David Haataja
Bachelor’s Thesis 15 hp
Department of Business Studies Uppsala University
Spring Semester of 2020
Date of Submission: 2020-08-10
Stakeholder Theory:
The New Story of Business?
Abstract
Stakeholder theory has transcended academia and is infiltrating boardrooms all over the world.
However, the literature is divided and lacks a coherent narrative of stakeholder value creation. The purpose of this exploratory study is to investigate the merits of stakeholder management by
examining the arguments used by stakeholder researchers. Using argument analysis an overview of the field is created which describes the preconditions, mechanisms and moderators of value creation facilitated by stakeholder management.
Table of contents
1. Introduction 3
1.1. Purpose and Research Questions 4
1.2. Structure 5
2. Literature Review 6
2.1. Stakeholder History 6
2.2. Stakeholder vs. Shareholder Theory 7
2.3. Descriptive, Instrumental and Normative Stakeholder Theory 7
2.4. Stakeholder Theory and Ethics 9
2.5. Stakeholder Relations 10
2.6. Stakeholder Value 10
2.7. Stakeholder Theory and Sustainable Competitive Advantage 12
2.8. The Mechanisms of Stakeholder Management and the Selection Process 13
3. Methodology 14
3.1. Research design 14
3.2. Exploratory Studies and Sampling 14
3.3. Textual analysis 15
3.4. Argumentation analysis 15
3.5. The Pro et Contra-Model 16
3.6. Argumentation analysis and interpretation 18
3.7. Framework For Keywords Used in Article and Argument Selection 18
3.8. Limitations 20
4. Argumentation analysis 22
4.1. Stakeholder Theory, Value, and Firm Performance by Harrison and Wicks (2013) 22 4.2. Stakeholders, Reciprocity, and Firm Performance by Bosse et al. (2008) 24 4.3. How Applying Instrumental Stakeholder Theory Can Provide Sustainable Competetive
Advantage by Jones et al. (2018) 26
5. Discussion 29
6. Conclusion 30
7. References 31
1. Introduction
Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity. We believe the free-market system is the best
means of generating good jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all.
Businesses play a vital role in the economy by creating jobs, fostering innovation and providing essential goods and services. Businesses make and sell consumer products; manufacture equipment
and vehicles; support the national defense; grow and produce food; provide health care; generate and deliver energy; and offer financial, communications and other services that underpin economic
growth.
While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders.
Business Roundtable, 2019
On august 19th 2019 the Business Roundtable (BRT) released a statement on the social obligations and responsibilities of modern business. 181 chief executives of some of the most influental
businesses in the US had signed the document and seemingly committed themselves to serve the interests of their stakeholders. Business leaders are increasingly adopting language which suggests that they embrace a wider definition of corporate social responsibility and an expanded area of responsibility. However, to what extent the document will have an impact on the decision-making processes of the signatory companies remains to be seen.
Stakeholder management has transcended academia and is increasingly being taken seriously and adopted by practitioners as a method for integrating corporate responsibility into managerial decision-making. The debates surrounding corporate social responsibility and the corporate objective have a long history. Business scholars, courts and lawmakers have argued over the
purpose of the firm and the proper distribution of value ( i.e. “the spoils”) for many decades without reaching consensus (Sundaram and Inkpen 2004). In the academic study of finance shareholder value maximization has long been accepted as the only acceptable purpose of corporations. The failure to manage so as to maximize the long-run market value of the business is describe in terms of agency costs, which can be mitigated by exercising corporate control.
Stakeholder theory has been variously described as “the new story of business” (Freeman 2018),
“essentially contested” (Miles 2011) and “unbridled socialism” (Friedman 1970). Despite much debate since its launch into the academic mainstream of business and society studies in the 1980s, the stakeholder concept is still contested and multiple interpretations and versions of the theory coexist. Ever since its introduction into the strategic management literature by Freeman (1984), stakeholder theorists have argued the importance of taking into account the interests of all
legitimate stakeholders. By stressing the inherent “joint-ness” of corporate value creation, advocates of the theory aim to facilitate a new perspective on the firm which takes into consideration the various groups on which corporations depend for their continued survival.
This paper will study the case for stakeholder management. More specifically, it will describe and analyze the arguments used by stakeholder theorists for the adoption of stakeholder management.
Phenomenon described in the literature refering to interactions between individuals and groups of stakeholders will be refered to as stakeholder mechanisms. They include social phenomenon such as reciprocity and perceptions of justice which impact the value created (destroyed) by active
stakeholder management (or lack thereof).
Stakeholder theory has been described as a perspective, a set of ideas, expressions and metaphors that all relate to the concept of stakeholder co-creation of value. However, there is little consensus in the academic literature regarding the normative and instrumental arguments for stakeholder management and the mechanisms through which corporate performance can be improved. With the increasing adoption of stakeholder language by practitioners, a coherent stakeholder narrative is needed. The aim of this study is to explore the link between the describe the interactions that result from active stakeholder management and how they relate to superior firm performance.
1.1. Purpose and Research Questions
The purpose of this study is to explore the theoretical context and arguments used to describe the interpersonal interactions through which stakeholder value is created. Exploratory studies can be used to ask open question to gain insights into an issue, problem or phenomenon that may be unclear (Saunders et al. 2016). There is little consuses as to how stakeholder management facilitates improved corporate performance. Specifically, the cause-and-effect relationships that make up the interpersonal interactions described in stakeholder literature does not provide a coherent or detailed picture of how stakeholder management can facilitate value creation. This study will make use of
argumentation analysis to describe the arguments used in academic literature. The strength of the arguments will not be evaluated, instead the study will attempt to elucidate the described benefits of stakeholder theory. Similarly, the empirical accuracy of the theory will not be considered.
Argumentation analysis can be used prescriptively, descriptively or to evaluate the strength of an argument. This study will make use of argumentation analysis for descriptive purposes to explore the mechanisms, preconditions and moderators of value creation facilitated by stakeholder management.
Research Question - What are the arguments in favour of the value creating properties of stakeholder management?
1.2. Structure
The structured of this study will be based on the following chapters:
2. Literature Review – Relevant theory and concepts will be described to provide context and clarity to the argumentation analysis chapter.
