for employees and shareholders. Non-supportive low cooperative potential and high competitiv e threat.Includes competitors, unions, media and government. Mixed kindness high cooperative potential and competitive threat. Includes client and organizations with complimentary products and services. Freeman distinguishes four main strategies depending of the type of stakeholders Offensive strategy Should be select when a group is supportive. It includes trying to change stakeholder objectives or perceptions, to adopt the stakeholder position or to link the program to others that the stakeholder views more favorably. Defensive strategy Should be choose when a group is Non supportive.The objective is to interdict competitive threat on the part of these stakeholders. It means reinforcing current beliefs about the firm, maintaining existing programs or letting the stakeholder drive the integration process. Swing strategy Should be choose when a group is Mixed blessing. The firm has to take decisions such as changing the rules, the decision forum, the transaction process Hol d strategies Should be adopted when a group is marginal. The company should hold its current position and continue current strategic program. Has we can see Freeman but also Savage et al. o a separation of stakeholders regarding the cooperative potential and the competitive threat. 20 Stakeholder Theory of the MNC Clarkson (1995) introduce a distinction between pristine stakeholders and secondary stakeholders. Primary stakeholders as those without whose continuing participation, the corporation cannot survive as a going concern, suggesting that these relationships are characterized by mutual interdependence. Secondary stakeholders are not vital for the MNC. Primary stakeholders are the partners of the firm whereas secondary stakeholders have unpaid worker relationships with the firm. 4. 3. 3.Stakeholder identification Mitchell, Agle and Wood (1997) The major contribution for relationships between managers and stakeholders and the way to categorize them comes from Mitchell, Agle, an d Wood (1997). They tried to find a model to explain logically why managers should consider definite classes of entities as stakeholders and how prioritize stakeholder relationships. They put together forward three objective criterions in order to organize into hierarchy stakeholders of a company the stakeholders power to influence the firm, the legitimacy of the stakeholders relationship with the firm and the need of the stakeholders claim of the firm.These three criterions can be combined and it lead to seven stakeholders types (see figure 2). There are three types of power unconditional power based on bodily resources of powerfulness, violence, or restrain useful power based on financial or material resources Normative power based on symbolic resources such as being able to command attention of the media But it is not the only way to classify a stakeholder as a high priority. Legitimacy is required to provide authority.They use the Suchmans definition of legitimacy a ge neral perception that the actions of an entity are desirable, proper, or set aside within some fondly constructed system of norms, values, beliefs and definitions. Urgency is based on time sensitivity, the degree to witch managerial delay in attending to the claim is unacceptable fro the stakeholder, or critically. Urgency 21 3 Stakeholder Theory of the MNC Stakeholder guinea pig Latent 1. abeyant 2. Discretionary 3. Demanding Expectant 4. Dominant 5. Dangerous 6. Dependant Highly big 7.Definitive Figure 2 Model of stakeholder salience / Source Mitchell, Agle, and Wood (1997) All props can be gain as well as lost. A stakeholder is a low priority if only one attribute is recognizes, he became a moderate priority if two attributes are held and a high priority if the three attributes are perceived. Possession of an attribute is subjective. sometime a stakeholder may not be conscious of possessing an attribute, but at the end it is the manager who decides witch stakeholder has t his or another characteristic.So manager could incorrectly perceive the field, and should ask the questions Freeman uses for mapping stakeholders. Furthermore this self-will is also dynamic. For example for Nike, NGOs were only legitimate at the beginning, but became unavoidableness with the media support and then powerful with the boycott appeal. 4. 3. 4. Friedman and Miles (2002) Friedman and Miles (2002) use two criterions to define firms stakeholder relationships. Their typology of organization-stakeholder relations is based on two distinctions Compatible or ill-matched in terms of sets of ideas and material interests 2 Stakeholder Theory of the MNC Necessary or reliant on(p). Necessary relationships are internal to a hearty structure or to a set of logically connected ideas. contingent upon(p) relations are not integrally connected. As a result four relationships between MNC and stakeholders are distinguished. For each of them they encourage certain strategic actions. Necessary cause A Defensive Compatible Shareholders Top management Partners Type D Compromise Trade unions Low-level employees In harmonious Government Customers Creditors Some NGOsContingent Type B Opportunism The general public Companies connected done Common trade association Type E Competition/ ejection Criminal Members of the public Some NGOs Type A Necessary compatible relationships when all parties have something to win this connection. It is so logic to protect this relationship as a strategy. 23 Stakeholder Theory of the MNC Type B contingent compatible institutional arrangements. The two parties have the same interest but there is no direct relationship between parties. An opportunistic strategy is the logical strategy. Type C contingent incompatible institutional arrangements.The two parties have separate, opposite and unconnected set of idea or interests. It becomes a problem when one of two parties insists on its position. The strategy corresponds of defending its own interest by seeking to eliminate or by discrediting oppositional views. Type D Necessary incompatible relations occur when material interests are necessarily related to each other, but their operations will lead to the relationship itself being threatened. The situational logic is concession and compromise. As we can see stakeholder theories, normative and analytic, are widely different between times and authors. . The stakeholders from theory to practice. 