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Managing Contradiction: Stockholder and Stakeholder Views of the Firm as
Paradoxical Opportunity
Article in Business and Society Review · March 2016
DOI: 10.1111/basr.12083
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Managing Contradiction:
Stockholder and Stakeholder
Views of the Firm as
Paradoxical Opportunity
CYNTHIA E. CLARK, ERICA L. STECKLER,
AND
SUE NEWELL
ABSTRACT
Stockholder and stakeholder perspectives have been positioned in the literature as being in tension, and thus a
potential source of innovation and change. However,
researchers have overlooked a systematic examination of
this presumption in theory and in practice. This study
explores the ways that stockholder and stakeholder
assumptions are presented by theorists and compares
these with expressions of stockholder and stakeholder perspectives used by firms in practice. We argue that theoretical entrenchment dichotomizing these perspectives has
disrupted the ability of researchers to leverage this tension. While scholarship remains trapped in a vicious cycle,
we also argue that firms in practice express only the acceptance dimension of a virtuous cycle. Our empirical
research demonstrates that firms accept and accommodate the paradoxical tension between managing for
Cynthia E. Clark is an Associate Professor at Bentley University, Waltham, MA. E-mail:
cclark@bentley.edu. Erica L. Steckler is a Post Doctoral Research Scholar at Bentley University, Waltham, MA. E-mail: esteckler@bentley.edu. Sue Newell is Professor at University of
SUSSEX, South Downs, East SuSsex, Brighton BN1 9RH, United kingdom. E-mail: Sue.Newell@sussex.ac.uk.
C 2016 Center for Business Ethics at Bentley University. Published by Wiley Periodicals, Inc.,
V
350 Main Street, Malden, MA 02148, USA, and 9600 Garsington Road, Oxford OX4 2DQ, UK.
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BUSINESS AND SOCIETY REVIEW
stockholders versus balancing the interests of stakeholders. This is evidenced by strategies we identify as bookending, cadence, continuous and simultaneous comingling, and hybridization. We find that in practice these
tensions are more integrated whereas in theory they are
treated as more distinct and, often, in conflict. We suggest
ways in which both scholarship and practice can better
leverage tension as paradoxical opportunity.
INTRODUCTION
F
irms are routinely confronted with the problem of how to
attend to competing demands simultaneously. A paradox
lens spotlights how firms deal with contradictory yet interrelated elements that co-exist and persist over time (Smith and Lewis
2011). A central paradox faced by managers and debated by scholars relates to a firm’s corporate responsibility; specifically, how
firms acknowledge, articulate, and address the tensions among
stockholder and stakeholder interests.
In the corporate responsibility literature, stockholder and stakeholder perspectives are presented as alternative, normative sets of
beliefs for how firms should be managed (Donaldson and Preston
1995; Hasnas 1998; Smith 2003). A stockholder (a/k/a shareholder) view of the firm’s responsibilities asserts that managers
should spend capital advanced by shareholders in ways that have
been authorized by shareholders and act in the shareholders’ interests and not the executives’ (Friedman 1970; Smith 2003). A normative stakeholder view of corporate responsibility asserts that
managers are agents of all stakeholders and must ensure that the
rights of no stakeholder are violated and that their legitimate interests are considered and balanced when making decisions (Evan
and Freeman 1988).1
In the academic literature, stockholder and stakeholder views
are commonly presented as oppositional (Boatright 2006; Ferrero
et al. 2014; Hasnas 1998), with scholars from each side advocating
their view as “best practice.” Fueled by ontological entrenchment,
such normative theories are not necessarily conducive to addressing the realities of managing in the complex and often contradictory strategic landscape that exists today (Schultz and Hatch 2005)
CLARK, STECKLER, AND NEWELL
3
and are unlikely to result in sustained organizational performance
(Smith and Lewis 2011; Smith and Tushman 2005).
Rather than seeking to resolve the stockholder–stakeholder
debate (Lewis 2000), we consider a paradox lens that explicitly
entertains the tensions between these conflicting ideas. We assume
that tension exists, and are allowed to exist, between these wellfounded and well-reasoned alternative explanations (Poole and Van
De Ven 1989; Smith and Lewis 2011) of corporate responsibility
and that this tension can be a source of innovation and change
because it represents an active response on the part of management to accept the paradox (Jarzabkowski et al. 2013). In doing
this, we draw on Smith and Lewis’s (2011) dynamic model in which
paradoxical tensions begin as latent and then become salient,
resulting in either a vicious or a virtuous cycle. Vicious cycles
occur when there is inability or unwillingness to exploit a tension.