3. Method - The research process and the argumentation analysis method will be described.
4. Argumentation Analysis - This chapter describes the arguments used by stakeholder theorists in academic literature using the argumentation analysis method.
5. Discussion- The results of the argumentation analysis are discussed and evaluated. Conclusions based on the structured arguments will be made.
6. Conclusions - This chapter summarizes the final result and the implications of the study.
2. Literature Review
2.1. Stakeholder History
Stakeholder theory has been variously describe as a perspective, a set of ideas, expressions and metaphors related to the overarching objective of maximizing stakeholder value. Researchers and practitioners of stakeholder theory emphasize “jointness” of interests upon which all corporate value creation depend. Consideration of stakeholder interests in managerial decision-making is described by Freeman (2009 p. 65) to enable “better consequences for all stakeholders because it recognizes that stakeholder interests are joint. If one stakeholder pursues its interests at the expense of others, then the others with either withdraw their support, or look to create another network of stakeholder value creation”.
The stakeholder theory was developed from four lines of organization management research:
strategic organizational planning, systems theory, corporate social responsibility and organizational theory. Strand and Freeman (2015) explores the development of the stakeholder idea, specifically the Scandinavian contribution to early theory development. The term stakeholder (direct translation of the swedish term “intressent”) was first used by Rehnman in his 1964 book “Företagsdemokrati och Företagsorganisation”. Along with other innovations, the book included the first published stakeholder map and identified many key concepts in stakeholder thinking, including 1) jointness of interests, 2) cooperative strategic posture and 3) rejection of a narrow economic view of the firm.
Along with Rehnman's contributions, Freeman's Strategic Management: A stakeholder approach (1984) provided one of the earliest and most influential definitions of stakeholders. The book argues that firms depend on and need to take into consideration ‘‘any group or individual who can affect or is affected by the achievement of the firm’s objectives’’. Among it's most important contributions were the recognition and description of several interest groups, including employees, clients and customers, suppliers, shareholders, local communities etc. The inclusion of so many disparate parties in the managerial decision-making process eventually brought about definitions narrowing the scope of potential stakeholders.
2.2. Stakeholder vs. Shareholder Theory
Stakeholder theory is often contrasted with the prevailing economic view of the firm which is summarized under the label shareholder theory. This purportedly narrow perspective of the firm is characterized by the belief that corporations exist to create as much value as possible for shareholders (Sundaram and Inkpen 2004). The differences between the two perspectives are multifaceted, stakeholder theorists view profitability as an important objective, but do not consider the interest of shareholders to be more important than that of other stakeholders (Strand and Freeman 2015). The shareholder perspective is typically described as the position represented by Milton Friedman and can be summarized by his proposition that “the social responsibility of business is to increase its profits . . . without deception or fraud” (1970). The argument for and against the shareholder (alternatively stockholder) perspective has evolved since Friedman's early article on the subject. The range of subjects in recent literature include issues of property rights, the legality of stakeholder considerations in corporate decision-making (Stieb 2009) and trade-off between stakeholder interests (Harrison and Wicks 2013).
A central point in the “stakeholder vs shareholder” debate relates to assumptions in economic theory. Agency theory and the resource-based view (RBV) rely on the assumption of self-interested utility maximization (Bosse et al. 2009). Both theories have been widely adopted in business and economics research, and have been subject to much criticism due to perceived lack of realism.
Research on behavioral economics have identified many instances where the assumptions of rationality and self-interest break down (Thaler 2015). The perceived disinterest of shareholder theorists in human motivation and the cooperative elements of organizational behavior is a key point of contention (Bosse et al. 2009).
2.3. Descriptive, Instrumental and Normative Stakeholder Theory
Some interpretations of stakeholder theory maintain that ethical business practices must incorporate the notion that stakeholders are ends rather than means. All corporate value creation activity depend on the willing participation of stakeholders to enhance materials into products or services (Freeman et al. 2020). In renouncing the “narrow economic” view of business, stakeholder theorists reject the
“seperation thesis” said to be implicit in shareholders conceptions of the firm. The partitioning of ethics and business, i.e. the separation of the human and social needs of stakeholders from value creation activity is argued to be misguided both from an instrumental and normative perspective
(Freeman 1999). Strand and Freeman (2015 p. 67) claim that such a separation mistakenly juxtaposes profitability and stakeholder concerns, arguing instead that “long-term profitability is a byproduct of a well-run company that effectively engages with its stakeholders”.
Normative arguments for consideration of stakeholder interests typically support the notion that stakeholder demands are legitimate and “right” in and of themselves. Instrumental arguments for stakeholder theory advocate stakeholder management while maintaining the relative importance of traditional performance metrics (Jones et al. 2018). Donaldson and Preston (1995 p.72) succinctly describes the difference “An instrumental approach is essentially hypothetical; it says, in effect, "If you want to achieve (avoid) results X, Y, or Z, then adopt (don't adopt) principles and practices A, B, or C”. The normative approach, in contrast, is not hypothetical but categorical; it says, in effect,
“Do (Don't do) this because it is the right (wrong) thing to do””. Freeman and others have proposed Kantian ethics as a normative core for their stakeholder conception of the firm although various other normative cores have been suggested (Jones and Wicks 1999).
Instrumental theory concerns itself with the mechanisms (cause-effect relationships) and outcomes of managerial decision-making in relation to stakeholder concerns. Instrumental theory is contingent, in other words it predicts certain outcomes dependent on managerial behavior. In contrast to many other theories on economic decision making, instrumental stakeholder research make less assumptions (i.e. assuming bounded rationality, bounded self-interest) about human behavior (Jones et al. 2018). Jones and Wicks (1999 p.208) describes the viewpoint of instrumental theory and its relation to corporate success “No assumption is made that managers will try to develop trusting and cooperative relationships behavior with stakeholders, but an argument is made that if they do, competitive advantage will result.” The research also concerns itself with limitations and moderators of successful stakeholder cooperation (Jones et al. 2018).
The three-part typology of descriptive/empirical, instrumental and normative stakeholder theory was introduced by Donaldson and Preston (1995). The categorization of different (yet related) strands of theory has been criticized (Freeman 1999) but has come to be used to describe various kinds of stakeholder research.