5. 1. The Corporate Social Responsibility theory The way businesses involve the shareholders, employees, customers, suppliers, governments, non-governmental organizations, multinational organizations, and other stakeholders is usually a key feature of the Corporate Social Responsibility (CSR) concept. According to the Commission Green Paper (2001), the CSR is a concept whereby companies integrate sociable and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis .Amongst other things, this definition helps to strain that An important aspect of CSR is how enterprises interact with their internal and external stakeholders (employees, customers, neighbors, non-governmental organizations, public authorities, and so on ) 24 Stakeholder Theory of the MNC CSR covers social and environmental issues, in spite of the side of meat term corporate social accountability CSR is not or should not be separate from business strategy and operations it is about consolidation social and environmental concerns into business strategy and operations CSR is a voluntary concept. The social debt instrument is presented as the consideration of the expectations of the stakeholders and the fact, for the company, of answering to the consequences of its decisions to these stakeholders. At the practical(a) level, this approach is often summarized by the concept of triple bottom line (John Elkington) that is the consideration in the management of economic, environ mental and social objectives. Companies are dependent on stakeholders to obtain the necessary resources for their survival and for their development.The legitimacy of the company to use these resources depends on the correspondence of its behavior to rules and values recognized by the orderliness it will obtain a license to operate on the condition of not being considered as a predator of the natural and social environment. It is about a utilitarian legitimacy. The employees, when they have the survival of the fittest, will prefer to work in a socially responsible company. The consumers tell, in inquiries, to prefer goods produced in the respect for the fundamental rights of the work.Besides the financial performances, the investors integrate, in their choices of portfolios, the risk of injustice of reputation capital , which can also be translated by a loss of financial capital. Substantial or symbolic, the strategies of correspondence answer different constraints The constrai nts imposed by the law and matched by penalties we define the exercise of the social responsibility as to go beyond the only respect for the sanctioned obligations.The motivation of certain companies to set up devices of social responsibility is often connected to the anticipation of a hardening of the legislation, especially in the environmental domain. 25 Stakeholder Theory of the MNC The professional environment generally promulgates the normative constraints their espousal can be made on a voluntary base which values the commitment of the company. The mimetic constraints are going to lead certain companies to imitate the others, for example the best practices of some pro-actives leading, and this, especially if the environment is unsure and ambiguous. . 2. The three main current of the CSR Within the literature in management, the present-day(a) debate on the responsibility of companies took its origin in an article of Bowen1 financial backing that companies should revi sit their strategies by integrating the social and environmental dimensions to answer the mingled pressures of the hostelry. Among the large number of articles dedicated to the social responsibility of companies, notably in the United States, it is possible to distinguish three currents the ethical moralist current tradingEthics, the Business and Society current and the Social recognise Management. The theories of the Business Ethics current assert the existence of a moral responsibility of companies towards the society and future generations and postulate that the company has, by nature, a statue of moral agent, able to distinguish the good and the evil, thereof having the moral duty to act in a social responsible way.In spite of its gaps, this approach generated an important movement around the ethics of the business and a speech which often confuses the good and the useful , ant that is why we can find a multiplication of ethical charters, of ethical investments which are only taking advantage of the ethics in economic purposes. The Business and Society current consider that there is no waterproof partition between the company and the society Both are in interrelatedness and form themselves mutually by means of their constant interactions.The company maintains, with the society, relations which are not exclusively trade and it results 26 Stakeholder Theory of the MNC from it a shape of social contract authorizing a social control by the society and the possibility to punish a company disobedient. So, the authors of this current assert that the contracts of cooperation, which establish the corporate trust between the firm and its stakeholders, get a competitive advantage to the company.The Social Issue Management current proposes tools to the administrators to meliorate the performance of their companies, by taking into account the expectations expressed by various actors of the society it restores the complexity of the management by widening the fi eld of the actors and by taking away the horizon of the decisions the expectations of the stakeholders are integrated into the strategic methods. In fact, these currents are not set and even cross together. They share the idea that what is good for the company is also good for the society.Archie B. Carroll, one of the authors the most known for the Business and Society current, elaborated a model which makes reference in the Anglo-Saxon world and which presents a four level pyramid. 27 Stakeholder Theory of the MNC Each of these levels depends on those which precedes it, the satisfaction of both first one (Economic and legal responsibilities) is requested by the society, that of the third one (ethical responsibility) is expected, that of the fourth one (philanthropic responsibility) is wished.These levels, go through with the various groups of stakeholders, can serve as reference to define the various categories of social and environmental performance that have to be estimated (D. J. Wood, 1991). 5. 