Virtuous cycles occur when there is acceptance of and engagement with a tension toward a potentially change-inducing
environment.
The objective of this article is to examine how a paradox lens
might advance our understanding and contextualization of the
stockholder–stakeholder debate both in theory and practice. The
research questions that are the focus of this examination are:
1. How are stakeholder and stockholder views represented in the
literature?
2. And, are these views used in the same manner in the rhetorical
strategies of firms?
We first review the academic literature on the stockholder and
stakeholder views to demonstrate the significant contestation
about the relative merits of each view. We next consider how these
alternative sets of beliefs are actually deployed by firms in rhetorical strategies of CEO letters that accompany the annual report.
Our empirical research demonstrates that firms in practice
accept the paradoxical tension between managing for stockholders
versus balancing the interests of stakeholders. This acceptance is
evidenced by strategies we identify as book-ending, cadence, continuous and simultaneous co-mingling, and hybridization. We
find that in practice these tensions are more integrated whereas
in theory they are treated as more distinct and, often, in conflict.
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BUSINESS AND SOCIETY REVIEW
We posit that theoretical entrenchment has disrupted the ability
for researchers to leverage the tension, a vicious cycle, and that in
practice firms express only a part of a virtuous cycle: acceptance.
We conclude by arguing that although this concern with resolving
issues of corporate responsibility may be better effected by embracing the stockholder–stakeholder paradox, as practitioners do,
instead of perpetuating the stockholder–stakeholder debate as
researchers are apt to do, the rhetorical acceptance strategies used
in practice do not go far enough toward optimizing the innovative
potential of this paradox. Likewise, firms underutilize the power of
rhetoric to convey a link between multiple organizational values
(Jarzabkowski and Sillince 2007).
Overall, this study finds that current theorizing on stockholder
and stakeholder perspectives does not reflect the complexity or
reality of the phenomenon in practice, as little research has examined how responses to paradox may escalate or minimize the tension (Jarzabkowski et al. 2013). In addition to explicating how
these paradoxical views are represented in scholarship and practice, we consider alternative approaches for scholars and practitioners to better leverage the creative possibilities of stockholder–
stakeholder paradox, an area that has been largely overlooked
(Harris and Freeman 2008).
STOCKHOLDER AND STAKEHOLDER VIEWS2
As noted, we consider stockholder and stakeholder views as contradictory theoretical assumptions, with each reflecting a social
paradigm associated with the proper roles and responsibilities of
firms. As such, they represent a paradox (Poole and Van de Ven
1989). In the corporate responsibility literature, a firm is assumed
to adopt expressions and practices that are consistent with either
one or the other paradigm. Moreover, in academic discourse on
stockholder and stakeholder approaches, there have been explicit
suggestions that one should, or will, in effect, replace the other (cf.
Donaldson and Preston 1995; Evan and Freeman 1988; Ferrero
et al. 2014; Hansmann and Kraakman 2001) and that the two are
incompatible and so must be chosen between (Donaldson and
Preston 1995; Marcoux 2003). These distinct theoretical camps
(Harris and Freeman 2008) are chronicled in detail in Table 1.3
CLARK, STECKLER, AND NEWELL
5
As Table 1 demonstrates, scholarship has largely overlooked the
possibility that stockholder and stakeholder perspectives might coexist. In this article, we are explicitly interested in whether and
how these competing views are expressed concurrently in both
theory and practice and how we might better understand these
tensions in terms of a paradox perspective. We build on the idea
that paradox can be managed, theoretically and operationally, in a
process that involves developing understandings and practices that
embrace and accommodate tensions so as to leverage its creative
potential (Sundaramurthy and Lewis 2003). We next review the
defining features of each theory in detail.
Stockholder Theory
Under the stockholder theory the firm is understood to be a business arrangement owned by shareholders and consequently its purpose is to maximize long-term market value (see, for example,
Friedman 1970; Jensen and Meckling 1976; Williamson 1985).
