5.

Stakeholder Theory
There are two branches of stakeholder theory, namely:
-

Ethical (moral) or normative branch and;

Positive (managerial) branch.

I. The ethical branch of Stakeholder Theory

The moral (and normative) perspective of Stakeholder Theory argues that all
stakeholders have the right to be treated fairly by an organization, and that issues
of stakeholder power are not directly relevant.
Stakeholder definition according to Freeman and Reed (1983):
Any identifiable group or individual who can affect the achievement of an
organizations objectives, or it is affected by the achievement of an organizations
objectives.
Clarkson (1995) sought to divide stakeholders into primary and secondary
stakeholders. A primary stakeholder was defined as one without whose continuing
participation the corporation cannot survive as a going concern.
Secondary stakeholders were defined as those who influence ot affect, or are
influenced or affected by, the corporation, but they are not engaged in
transactions with the corporation and are not essential for its survival.
In considering the notion of rights to information, we can briefly consider Gray,
Owen and Adams perspective of accountability as used within their accountability
model.
Gray, Owen and Adam defined accountability as:
The duty to provide an account (by no means necessarily a financial account) or
reckoning of those actions for which one is held responsible.
It would involve two responsibilities or duties:
1

The responsibility to undertake certain actions; and

The responsibility to provide an account of those actions.

II. The Managerial Branch of Stakeholder Theory

The managerial branch of stakeholder theory perspectives attempt to explain when
corporate management will be likely to attend to the expectations of particular
(powerful) stakeholders.
According to Gray, Owen and Adam, this perspective tends to be more
organization centered. Within the stakeholder theory, the organization is also
considered to be part of the wider social system, but this perspective theory
specifically considers the different stakeholder groups within society and how they
should best be managed if the organization is to survive.
Freeman (1984) discusses the dynamics of stakeholder influence on corporate
decisions. A major role of corporate management is to assess the importance of
meeting shareholder demands in order to achieve the strategic objectives of the
firm.
According to Evan and Freeman (1988), the very purpose of the firm is, in our
view, to serve as a vehicle for coordinating stakeholders. It is through the firm that
each stakeholder group makes itself better off through voluntary exchanges.
According to Ullman (1985), the greater the importance to the organization of the

respective stakeholders support, then it would be the greater the probability that
the particular stakeholders expectations will be incorporated in the organisations
operations.
Within the managerial perspective of Stakeholder Theory, information is a major
element that can be employed by the organization to manage (or manipulate) the
stakeholder in order to gain their support and approval, or to distract their
opposition and disapproval. This is consistent with the strategies suggested by
Lindblom (1994).
III. Empirical tests of Stakeholder Theory
Neu, Warsame and Podwell (1998) also found support for the view that particular
stakeholder groups can be more effective than others in demanding social
responsibility disclosures.
A measure of correlation was sought between increase and decrease in
environmental disclosure and the companies were more responsive to the demands
or concerns of financial stakeholders and government regulators than to the
concern of environmentalists.
Please read the Exhibit 8.4 and 8.5 for more understanding of how an organizations
should operate with the different expectation of a multitude of stakeholders.