2.4. Stakeholder Theory and Ethics
Researchers of instrumental and normative stakeholder theory differ in their views on several issues, yet there is agreement on some fundamental aspects. Jones and Wicks (1999) describe some of these foundational beliefs.
• The claims of all legitimate stakeholders have intrinsic worth
• Egoism as a normative standard for individuals and firms is rejected
• Concern for others is an important normative component in human interactions
• Morality is compatible with and is required for efficient capitalism
Apart from the above, many researchers consider distributive justice and fairness to be essential components of the theory. However, efforts to find consensus on social welfare creation have not resulted in a single stakeholder theory (Jones and Wicks 1999; Freeman 1999).
The principle of concern for all legitimate stakeholders implies that traditional financial indicators do not capture corporate performance in its entirety (Jones and Wicks 1999). Theorists have made use of insights from ethics to develop theories (narratives) for describing the functions and responsibilities of the firm, broadening the range corporate activities to include for example just treatment of stakeholders. Several normative cores for guiding such efforts have been proposed, including Kantian capitalism, fairness, fair contracts, personal projects and feminism (Jones and Wicks 1999). Aspects of utilitarian thinking has been endorsed by some theorists for the maximization of social welfare for all stakeholders, however aggregate utility maximization is rejected by stakeholder advocates of Kantian capitalism. Some stakeholder theorists have argued that moral behavior does not need to be justified in terms of instrumentality (Jones 1995).
The categorization (division) of theory into descriptive, instrumental and normative parts has been criticized as inappropriate and unproductive (Freeman, 1999). However, the interconnectedness of outcomes emphasized in theory necessitates managerial attentiveness to decision-making congruent with the long-term success of the organization. Freeman (1999 p.234) argues for a pragmatic approach to stakeholder management and emphasize the interlinked nature of normative and instrumental versions. He characterizes the efforts to divide theory intro separate spheres as an effort by theorists who “see a separate normative realm, unrelated logically to the actual world we
live in, believe that some actions may be wrong or right regardless of the resulting consequences.”
Encouraging the development of many theories of stakeholder management and less “managerial oughts from general principles", he argues will produce narratives that do not inappropriately separate morality and instrumentality but recognizes the interconnectedness of both.
2.5. Stakeholder Relations
Instrumental stakeholder theory builds upon the idea that a relational approach to stakeholder management will improve performance when compared to a transactional approach. That is, by creating and nurturing relationships with stakeholder groups the firm will be able to create more value, both in terms of economic value and stakeholder benefit. Although contributions to value creation are made by individuals and not collectives, proper management of groups with common values and interests will produce positive attitudes and mental representations in individual members of stakeholder groups (Bridoux and Stoelhorst 2016). By fostering a sense of communal sharing, individual actors are more likely to adopt altruistic relational representations, mitigating problems of coordination and cooperation. Mental representations comprises cognitive schemata, needs, motives, evaluative attitudes, judgments and emotions which are used “to plan and to generate their own action, to understand, remember, and anticipate others’ action, to coordinate the joint production of collective action and institutions, and to evaluate their own and others’ actions”
(Bridoux and Stoelhorst 2016 citing Fiske 2004). In their article they describe 4 modes of relational mental representations based on relational models theory, although many stakeholders theorists make use of reciprocal relations as a basis for stakeholder value creation.
2.6. Stakeholder Value
Successful stakeholder management is dependent on relational dynamics originating in reciprocal behavior. Distributional justice, that is the allocation of resources to stakeholders is one of the most hotly debated aspects of the stakeholder relationship. The preoccupation of some theorists with the proper or 'just' distribution of economic value (i.e. divvying up of 'spoils') has been criticized as contrary to the inherent “joint-ness” implied by the stakeholder perspective (Harrison and Wicks 2013). Part of the stakeholder literature is concerned with linking stakeholder management with the creation of economic value, furthering the notion that most of the value created by stakeholder management can be measured by traditional performance indicators. The question of stakeholder value creation (defining it, ways to measure it etc.) and the mechanisms (what causes it) of
successful stakeholder management is the focus of much research (Harrison and Wicks 2013; Jones et al. 2018; Bosse et al. 2008). At its core this research attempts to explain some fundamental aspects of stakeholder theory; why stakeholders choose to engage with certain firms and the ways in which firms create value.
Although economic returns is important to stakeholders, it does not capture all of the things they look for in their relationship with the firm. Harrison and Wicks (2013) argue that value provided to stakeholders can be understood as the sum total of all utility the stakeholder experience in their association with the firm. In other words, utility can be understood to be a reflection of that which has worth in the eyes of the stakeholder, and is thus dependent on individual preferences.
Incorporation non-material sources of utility is an important aspect of the theory and is the focus of some conceptions of stakeholder management (e.g. Bosse et al. 2008). Reciprocal relationships between stakeholder groups can enhance the value created by, for example, lowering transaction costs (due to increased trust) and increasing knowledge transfer (form increased cooperation and coordination). The social dynamics explored in the context of the stakeholder relationships are explained in terms of distributional-, procedural- and interactional-justice. This view is echoed by Harrison and Wicks (2013) who identify 4 sources of utility in stakeholder relationships:
• utility associated with actual goods and services
• utility associated with organizational justice
• utility from affiliation
• utility associated with perceived opportunity costs
The preferences for certain types of value originate from transactions, relationships and interactions that the stakeholder enter into with focal firm. By including both tangible and intangible benefits (and detriments) in their definition of value, Harrison and Wicks (2013 p.102) argue that firm performance is best understood as “the total value created by the firm though its activities, which is the sum of the utility created for each of a firm's legitimate stakeholders.”.
2.7. Stakeholder Theory and Sustainable Competitive Advantage
Many corporations face circumstances characterized by high task and outcome interdependence.