Management assumes a fiduciary responsibility to expend resources in ways that have been authorized by the stockholders, irrespective of any societal benefits or detriments (Hasnas 1998; Smith
2003). Likewise, there is an underlying belief that shareowners’
interests ought to take precedence over the interests of all other
groups. Together, these beliefs and structures provide firms with a
clear direction to communicate, enact, and perpetuate the stockholder framework (Jones and Livne-Tarandach 2008), not giving
rise to issues of different stakeholder interests, which are logically
impossible to maximize simultaneously (Jensen 2002; Marcoux
2003).
Thus, the stockholder view rests on the belief that a firm is better able to achieve competitive advantage as it allows managers to
be unencumbered by other stakeholders’ concerns (Hansmann and
Kraakman 2001). The stockholder theory also suggests that a firm
can enjoy public policy benefits by keeping management focused
on delivering shareholder value (Boatright 1994). This logic further
appeals to strategies of lowering the cost of capital and consequently better access to the capital markets, both of which are the
basis of predictions about a global convergence of the stockholder
form (Bradley et al. 1999). The stockholder perspective is
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BUSINESS AND SOCIETY REVIEW
TABLE 1 Stakeholder and Stockholder Perspectives
Characteristic
Stakeholder Perspective
Stockholder Perspective
Fiduciary
relations
Multi-fiduciary—obligations of loyalty and care
are owed to multiple
parties*
Moral claim
Shareowner’s theory is
morally untenable‡
Stakeholders’ relationship
with firm; nature of
request
Government regulation to
correct negative externalities; Social
contracts
Access to resources**
Stakeholders have intrinsic value; management
selects activities and
directs resources to
obtain benefits for legitimate stakeholders‡‡
Fiduciary—shareholders
have special role and
these obligations are
owed only to them;
fiduciary means to
place the interests of
the beneficiary ahead of
one’s own interests†
Stakeholder theory is
morally inadequate§
Shareholder primacy¶
Sources of
legitimacy
Sources of
authority
Sources of power
Basis of strategy
Governance
mechanism
Non-shareholding stakeholders should have
board representation
Attitude toward
social responsibility/purpose
“The survival and continuing profitability of the
corporation depend
upon its ability to fulfill
its economic and social
purpose, which is to create and distribute
Bi-laterally voluntary contracts and contracting
in a free market
Residual risk bearers††
Direct resources and
capabilities toward
shareholder value;
Management has free
hand to direct externalities to society and even
may have obligation to
do so.
Manager (agent) works on
behalf of principal
(owner); only shareowners have representation on board and
voting rights; shareholders ought to have
control§§
“What does it mean to
say that “business” has
responsibilities? Only
people can have responsibilities. That responsi
bility is to conduct the
business in accordance
CLARK, STECKLER, AND NEWELL
7
TABLE 1 (continued)
Characteristic
Master
Orientation
Stakeholder Perspective
Stockholder Perspective
wealth or value
sufficient to ensure that
each primary stakeholder group continues
as part of the corporation’s stakeholder
system.” (Clarkson
1995, p. 110)
with their desires,
which generally will be
to make as much money
as possible while con
forming to the basic
rules of the society, both
those embodied in law
and those embodied in
ethical custom” (Friedman 1970)
Manage for one all will
benefit*** (Shareholders
bear a unique relationship to firm)†††
Manage for all (Each
stakeholders’ interests
should be treated
equally, balanced)¶¶
*For a discussion of both approaches see Goodpaster (1991).
†
See Marcoux (2003).
‡
Mainly based on article by Donaldson and Preston (1995) and related
citations.
§
Mainly based on article by Marcoux (2003) and related citations.
¶
Shareholder primacy tends to regularly render legitimate all corporate efforts
on behalf of shareholders and to render irregular those efforts on behalf of
other constituents and, further, that such efforts need of some type of justification (cf. Boatright 1994).
**See Frooman (1999); Eesley and Lenox (2006).
††
See Boatright (1994).
‡‡
See Donaldson and Preston (1995).
§§
See Boatright (2006).
¶¶
See Clarkson (1995); Donaldson and Preston (1995); Goodpaster (1991).