3. The different CSR strategies The integration of the stakeholders expectations in the strategies can take several forms Actions of patronage or sponsoring, installation of foundations in that case, there is a separation of the social and environmental actions and the scotch actions they are used as communications strategies. However in some cases, 28 Stakeholder Theory of the MNC he implication of the employees in these actions modifies the economic public presentation of the organization. Actions integrated into the strategy, which try to implement the social and environmental dimension in the economic decisions investments, conception of products or process of production. This method, often linked to the tone method, has for objective to decrease the risks and to improve the economic medium-term performances. In order to put into practice, to develop and to evaluate the actions of social responsibility, the stakeholders (and the company itself) have mean s, which are the seafaring devices.Among them we can quote the external reporting and the internal devices of performances measures. But, the media reports certain examples of paradoxes. A paradox occurs when on a side, a company begins in an action of CSR, pledges for example concerning the durable development magical spell other side, accusing and detailed revelations about its practices emergent at the great day. Certain ONG as Christian Aid clearly denounced abuses on behalf of certain great multinationals in certain parts of the world. For example in the United States, McDonald illustrates a CSR with double face. symbolic company, which always wished to affirm its economic and social (even environmental) engagements, this company was criticized for non-ethical practices of businesses. At the time of the treatment of the McLibel case by British justice, this one confirmed certain complaints for ill treatment of the workers, abusive publicity and cruel treatment of the animals. February 15, 2005, the European Court of the Humans Right sliced in favor of Helen stain and Dave Morris, (two ecologists militants) in their fight with McDonald S in the McLibel case.The lawyer of the duet declare the European Court of the Humans right considered that violations of the humans right had been made in their opposition that there had been a procedural inequity in the business and that the adopted procedures were not equitable 29 Stakeholder Theory of the MNC In the same way, a European company as Shell generally took part as a proactive pioneer of the CSR but while missing however in 2004 to report to its shareholders a reliable military rank of its oil stocks which melted its book value.The engagement of the company in CSR obliges it to be more transparent in the social contract than it with the other actors. It creates its own Damocles sword other authors mentioned a mortal risk by the mediatization of its actions (J-Y Trochon, 2003). impuissance to honor this engagement, the company takes a media risk of reputation even of confidence by a boomerang effect. This risk will come in the event of abuse early or late to remember with force to the good memory of all those which would wish to handle the other stakeholders and the shareholders initially.The risk result in a legal sanction, or even, in a faster and frightening stock exchange sanction and destroy in fine the dearly and patiently acquired reputation (media sanction). Enron and Parmalat are two emblematic examples, which show in the only sector of the corporate governance, on the two sides of the Atlantic, the fatal outcome of attempts of manipulation. 5. 4. The Limits of the theory and its application Milton Friedman wrote The Social Responsibility of Business is to Increase Profits.Friedman explains that corporations do not exist in physical reality, that only people can have responsibilities, and that businesses have no responsibilities as such. He maintains that there is one and only one social responsibility of business to use its resources and engage in activities designed to increase its win so long as it stays within the rules of the game. To earn profit is the purpose of the corporation that should engage in open and free competition without deception or fraud (Edward W. Younkins, 2006). In this view, it seems that the question of a Corporate Social Responsibility has no sense.Furthermore, The Freeman stakeholder definition seems to be too large and therefore its implementation is impossible. Indeed the managers have time-limited 30 Stakeholder Theory of the MNC resources and have to select the stakeholders which are going to hold attention. The factors that explain this choice are the power, the legitimacy and the urgency (as seen in section 4. 3. 3) The power is held by groups of actors who have the capacity to influence the current or future decisions of the firm (cf. Jeffrey Pfeffer, Gerald Salancik, 1978). The egitimacy of a group corresponds to its recognition by the society by rectitude of a contract, of a moral right or of a back up risk because of the activity of the company. Certain groups are legitimate but have no power (minority shareholders, the local residents of a polluting site not nonionic in defense association). The urgency characterizes the stakeholders that are asking for an immediate attention. This urgency is a function of the time sensibility and defines the delay of reaction of the manager acceptable or not by the stakeholders.It corresponds to a critic situation in general, notably in case of exposition at the risk. The reason of the leaders is necessarily limited by the urgency of the problems, by the pressures and by the information systems that they have. It seems therefore an illusion to envisage an exhaustive consideration of all the potential stakeholders. The influence of the stakeholders then depends on the perception of the leaders and the hierarchy that they establish between the va rious expectations, notably when these are contradictory.They are indeed going to choose and to enact the actors who will count for the definition of their strategy. The stakeholders theory remains ambiguous concerning its foundations and presents certain number of limits. On one hand, it joins in a relational representation of the organization based on manage contracts, which suppose that the conflicts of interests can be lick by insuring a maximization of each group interests. 