The dynamics at play have been described by economists as the “team production problem” which is used to illustrate and explain behavior where individuals are disinzentivized to contribute to a collective project (Bosse et al. 2008). The problem arises when individual contributions to a common value creation process is optimal from a collective point of view, but individuals involved in the process are incentivized to limit their contribution (i.e. by shriking). The problem arises when:
• The successful outcome of a value-creation process (e.g. innovation process etc.) is highly dependent on the individual contributions of multiple stakeholders
• The contribution of any individual in the process is hard to discern
Overcoming team production problems have traditionally been framed as an issue of aligning self- interested agents with the interest of the firm (Bridoux and Stoelhorst 2016). In contrast stakeholder theorists have emphasized the possibility of achieving high levels of cooperation based on insights from psychology and behavioral studies. Using concepts from relational models theory Jones et al.
(2018) explore the link between communal sharing relationships and stakeholder value creation.
Such relations are characterized by a fusion of individual and community identity, which aligns the motivations and goals of the stakeholder with those of the firm. In a similar manner to the altruistic mental schema described by Bridoux and Stoelhorst (2016), actors in a communal sharing relationship are motivated to contribute to a collective project without regard to personal benefit.
Creating and maintaining reciprocal relationships with stakeholder groups incurs costs. The most obvious costs are associated with resource allocation and distributional justice (Bosse et al. 2008, Jones et al. 2018). Costs associated with procedural- and interactional justice may also be significant, for example by necessitating behavioral change on the part of managers and employees in their interaction with stakeholders. The return on such investment is subject to diminishing marginal returns (Bosse et al. 2008), limiting the potential of the positive feedback loop of increasing stakeholder investment.
Using costs as a moderating influence on the benefits of adopting a stakeholder strategy, Jones et al.
(2018) attempts to describe the link between successful stakeholder management and sustainable
competitive advantage. Using the resource-based view (RBV) in their analysis of reciprocal relationships and competitive advantage, they aim to answer the question “If the performance effects of ethical relationships with stakeholders are positive, according to both theory and empirical studies [...] , why do so many firms treat stakeholders selfishly at best?”(Jones et al. 2018 p. 371). The disconnect between the theoretical advantages of stakeholder management and the lack of firms actively managing their stakeholder relations suggests that the costs and difficulties associated with adopting communal sharing relations are underestimated. This disconnect can be explained by examining costs as moderator on the benefits of adopting stakeholder management in order to create a “close relationship capability”. In their analysis they argue that such a capability is
“valuable, rare, and difficult to imitate and, thus, a potential source of sustainable competitive advantage”. They conclude that the costs associated with a transition from an “arm’s-length relationship” (ALRE) to a “relational ethics strategy” (CSRE) are moderated by the level of “Other- Regardingness” of the firm's preexisting ethical culture.
2.8. The Mechanisms of Stakeholder Management and the Selection Process
Under the assumptions used in stakeholder theory (e.g. bounded-rationality and reciprocity) individuals and stakeholder groups interact with each other and the focal firm in ways that create additional value (provided successful stakeholder management). The interpersonal interactions (e.g.
reciprocity, sharing) and the preconditions that facilitate the interactions (e.g. perceptions of distributional-, procedural- and interactional justice) will be described as stakeholder mechanisms.
In other words, the cause-and-effect relationships that make up the interpersonal dynamics described in the literature will be refered to as mechnisms that facilitate stakholder value creation (however it is measured).
Various authors emphasize different aspects of psychology, ethics and organization theory to strengthen their narratives and describe stakeholder mechanisms. In order to answer the research question of this study, a number of keywords have been selected to form criteria for
inclusion/exclusion of articles in the argumentation analysis. Furthermore, within the articles a number of arguments have been selected (and others excluded) to be reconstructed in an
argumentation overview. Due to the sprawling nature of the literature, the focus of the selection process is limited to aspects of the theory that explain the value creation activities that stakeholder management facilitates. In order to understand the merits (benefits) of the theory the selected keywords will focus on the social phenomenon fundamental to understanding how stakeholder
management might create additional value (and what that value is). In doing so this study rejects the notion that consideration of stakholder groups is right in and of itself (i.e. the normative position) and adopts an instrumental viewpoint. The merits of stakholder theory (and by implication the selection process) will focus on the usefulness of the theory. The usefulness of the theory is
intimately connected to the the mechanisms that facilitate value creation, the preconditions for value creation, the question of how that value is measured and any potential moderators of the desired effects. The resulting framework (keywords related to mechanisms, preconditions, value and moderators) used in the selection process and argumentation analysis will be provided in the methodology chapter.
3. Methodology
3.1. Research Design
Research design refers to methodological choices made in relation to a research project. The range of of approaches used in academic research is vast and a thorough overview is beyond the scope of this thesis. In this chapter I will describe the background and choices made in relation to this research project.
The term quantitative research is used to describe data collection techniques and data analysis procedures that use numerical data. In contrast, qualitative research design is associated with non- quantitative data and is often used in interpretive research. The interpretive element of qualitative research refers to the activity of sense making of subjective and socially constructed meanings expressed in the studied phenomenon (Saunders et al. 2016). Many qualitative research strategies share ontological and epistemological roots but make use of different procedures for data collection and analysis. Archival and documentary study refers to research that make use of recorded media and can based on any kind of textual, visual and audio representations of information. When using this strategy the purpose and nature of the selected documents need to be taken into account in the research process (ibid.).
3.2. Exploratory Studies and Sampling
Exploratory studies are useful for investigating topics of interest with the aim of generating ideas or to gain knowledge to inform future research. By clarifying an issue, problem or phenomenon the researcher is able to evaluate the results in preperation of subsequent stages of research (ibid.).
Exploratory studies benefit from flexibility and can change direction in light of new data and
insights. Studies that make use of this research design typically do not make use of random sampling but rely on non-random sampling techniques. Due to limitations in the scope and sampling techniques used, the results of exploratory studies are typically not generalizable (Esaiasson et al. 2012). Exploratory research design does not refer to any special method for collecting or analyzing data but is used to describe research with the aim to “explore” the selected object of study (Saunders et al. 2016).
Snowball sampling (or chain-referral sampling) is a technique used to collect data by using an initial source to find additional data sources. By relying on individual respondents, documents or other data sources to provide additional data, the sample grows until a sufficient sample is collected (Esaiasson et al. 2012). There is no guarantee that the collected data accurately reflects the entire population of objects intended to be the focus of the study. Rather, the sample may reflect a subset of the population, which might skew the results (ibid.).