***See Boatright (1994).
†††
See Hasnas (1998) and Boatright (1994).
conventionally pitted against and positioned as dominating the
stakeholder perspective. Hansmann and Kraakman (2001, p. 468)
assert, “the triumph of the shareholder-oriented model of the corporation over its principal competitors is now assured.” Similarly,
Marcoux (2003) has argued that it is the stockholders who have
special moral status, imbued in the fiduciary duty of managers to
work on behalf of their sole beneficiaries, and that the multifiduciary duty implied by stakeholder theory is morally inadequate.
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BUSINESS AND SOCIETY REVIEW
Based on our review of the literature culminating in Table 1, we
refer to a stockholder view as reflecting the taken-for granted notion
that a firm is obligated through a fiduciary responsibility to act in
the best interests of shareholders independent of any social benefits
or detriments. This perspective is commonly stylized as the maximization of value or returns for shareholders, or managing for one.4
Stakeholder Theory
A stakeholder perspective operates when management believes in a
broader role of their firm in society and attends to the interests of a
variety of stakeholders, from employees to governmental agencies
and from the community to the natural environment (Freeman
1984). While management is tasked with generating revenue to be
sustainable, its work is also governed by the stakeholder emphasis
on creating value for society beyond a pure monetary benefit for
shareholders.
The stakeholder perspective of the firm has also generated substantial traction and wide-spread acceptance among management
theorists (Clarkson 1995; Donaldson and Preston 1995; Mitchell
et al. 1997) and ethicists alike (cf. Evan and Freeman 1988; Hasnas 1998). It is the subject of many special issues in scholarly discourse and textbooks in practical usage. In essence, a stakeholder
view embodies the idea that a firm needs to attend to the interests
of stockholders, customers, employees, suppliers, management,
and local community constituents and adopt policies and enact
practices which produce an optimal balance among them (Clarkson 1995; Donaldson and Preston 1995; Goodpaster 1991), not
simply for instrumental reasons but because it is the right thing to
do (Donaldson and Preston 1995). Furthermore, this theory obligates managers to consider all stakeholders interests even if doing
so reduces company profitability (Smith 2003). The stakeholder
perspective can broadly encompass “any identifiable group or individual who can affect the achievement of an organization’s objectives or who is affected by the achievement of an organization’s
objectives (public interest groups, protest groups, government
agencies, trade associations, competitors, unions, as well as
employees, customer segments, shareowners, and other stakeholders. . .)” (Freeman and Reed 1983, p. 91).5 Furthermore, the
CLARK, STECKLER, AND NEWELL
9
theory is incomplete unless it goes beyond identification of which
stakeholders have influence to consider the firm’s responses to
their influence (Rowley 1997) as we do here.
Research that has tried to establish connections between stakeholder management and a firm’s financial performance has had
varying results (e.g., Orlitzky et al. 2003; Waddock and Graves
1997; Walsh et al. 2003). Nevertheless, scholarship that advances
a stakeholder view positions it as having intrinsic value regardless
of whether it is linked to firm performance (Berman et al. 1999).
Donaldson and Preston (1995) describe this as the normative and
the very core of the stakeholder view. Based on the belief that all
stakeholders have intrinsic value and, therefore, have a legitimate
stake in the firm, these researchers maintain that a stockholder
perspective, which treats the shareholder group as superior, is
morally untenable.
We refer to a stakeholder view as the taken-for-granted notion
that a firm is morally obligated to attend to the interests of a broad
set of stakeholders (cf. Clarkson 1995; Donaldson and Preston
1995; Goodpaster 1991) with an emphasis on creating value for
society beyond a pure monetary benefit. The stakeholder perspective may be viewed as managing for all.
Paradoxical Tension of Stockholder–Stakeholder Views
As illustrated in Table 1 and the above discussion, stockholder and
stakeholder views are presented as competing alternatives that are
incompatible and so must be chosen between. However, from a
paradox perspective, we can see these views as contradictory but
also potentially inter-related—neither being “right” or “wrong” but
rather in a state of continuous dynamic tension that may be more
or less recognized. Thus, Smith and Lewis (2011, p. 382) define a
paradox as “contradictory yet interrelated elements that exist
simultaneously and persist over time” and argue that a paradox
perspective is an alternative to a contingency approach (i.e., competing alternatives approach) for addressing tensions. In this way,
we feel that paradox aptly describes the current and on-going environment of stakeholder and stockholder theorizing.