31 Stakeholder Theory of the MNC On the other hand, the stakeholders theory builds a reduced representation of the social and environmental responsibility of the company.What about the dumb stakeholders (fauna, flora), about the third absentees (future generations, potential victims)? What about the values or interests of the too weak parties for being represented? Can we reduce the general interest to the sum of each group of stakeholder interests? Companies are trading organizations and the leaders are in front of dilemmas that can only be solved according to their more or less long-term profitability objectives. The issues depend then strongly on the dynamics relations between the firm nd its stakeholder, and of the level of the expectations and the pressures of the various actors. In the calculation of the advantages and the underlying costs in the win-win strategies, the anticipation of the behavior and the power of the stakeholders and the authorities of regulation is find out for the adoption of a socially responsible strategy. The actual consideration of social and environmental objectives in the strategies of companies depends largely on the representations which have the actors of the society of their direct or indirect power on companies.The economic logic thus remains the main axis, structuring the decisions of companies. The expectations of the stakeholders, their pressures, are the constraints which are integrated into the strategic management according to the repres entation of the power of these stakeholders. As argue Jean-Luc Migue, the practice of the social responsibility leads to a paradox the social responsibility implies the replacement of a managerial decision to that of the shareholders owners. As everywhere where the rights of property are eased, for example in the public sector, the individual irresponsibility follows.The practice of the social responsibility can lead to an individual irresponsibility. On the economic level, the generalization of this practice would lead to the end of the long-term economic growth and would make thus impossible the realization of the social ends looked for by the protagonists of the social responsibility. It is necessary in this subject to return to the essential education of the 32 Stakeholder Theory of the MNC economic theory, to the market as a mechanism of penalties and rewards and in the role of the instigations on the behavior.The theory and the history demonstrate that in its research for the maximum profit for its shareholders, the company realizes the common good in sub-product, and especially, that the ambition of do-gooders to divert it from its appropriate end that is the profit produces the exactly opposite effect that the one we suppose. 6. Conclusion The Stakeholder Theory is a quite new theory in the way it introduces the concept of stakeholders in the strategic management of a Multinational Company. The purpose of the MNC is not anymore only to make profit for shareholders but also to defend an image and values respecting all stakeholders.There is of course a link between the wealth of Shareholders and the wealth of all Stakeholders because the MNC need a good reputation to sell its products and so to make profits. But it has still not been clearly proven by empirical studies. The Stakeholder Theory is very popular in our times because people, and so on stakeholders, are stressed about the sustainability of the actual economic system. With globalization, com panies take more and more importance and are in many cases more powerful than states.In these conditions, their action can have a colossal impact on the society in general, and people ask such companies to have ethic and values. With deregulation, and less power of state in favour of economy, companies should not only sleep together the rights of this deregulation but also duties. And that is what stakeholders (and in particular consumers) are asking for. Examples of Shell or Nike show that an irresponsible way of management, with low ethic or values, lead to a decreasing wealth of the first stakeholder of an MNC, its owner, shareholders.One of the main problems of the stakeholder theory is stakeholder theories One of the major contribution in Stakeholder theory is Freeman book Strategic Management A Stakeholder Approach (1984) and it is often seen as the fundament of the Stakeholder theory. Then many Economists or Sociologists have made their contribution but not always sharing F reeman concept of Stakeholders. As a signs of 33 Stakeholder Theory of the MNC these divergences we have shown that there is more than 75 definitions of Stakeholders, witch is of course the key point of the theory.This is mainly due to the fact that Stakeholder Theory is not only an economic theory, having a huge part of philosophic or sociologic concepts. But in spite of these discussions it seems possible to identify some propositions on witch every author agree The firm has stakeholders witch have requests, every stakeholders do not have the same influence, MNC prosperity depends of the ability of the companies to manage strategic stakeholders and the principal function of managing stakeholder is to take into account and to arbitrate stakeholders requests even when there are contradictory.In practice, contributions of these different theories at the governance level establish a new base to redefine the stakes of the company and its model of governance, analyzing them with regard to the expectations and to the interests of stakeholders. It is what led to us to analyze in our third part the concept of CSR. In the sights of what we explained, it seems that the application of the CSR can only come true, in general in the social and environmental sides, under reserve that this application does not prevent from financial profits (as the CSR slogan says doing well by doing good ).However we can notice the attitude of companies trying to take into account, in an increasing way, this new approach of governance, and this, facing to more and more strong pressures coming from the different stakeholders. Furthermore, companies are more and more urged to position themselves in front of the emergence of the sustainable development concept, and making it, the CSR seems to be an effective instrument for the integration of this concept by companies in their strategic orientation. 34 Stakeholder Theory of the MNC References Aggeri Frank, Acquier Aurelien, (2005). 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