3.3. Textual Analysis
Research in social studies and the humanities make use of a wide variety of strategies for analyzing texts and arguments. Content analysis and argumentation analysis are some of the strategies
employed to study the meaning, context and structure of texts. Although there are numerous approaches to text- and discourse-analysis, they all share a number of purposes. Esaiasson et al.
(2012) separate textual analysis techniques into two categories depending on the focus of the research question: systematizing studies and critical studies. Systematizing studies are undertaken to either (1) clarify thought structures, (2) formalize logic or (3) categorize the studied object(s). They are all descriptive in character but can be used to study a wide variety of phenomenon, examples include the ideological development of party organizations, the conceptual world view of thinkers or arguments in texts and speeches. (2) Logical structuring refers to research with a focus on formalizing textual meaning. Argumentation analysis is such a technique and is particularly useful for structuring the content of argumentative texts for easy overview and evaluation (ibid.).
3.4. Argumentation Analysis
The study of arguments has a long history within the field of rhetorics, which was first studied by the ancient greeks (Boréus and Bergström 2018). Logos, Ethos and Pathos are central concepts within rhetorics and are used to describe attempts to persuade. Logos refers to appeals to the audiences' reason, Ethos signifies appeals to the character or authority of the author or speaker and
Pathos refers to appeals that speak to the feelings of the audience.
Academic writing is expected to make use of appeals to reason by providing evidence or arguments based on logic to strengthen a claim or thesis. Argumentation analysis is a technique used to study arguments that are based on Logos by investigating the relations between claims. To describe the argumentative content of a text the author must recreate the arguments and the relations between different claims (ibid.). Argumentation analysis can be used prescriptively, descriptively or to evaluate the strength of an argument. Descriptive argumentation analysis can be applied to selected parts or to the whole of an argumentative text, speech or debate. This study will make use of the pro et contra-model of argumentation analysis developed by Arne Naess.
3.5. The Pro et Contra-Model
The pro et contra-model is used to structure the contents of argumentative texts by formalizing the logic of related claims. The technique can be used prescriptively, descriptively or to evaluate the strength of an argument. Descriptive analysis is needed for either purpose and is performed by creating an argumentation overview of the studied text. By structuring a constellation of claims according to the logic with which they support or undermine other claims, the argumentative structure can be clarified and more easily evaluated (Björnsson et al. 2009).
A claim is made up of a sequence of words that convey meaning. The same claim can be expressed in many languages, for example “Snow is white” is interchangeable with “La neige est blanche” or
“Lumi on valge”, even if the sequence of words is different (Björnsson et al. 2009 p.114) Claims that are used to either strengthen or undermine a related claim are refered to as arguments. An argument is strong if it provides good reasons for either accepting or dismissing a related claim. A strong pro-argument provides good reasons for accepting the claim which it refers to. Similarly, a strong contra-argument provides good reasons for dismissing the related claim. A weak argument does not provide good reasons for either accepting or dismissing a related claim.
An argumentation overview should be adapted to serve purpose of the analysis. When the purpose is to investigate and recount the arguments used by an author (i.e. descriptive analysis), the
overview should be limited to arguments explicitly used by the author in the selected text. If the overview is used to evaluate arguments in favor of a thesis, the analysis should focus on the
arguments most relevant to the strength of the central claim. The strength of an argument is relative
and influenced by prior knowledge and the opinions of the reader. The pro et contra-model is used to study arguments based on inductive logic and thus cannot provide conclusive proof of a thesis.
Rather, the strength of the central claim is a function of the strength of the reasons for and against the claim provided by related claims, based on the judgment of the reader. This paper will use the following definitions for key concepts in argumentation analysis:
Argumentation - A thesis and a constellation of claims presented by an author to argue for a factual or normative position.
Thesis - A claim which is supported or undermined by a constellation of claims. The thesis of an argumentative text is a claim which is not used to support or undermine another claim.
Argument - A claim presented by an author to support or undermine another claim or thesis.
Pro-argument - A claim which supports a thesis, pro-argument or contra-argument claim.
Contra-argument - A claim which undermines a thesis, pro-argument or contra-argument claim.
The strength of a pro-argument - The strength of a pro-argument P in relation to a claim T is the extent to which P provides good reasons for accepting T.
The strength of a contra-argument - The strength of a contra-argument C in relation to a claim T is the extent to which C provides good reasons for dismissing T.
The relevance of a pro-argument - The relevance of a pro-argument P in relation to a claim T is the extent to which P provides good reasons for accepting T if assumed to be true (or strong).
The relevance of a contra-argument - The relevance of a contra-argument C in relation to a claim T is the extent to which P provides good reasons for dismissing T if assumed to be true (or strong).
Argumentation analysis example
T: This is the thesis
P1 The first argument in support of the thesis
P1P1 The first argument in support of the first argument in support of the thesis C1 The first argument against the thesis
P1C1 The first argument in support of the first argument against the thesis
3.6. Argumentation Analysis and Interpretation
Several issues arise in the process of interpreting texts for the purpose of performing an
argumentation analysis. When reconstructing arguments the researcher is approaching the text with the purpose of structuring arguments according to logical relations that the original author may only be partially aware of. The extent to which resulting analysis is a reflection of the intent of the author is an open question. Even so, the analysis may be justified by providing further insights into the meaning of a text (Boréus and Bergström 2018). The additional insight provided by an
argumentation overview is obtained by making clear meaning in the text that is not immediately evident from reading it. The problems associated with interpretation and structuring of arguments can be mitigated by discussing the context within which the claims are interpreted. By transparently revealing the choices made when analyzing, the researcher can clarify issues stemming from the interpretation process or ambiguities in the text. This paper will discuss the context of the
argumentation before each overview, as well as provide the page number(s) of the text used in the overview.
3.7. Framework For Keywords Used in Article and Argument Selection
Studies found during the research process of the literature review chapter will be used as the primary documentary source. Using snowball sampling a wide collection of articles connected to the broad field of stakholder theory has been sampled. From these articles a few have been selected to be partially reconstructed in the form of argumentation overviews. Partial reconstruction refers to the selection of specific parts (constellations of claims) of the studied texts to be turned into
argumentation overviews.