Moreover, a paradox perspective treats tensions as sources of
creativity and indicates that the tensions should be managed
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BUSINESS AND SOCIETY REVIEW
rather than chosen between. One of the dominant paradoxes that
these authors identify is a performing paradox, which stems from
the tension between the conflicting demands of a varied set of both
internal and external stakeholders (Smith et al. 2013). Thus, a performing paradox perspective indicates that stakeholder and stockholder views could be seen not as an either/or and better/worse
dichotomy, but rather as a source of inevitable tension that can be
held in a dynamic equilibrium and that engenders opportunities
for learning and creativity, fostering flexibility and resilience, and
cultivating human potential (Smith and Lewis 2011, p. 393). Likewise, Poole and Ven deVen (1989) have suggested that paradoxical
tensions can be used to stimulate development of more encompassing theories through discovering ways to relate, contrapose, or
integrate them.
Based on our review and analysis of the prevailing normative
stockholder–stakeholder debate (Donaldson and Preston 1995;
Hasnas 1998), it is clear that the benefits of such paradoxical tension have not been of primary concern to management scholars.
This in turn stimulates our consideration of how the stockholder–
stakeholder tension plays out in organizational practice, presented
in our next section, with an eye toward how the current state of
theorizing might be reflected there as well.
RESEARCH METHODS
We systematically examine stockholder and stakeholder perspectives expressed in corporate narratives (Zilber 2009) and associated
vocabularies (Nigam and Ocasio 2010) used within the Chairman’s
(CEO) letters of the annual reports for two publicly held organizations over a 10-year period. By analyzing the content of CEO letters, this study advances the discussion of how stockholder and
stakeholder views are used in the rhetorical strategies of firms.
We analyzed 10 years (2000–2009) of CEO letters of a biotechnology firm [“Biotech”] and a financial services firm [“Finance”].
Both are publically held organizations widely recognized as leading
firms within their respective industries. Both are located in the
same northeast metropolitan area of the United States and face the
same local pressures. Biotech has had the same founder-CEO for
the period of study while Finance has had three different internal
CLARK, STECKLER, AND NEWELL
11
CEOs in that time. One of them (Finance) instituted a separate
social responsibility report, dedicated to multiple stakeholders,
during the study period while the other (Biotech) did not. We
selected firms with these industry and organization-specific variations because we believe such differences provide a rich research
opportunity.
Viewpoints Expressed in CEO Letters
This study follows a tradition of qualitative examination of organizational phenomena using corporate annual reports (e.g., Abrahamson and Park 1994; Arndt and Bigelow 2000; Bettman and
Weitz 1983; Bowman 1984; Fiss and Zajac 2004; Salancik and
Meindl 1984; Staw et al. 1983), and contributes to the emergent
research stream of operationalizing institutional concepts such as
values and beliefs through the content and communication patterns used in annual reports (e.g., Fiss and Zajac 2004; Spicer and
Sewell 2010). The CEO letter, recognized as the most widely read
component of the annual report (Abrahamson and Park 1994; Lee
and Tweedie 1975), provides an ideal platform to examine firm values and beliefs.
We chose CEO letters of annual reports to explore our research
question for several reasons. First, these letters convey rich information about firms. Not only are they a vessel through which
organizations tell their stories (Zilber 2009), but they also embody
a “quality of communication” (Fairhurst and Sarr 1996, p. xi) that
invokes meaning for an audience of shareholders and other firm
constituents who routinely read this document (Abrahamson and
Park 1994). For example, Fiss and Zajac (2004) discuss the importance of communicating both with shareholders and stakeholders
through this medium. Likewise, in a study of structural innovation
in hospitals, Arndt and Bigelow (2000) show that annual reports,
including the CEO letter, have broad appeal in that they are used
by employees, consumers, the local community and the general
public.
Second, annual reports are a particularly useful data source for
exploring the beliefs and values that guide firms’ communication
strategies because they provide a record of corporate discourse (cf.
Spicer and Sewell 2010), taking the form of a “meta-narrative”
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BUSINESS AND SOCIETY REVIEW
(Zilber 2009, p. 209). Unlike their relatively standardized financial
statements, companies have substantial discretion in terms of
what they choose to disclose in the written text associated with
annual reports. What an organization includes in its CEO letters
signifies the “interests, identities, values, and assumptions”
(Thornton and Ocasio 2008, p. 103) that are an inherent part of
the organization and that guide its communications and practices.
A firm chooses “what is disclosed and how” (Bansal and Kistruck
2006, p. 166) in terms of its management decisions, actions, and
orientations.
Third, as annual reports in general, and CEO letters in particular, deal with the “broadest strategic scope” of firm operations
(Spicer and Sewell 2010, p. 923), they tend to be “fairly comparable” across time periods within a firm as well as for a wide sample
of firms (Bettman and Weitz 1983, p. 171). The content of CEO letters of annual reports represent historical and timely accounts
(Van de Ven and Huber 1990) that may be used as continuous and
detailed data sources in longitudinal research.
Research and Coding Protocol
To explore the existence and interplay of stockholder and stakeholder frameworks, we conducted a comparative content analysis
(e.g., Krippendorff 1980), focusing on how individual paragraphs in
the CEO letters accompanying annual reports were expressed in
accordance with stockholder or stakeholder theories for Biotech
and Finance over a ten-year period (2000–2009).
We initially coded CEO letters for the two “pure” forms we were
interested in—stockholder and stakeholder. Based on the theoretical distinctions from Table 1, we coded a stockholder orientation
(“0”) as existing within a firm when the meaning of a paragraph
suggests that the firm is essentially “managing for one” and takes
its primary obligation as returning economic value to shareholders.
Thematically, we looked for expressions of profit-seeking, revenue
growth, fiduciary duty, value maximization, performance and stock
price, and other associated ideas. We coded a stakeholder orientation (“2”) as existing within a firm when a paragraph reflects that
the firm is “managing for all” and values multiple-party moral obligations. Thematically, we looked for expressions of social concern,
CLARK, STECKLER, AND NEWELL
13
helping the community and the underprivileged, and addressing or
mentioning the commitment to stakeholders broadly speaking
(e.g., employees, government). Through an iterative data analysis
process (Miles and Huberman 1984), we also coded for a hybrid
orientation (“1”) as one that can appeal to both the stockholder and
stakeholder views simultaneously. We provide illustrative examples
for these codes in our discussion of results.
Our unit of analysis is each paragraph of the CEO letters for the
10-year period. In total, we coded 380 paragraphs (150 for Biotech,
230 for Finance). Inter-rater reliability, measured as the instances
when all three coders agreed as a proportion of total observations,
was .78. As Cohen (1960) and Fleiss and Cohen (1973) have
shown, this does not adjust for the agreement expected by multiple
raters based on chance alone. To account for this issue we further
calculated Fleiss’ Kappa (1971) of 0.71, which indicates a good level
of inter-rater reliability. We reached coding consensus through
detailed discussion in the event a disagreement arose.
RESULTS: CO-EXISTENCE OF STOCKHOLDER AND
STAKEHOLDER VIEWS
Using our research questions as guides, we explored the presence
of stockholder and stakeholder perspectives in the CEO letters of
annual reports for the two companies for the 2000–2009 period.
Each firm expressed these views as co-existent in two primary
ways: simultaneously within one CEO letter, as well as continuously
across all CEO letters. These two aspects of co-existence in practice
suggest that these firms are accepting the stockholder–stakeholder
paradox.
Simultaneous Co-Existence
We found that both companies used both a pure stockholder and a
pure stakeholder form for each letter for the majority of years (8 of
10 years for Biotech; 7 of 10 years for Finance), an effect we term
simultaneous co-existence. Simultaneous coexistence occurred
within a given CEO letter when there were paragraphs that were
clearly expressions of how the company has or will maximize value
for the benefit of its shareholders as well as paragraphs that were
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BUSINESS AND SOCIETY REVIEW
clearly expressions of a firm’s moral obligation to take into consideration the needs and interests of various stakeholders. Selected
narrative examples of simultaneous co-existence of stockholder
and stakeholder perspectives for Biotech and Finance follow.
Focusing on Biotech’s CEO letter for 2001, the stockholder perspective occurs three times, an example of which appears in the
following paragraph:
“Due to the strength of [Biotech’s] diver sified product platform, we ended the year with more than $1 billion in cash
and investments and were selected by Standard and Poor’s for
inclusion in the SandP 500 Index. The SandP 500 is widely
regarded as the standard for measuring large-cap stock performance in the United States, and our inclusion is a testament both to our solid financial footing and to our important
contribution to the U.S. economy.”