Many of the reviewed articles discuss a wide variety of aspects of stakholder theory. This exploratory study focuses on aspects related stakeholder value creation, which has been
summarized into a framework based on four catagories (part 2.8.). The categorization of stakeholder value creation phenomenon is divided into stakeholder mechanisms, preconditions, value and moderators. Due to limitations in scope and sampling technique, this categorization may not adquately cover all relevant aspects related to stakeholder value creation. However, the
phenomenon that are included within these catagories do reflect the breadth of value creation cause- effect relationships found in the sample.
Stakeholder mechanisms - The interpersonal interactions (e.g. reciprocity, sharing) and the preconditions that facilitate the interactions (e.g. perceptions of distributional-, procedural- and interactional justice).
Stakeholder preconditions – A subset of mechanisms that must be present in order for beneficial interpersonal interactions to take place.
Value – The benefits provided to the firm and stakholders. May include tangible and intangible benefits provided to individuals and stakeholder groups depending on the defintion.
Stakeholder moderators – Effects stemming from circumstances that may impact value created by stakeholder management (e.g. by mitigate the benefits or increasing the cost of adoption).
The selection process of the arguments to be reconstructed has been performed using keywords produced by an operationalization of the framework. Due to the explorative nature of the study, the overviews will reflect arguments made in the articles but do not include every claim put forward by the authors. The operationalization of the framwork has yielded the following keywords: tangible and intangible stakeholder value, stakeholder interdependence, reciprocity, distributional- , procedural- and interactional justice and sustainable competitive advantage. Moreover, detailed and rigorous studies of the phenomenon related to the keywords have been favored over arguments based on normative concerns. Articles attempting to apply scientific criteria to interactions resulting in stakeholder value creation are few in number. Jones et al. (2018 p. 373) remark that “To our knowledge, we are the first to rigorously apply the resource-based criteria to an evaluation of how the strategy of interacting ethically with stakeholders relates to the sustainability of competitive advantage. Doing so provides a stronger rationale for managers to adopt such a strategy in their own firms”. However, the literature review along with the constructed argumentation overviews do satisfy the explorative purpose of this study.
3.8. Limitations
A complete overview of the phenomenon described by the identified catagories is beyond the scope of this paper. The purpose of this exploratory study is to investigate the merits of stakholder theory using phenomenon related to real-world value creation. Due to the limited scope of the study as well as the drawbacks inherent in the snowball sampling process, the results should be interpreted with the exploratory purpose in mind. The mass of articles written on the topic of stakholder management cannot be summarized in a bachelor's thesis (in the opinion of the author).
The selected texts serve different purposes, some discuss practicalities of stakeholder management while others limit their discussion to instrumental mechanisms. Due to the narrative and
argumentative character of these texts, the argumentation analysis method is well suited for describing the structure and meaning of the literature. However, the application of argumentation analysis on academic literature is not unproblematic. Most authors do not dicuss the contra
arguments to a sufficient degree. The primary objective of many of many articles is to describe and explain effects that may lead to better work satisfaction, more productivity, increased profitability etc. The field of stakeholder research has been accused of having an optimistic bias (an opinion of shared by the author). In addition to the lack of contra arguments, the moderators of stakholder value creation (i.e. effects which may mitigate or negatively impact value created by stakeholder management) have been chosen to not be described as contra arguments. Rather, the individual catagories of the framework should be understood as different sides of the same narrative(s) describing stakeholder value creation and should therefore be viewed as seperate thesis. Whether a cost associated with active stakeholder management is a contra argument for the adoption of stakholder management is a complex question. For this reason the overviews have been divided based on the keywords that were used to select the arguments (not least to improve readability). The argumentation overviews' main purpose is to provide clarity to the arguments used, which can be achived without contra arguments.
The strength of the arguments is not considered in this paper. Due to the complex nature of most academic writing, the thrust of many of the points made in the literature is lost in the summarized overview. The overviews have been constructed to provide the reader with an understanding of the arguments used, but does do justice to long passages with complex reasoning. However, care has been taken to not misrepresent the arguments or reduce the theory into a strawman.
When constructing argumentation overviews the interpretor is presented with a number of
difficulties related to textual analysis. The process can be understood (roughly) to include at least four factors: (1) the character of the text, (2) the clarity of thought, (3) the choice of prespective and (4) the distance between author and interpretor (Esaiasson et al. 2012 p. 221). (1) The character of the text refers to explicit and latent meanings in the text, (2) clarity of thought relate to the
consistency and lack of ambiguities. The academic nature of the texts ensures that most of issues associated with these factors are minimized. Arguments are explicitly stated and care has been taken to reduce ambiguities by selecting articles that provide a clear account of the described
phenomenon. (3) The choice of perspective relate to differences in understanding of the text stemming from differences in perspective between author and interpretor. Due to the fact that the articles were written by reseachers for researchers these risks are minimized. (4) The distance between author and interpretor is the most significant factor that have impacted this study. Most of the articles used in process of writing this paper have been written by experienced stakholder reserachers. The distance stemming from differences in knowledge and experience (decades worth) has significantly increased the time spent researching the topic. The risks associated with this factor are most likely significant.
4. Argumentation analysis
4.1 Stakeholder Theory, Value, and Firm Performance by Harrison and Wicks (2013)
Harrison and Wicks (2013) discusses value from a stakeholder perspective and introduces a four- factor model of stakeholder value that extends beyond traditional definitions. Their conception of value draws inspiration from foundational thinkers in economics such as Adam Smith and Milton Friedman as well as Utilitarianism. Stakeholder value, and by extension firm performance, is argued to originate from the utility functions of individual stakeholders based on their individual
preferences and perceptions. The additional value created by stakeholders is argued to originate from reciprocal behavior. To accurately capture this effect new performance measures must incorporate the tangible and intangible factors relevant to stakeholders.
T: Firm performance might be defined as the total value created by the firm though its activities, which is the sum of the utility created for each of a firm's legitimate
stakeholders (p. 102)
P1 Stakeholders are more likely stay with the firm and exhibit reciprocal behavior when provided the most value for what value they give up (i.e., when receiving a “good deal”) (p. 99)
P2 All of the firm's legitimate stakeholders have customer-like power to engage or not to engage with a firm and the utility that is created for one stakeholder is dependent, in part, on the behavior of the firm's other stakeholders (p. 103)
P3 The utility a stakeholder receives is a reflection of the value provided by the firm as determined by the stakeholder
P1P3 Economic returns are fundamental to a firm's core stakeholders, but most stakeholder want other things as well (p. 98)
P2P3 The value provided to stakeholders is influenced by the perception of the utility they obtain from both tangible and intangible factors (p.101)
Interactions between the focal firm and its stakeholders extend beyond dyadic relationships. Value is based on perceptions of fairness resulting from the ethical behavior of the firm. The effect of said behavior may extend beyond the immediate relationship and impact other groups within the
network of stakeholders. In this way, value created (or destroyed) by reciprocal behavior may be impacted by any other relationship the firm enter into.
T: The influence of the whole group of stakeholder relationships on value created is greater than the sum of the influence of each relationship taken separately (the phenomenon called Generalized Exchange) (p.105)
P1 The way a firm treats a stakeholder with regard to justice and fairness influences their perceptions of the virtuousness of the organization and also the way the stakeholders feel about the tangible utility from goods and services (as well as intangible factors) (p. 107) P1P1 This view is consistent with systems perspective which states that what happens at one part
off a system influences other parts of the system directly, and that eventually the influence returns to the initial part of the system to reinforce the original occurrence (p. 107)
P2P1 For example, the following interactions may result from good treatment of employees (p.
108):
◦ Employees who believe that they have received a good deal in terms of the total value they receive from a firm are more likely to reciprocate and expend additional effort
◦ This behavior can result in better products or products that are produced more cheaply which increases the value proposition to customers
◦ As value to the customer increases, so does demand
◦ Demand leads to growth in sales and profits, which provides more value to investors and surplus profits that may be reinvested
◦ Some of that investment is redirected back to employees as value in the form of higher compensation
4.2 Stakeholders, Reciprocity, and Firm Performance by Bosse et al. (2013)
In their research note Bosse et al. (2008) discusses reciprocal relationships and the interaction between fairness and value creation. Stakeholders look for both tangible and intangible benefits in their relationship with the focal firm. An argument is made that the the additional value created originates from perceptions related to distributional-, procedural- and interactional justice. Under the assumption of bounded self-interest, stakeholders may exhibit generous or self-sacrificing behavior which provides the firm with benefits. However, stakeholders may also negatively reciprocate when the firm is perceived to behave in an unfair manner.
T: Firms perceived as distributionally fair (unfair) by their stakeholders create more (less) rent, ceteris paribus
P1 If actors receive a material outcome they perceive as fair (unfair), they are inclined to exhibit positive (negative) reciprocity toward the other party by putting forth more (less) effort. (p. 450)
For example:
▪ Research has found that managers who were temporarily moved to a higher-status offices than their position actually warranted boosted their performance, in contrast managers who were temporarily move to comparatively lower-status offices
decreased their effort (p. 450)
P2 Norm-based social control mechanisms – like reciprocity – commonly influences the behavior of parties to an incomplete contract.(p. 451)
P1P2 An employee's effort is not fully specified in an employment contract, and his contribution to the firm varies depending on his perceptions of fairness. The same is true for contracts between the firm and other stakeholders.(p. 451)
T: Firms perceived as procedurally fair (unfair) by their stakeholders create more (less) rent, ceteris paribus
P1 When employers provide decision-making processes that fit criteria for procedural justice, their employees are more likely to exhibit reciprocity toward the firm (p. 452)
For example:
▪ Employees generally want to have input in the decision-making processes
▪ Employees want their employer to ask for their opinions and to seriously consider their opinions
▪ Employees want decision-making processes to be consistent, based on accurate information and free from personal biases
▪ Employees want decision making processes that allow for correction of bad decisions and that conform to standards of ethics and morality
T: Firms perceived as interactionally fair (unfair) by their stakeholders create more (less) rent, ceteris paribus
P1 When employers provide decision-making processes that fit criteria for interactional justice, their employees are more likely to exhibit reciprocity toward the firm (p. 452)
◦ For example:
▪ Actors want to be treated with courtesy, dignity and respect
▪ Interactional justice comes from appropriately sharing information and avoiding crude or cruel remarks
▪ Managers who treat employees respectfully by actively listening to their concerns and empathizing with their points of view are interactionally just
T: The firm incurs costs in order to be perceived as fair
P1 Distributional justice is is costly because it is associated with allocation of material resources to stakeholders (p. 453)
P2 Procedural justice is costly because it may generate marginal costs due to behavioral change (p. 453)
For example:
▪ Costs incurred from asking a key customer for his opinion on a new initiative
▪ Costs incurred from explaining to an employee why a desirable assignment was given to his colleague
P3 Interactional justice is costly because it may generate marginal costs due to behavioral change (p. 453)
For example:
▪ Costs incurred by being truthful rather than untruthful, polite rather than rude and respectful rather than disrespectful in individual transactions with stakeholders
4.3 How Applying Instrumental Stakeholder Theory Can Provide Sustainable Competetive Advantage by Jones et al. (2018)
Jones et al. (2018) provides a detailed account of the possibility for a close relationship capability to act as a sustainable competitive advantage. Using the resource based view (RBV) as an entry point into their discussion on ethical strategy, they conclude that although such a capability is valuable, it is also likely to be rare and difficult to create and sustain. Most firms approach their stakeholders using an arm's-length relationship (ALRE) strategy, operating according to the principle of organizational self-interest. To fully develop a close relationship capability the firm must
successfully adopt a relational ethics strategy (CSRE) based on the norms of communal sharing relationships. The costs of implementing such a strategy varies depending on the “Other-
Regardingness” of the firms preexisting ethical culture.