In this paragraph, the emphasis is on the financial performance
and standing of the firm, and conveys information and values that
appeal primarily to stockholder constituents.
The stakeholder perspective also occurs three times in Biotech’s
2001 CEO letter. For example, the first paragraph states:
“We also began to treat [the] disease patients in Ecuador, Haiti,
Morocco and Vietnam, expanding our commitment to patients
in 13 developing countries. This is a humanitarian effort, for it
will be many years before these economies can support reimbursement but we see this. . .as simply the right thing to do.”
This paragraph expresses a clear moral obligation of the firm to its
broad stakeholder base. Together, these paragraphs from Biotech’s
2001 CEO letter show the simultaneous co-existence of a stockholder and a stakeholder viewpoint.
For Finance, using its 2006 CEO letter as an example, the stockholder perspective is expressed in the following paragraph:
“We will also continue to balance revenue growth and expense
discipline to generate positive operating leverage and aggressively pursue capabilities that will augment our market share
in high growth markets and will increase our revenue.”
Within the same letter, the stakeholder perspective is expressed in
another paragraph as follows:
CLARK, STECKLER, AND NEWELL
15
“Consistency is also reflected in our approach to community
support, sustainable development and the environment. Since
1977, we have contributed a portion of pretax profits to the
[company] Foundation which in turn provided more than
$11.4 million in grants in 2006 to support affordable housing,
education and health.”
Together, these examples illustrate how a stockholder perspective,
here, in terms of a focus on growth, investment, products, and services, simultaneously co-exists with a stakeholder perspective that
includes an orientation toward supporting broader social concerns.
Continuous Co-Existence
Stockholder and stakeholder views can also co-exist across periods
of time for a given firm, an effect we term continuous co-existence.
For Biotech, both stockholder and stakeholder perspectives coexist for each year except 2000 and 2005, when there is no expression of a pure stakeholder view. For Finance, both views co-exist
for each year except 2000, 2002, and 2003, when no pure stakeholder form is expressed. Despite these absences where a pure
stakeholder view is not expressed in 2 of 10 years for Biotech and 3
of 10 years for Finance, the existence of both pure orientations
within a single CEO letter is the prevalent pattern over the 10-year
period.
Additionally, stockholder and stakeholder views co-exist over the
10-year period and vary from being relatively uniform to relatively
dynamic. These patterns are indicated by the relative variance of
proportionality for each pure form across the time period. In Biotech, we find a more dynamic co-existence, with a stockholder perspective communicated in 25–80 percent of CEO paragraphs and a
stakeholder perspective expressed in 0–25 percent of these paragraphs over the 2000–2009 period. In the case of Finance, by contrast, the stockholder and stakeholder views co-exist but in a more
uniform, or consistent, manner over the 10-year period. Stockholder views are communicated in 64–71 percent of paragraphs in
the CEO letters for Finance’s annual reports for the 2000–2009
period, while stakeholder views are expressed in 0–19 percent of
paragraphs. Figure 1A and 1B demonstrate these more uniform
16
BUSINESS AND SOCIETY REVIEW
FIGURE 1 (A) Dynamic Use of Perspectives in Biotech (2000–
2009). (B) Uniform Use of Perspectives in Finance
(2000–2009).
A
B
CLARK, STECKLER, AND NEWELL
17
and more dynamic effects for each company’s CEO letters over the
2000–2009 period.
Multivalent Co-Mingling: The Hybrid
Stockholder–Stakeholder View
In addition to expressions of pure stockholder and pure stakeholder forms, both firms also deployed what we term a hybrid view
in every CEO letter over the 2000–2009 period (see Figure 2A and
2B). A hybrid view combines dimensions of stockholder and stakeholder perspectives such that neither is privileged over the other.
Again, this is an example of acceptance of the tension between
stakeholder and stockholder views.
In CEO letters, a hybrid perspective fluidly deploys the thematic
expressions of stockholder and stakeholder viewpoints in a single
paragraph, and has potential valence for shareholder and various
stakeholder audiences. A hybrid perspective is multivalent; multiple audiences may interpret its expression as appealing primarily
to their respective interests. For example, in 2008, Biotech’s CEO
stated:
“We continue to expand our business in new regions with discipline and focus, first building a local management team and
working closely with governments, communities and institutions to determine how we can bring the most value to a country’s healthcare system.”