T: A close relationship capability is a potential source of sustainable competitive advantage
P1 According to the resource based view (RBV) of the firm, if a close relationship capability can be shown to be valuable, rare and difficult to imitate, it becomes a potential source of sustainable competitive advantage
T: A close relationship capability is valuable
P1 Additional economic value is created in a firm with a close relationship capability as stakeholders are motivated to contribute more to joint value creation and, importantly, as value creation processes become more effective (p. 376)
P1P1 Communal sharing relationships function without elaborate plans, rules or contracts and allow for reciprocal coordination which enables the creation of higher-quality
products/services at quicker speeds (p. 377)
P2P1 A close relationship capability involves shared perspectives and shared vocabularies that are necessary that can facilitate high-quality knowledge sharing between a firm and a
stakeholder group (p. 377)
P3P1 High quality stakeholders may be attracted to these firms because they feel as though they are participating in something “larger than themselves” (p. 377-378)
P4P1 An atmosphere of trust and an absence of opportunistic behavior make frequently renegotiated, detailed, formal contracts with elaborate safeguards unnecessary, lowering costs (p. 378)
P5P1 Another benefit of a close relationship capability is that it can motivate loyalty to or
additional effort expanded on behalf of the firm. Many stakeholders will exert effort to help the firm as a going concern if they have a commitment bond with the firm (p. 378)
P6P1 The norms associated with communal sharing relationships could eliminate team production problems (p. 378)
T: A close relationship capability is rare
P1 Business education and the existing norms of the economic system have stressed the pursuit of organizational self-interest as the best means of achieving corporate goals (p. 382)
P2 Managers may not be aware of the potential gains available to their firms if they are able to develop a close relationship capability (p. 382)
P3 Managers may believe that focusing on maximizing shareholder wealth is morally required (p. 382)
P4 Many managers are subject to incentives based on profit targets that direct their attention to short-term goals.
P5 Given the causal ambiguity and social complexity surrounding the relationship between morality and financial outcomes, unincentivized managers may be reluctant to make the attempt (p. 382-383)
P6 Revealing valuable proprietary information to a stakeholder partner without substantial safeguards can be seen as naïve by peers and can be quite costly if the partner proves untrustworthy (p. 383)
P7 Managers may be discouraged by a realistic view of the difficulty of successfully creating a close relationship capability and may opt for more psychologically and economically “safe”
strategies (p. 383)
P8 The ambitious behavioral standards of CSRE are difficult to achieve and sustain which can lead to a reversion to market pricing relationships (p. 383)
P9 Suitable stakeholder partners must fulfill the following criteria, meaning they may be difficult to find (p. 383)
P1P9 Partners must have the requisite capabilities to complement the focal firm in their joint value creation effort
P2P9 Partners must have successfully implemented a CSRE strategy P3P9 Partners must want to engage in such a relationship
T: A close relationship capability is difficult to imitate
P1 A close relationship capability is highly dependent on the manner in which the firm's relationships with stakeholders have evolved over time (path dependence) and in some cases, considerable time (p. 383)
P2 Since relationship quality is opaque to outsiders, other firms are unlikely to understand the extent to which the firm's sustainable competitive advantage is related to its close
relationship capability (p. 383)
P3 Communal sharing relationships are more socially complex than arm's-length relationships.
Thus, according to the three well-accepted criteria for inimitability, a close relationship capability will be difficult to imitate (p. 383)
5. Discussion
The purpose of this paper is to describe the arguments used in stakeholder literature to account for stakeholder value creation. The argumentation analysis chapter along with the literature review has illuminated some neglected areas of research. This includes the lack of a coherent account of the interpersonal interactions that facilitate stakeholder co-creation of value and methods for
implementing stakeholder management at a micro-scale within organizations. Furthermore, the framwork developed to understand aspects of the value creating properties of stakeholder
management (stakeholder mechnisms, preconditions, definition of value and moderators) may be expanded upon or revised to bring additional clarity to the many versions of the theory. Since this is an exploratory study, this conclusion may provide interesting avenues for future research. The field has been described as having reached a crossroads (Barney and Harrison 2020), and additional work is needed to develop a coherent narrative (in the opinion of the author). Although the scope of this paper is limited to exploring the issues and arguments used in the literature, future research may investigate and further integrate aspects of the theory into more detailed, compatible narratives.
The stakeholder value creation process encompasses many aspects of organizational life. The value created (outcome), the stakeholder mechanisms with which it is created (process) and the capability to actively engage with stakeholders have all been described in various parts of the argumentation analysis. The outcome variable has been the topic of much discussion, especially in relation to the corporate objective (Jensen 2002). However, the mechanism of reciprocity and the reliance of much of the theory on behavioral and social psychology stand in equally sharp contrast to mainstream
economics research (Bosse et al. 2009). To the extent the stakeholder value creation process relates to inter-personal everyday interaction, the research provides little guidance for ways to facilitate enhanced performance.
Many versions of the normative (as well as instrumental) argument for stakeholder management incorporate aspects of distributional-, procedural- and interactional justice. Behaviors associated with procedural justice include norms of politeness and trustworthiness, yet academic literature on stakeholder management provide little guidance for how to establish such behavior in the
organization. Managers have influence to establish behavioral norms in the workplace through, for example, symbolic actions (ibid.). However, the described cultural shift that enables a close
relationship capability necessitates cultural change on a larger scale. The role of managers on an micro-level (i.e. interpersonal interactions) also remains underdeveloped. Under the assumption of bounded-rationality the possibilities of theory to facilitate needed behavioral change may be limited. Indeed, the view of some researchers that managers may be acting on self-interest due to lack of insight into the benefits of stakeholder management may betray a rational bias. To the extent stakeholder theory aspires to be a descriptive theory incorporating parts of human behavior into organizational theory, it may be successful if it takes inspiration from more detailed theories on human motivation (behavioral economics, self-determination theory etc.).
6. Conclusion
This paper has explored some of the most used arguments to account for the value creating properties of active stakeholder management. Common themes and concepts used in the literature have been described, including intangible aspects of value, reciprocal relations, distributional-, procedural- and interactional justice. Some issues have been identified, including the lack of a coherent narrative describing the micro-level interpersonal interactions that facilitate value co- creation and the underdeveloped role of managers. The conclusion of this exploratory study is that additional theory development is needed to bring greater clarity to the field. Although the scope of this paper is limited to exploring the issues and arguments used in the literature, future research may be able integrate aspects of the theory into more detailed narratives.
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