Similarly, in Finance’s 2008 CEO letter the second to last paragraph reads:
“In a year of unprecedented difficulty in the financial markets,
I am proud of our performance, the many difficult decisions
we made, and the continued tenacity and loyalty of our
employees around the world. We have asked shareholders to
make sacrifices and we were willing to make our own.”
Both letters include references to the values and beliefs that are
of dominant concern to stockholders (e.g., expansion and performance, respectively), as well as acknowledgments of and orientations
toward a broader array of stakeholders (e.g., government, communities, and populations of healthcare patients for Biotech; and
both employees and shareholders for Finance). Both of these
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FIGURE 2 (A) Dynamic Co-Existence and Co-Mingling in Biotech
(2000-2009). (B) Uniform Co-Existence of Perspectives
in Finance (2000–2009).
A
Proportion
in CEO Letters
B
Proportion
in CEO Letters
examples could be interpreted by stockholders or other stakeholders as addressing their particular concerns.
For the 2000–2009 period, a hybrid view was expressed in
approximately 10–50 percent of paragraphs within a given CEO letter for Biotech, and in approximately 12–36 percent of CEO letter
paragraphs for Finance. Interestingly, this hybrid perspective is
expressed more often than the pure form of a stakeholder orientation for both firms. This finding indicates that a hybrid view is a
significant and enduring expression of management values that
could be interpreted as resonating with either stockholder or other
CLARK, STECKLER, AND NEWELL
19
stakeholder interests. The existence of a hybrid view was somewhat
more dynamic for Biotech and somewhat more uniform for Finance
over the 2000–2009 period as represented in Figure 2A and 2B.
Cadence and Book-Ending Patterns
Both cadence and book-ending patterns discussed in this section
are emblematic of the firms’ acceptance of the tension between
stakeholder and stockholder views.
In addition to establishing the presence of stockholder and stakeholder perspectives and the hybrid form of these, we also explored
whether there was a pattern of using these viewpoints in each letter
over time. We found that these perspectives oscillate—or vary repetitively across time—as the CEO letter progresses from first to last
paragraph (see Figure 3A and 3B), an effect we refer to as cadence.
To gain a more nuanced understanding of potential patterns for
the deployment of stockholder, stakeholder, and hybrid expressions within the firms’ CEO letters, we ran generalized estimating
equation (GEE) models separately for both Finance and Biotech
over the 2000–2009 period. The GEE model addresses several
unique properties of the data that present challenges to conventional approaches, which often assume observations are independent and follow a normal distribution. In this study, we do not
assume that the occurrence of viewpoints are independent as they
are nested within annual reports and there is a fixed ordering of
paragraphs in a CEO letter such that the presence of one or the
other perspective may be influenced by the orientation conveyed in
preceding or subsequent paragraphs. The GEE accounts for both
the nesting and fixed ordering properties in the data. The GEE also
accommodates data that are categorical and designed to represent
the presence or absence of the particular kind of viewpoint under
study but not its magnitude.
The GEE model we use estimates the relationship between paragraph position and the probability of observing a stakeholder orientation based on the data collected for each firm. Specifically, this
model estimates the probability that a stakeholder view is observed
in a given paragraph in a firm’s CEO letter for the 10-year period.
For both firms, relative paragraph position, a standardized metric
defined as the paragraph position divided by the number of
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BUSINESS AND SOCIETY REVIEW
FIGURE 3 (A) The Cadence of Perspectives in Biotech (2001). (B)
The Cadence of Perspectives in Finance (2006).
A
B
Annual Letter Paragraphs
paragraphs in the annual report and its square, were significant
predictors of the probability of a stakeholder perspective at the
0.01 level.
The fit of each of the GEE models, in terms of the probability of a
stakeholder view, are plotted in Figure 4A and 4B. These figures
indicate that for both Biotech and Finance the stakeholder view is
more likely to be observed at the beginning and end of a CEO letter
CLARK, STECKLER, AND NEWELL
21
rather than the middle. The results of GEE analysis suggests that
there is a clear tendency for both companies to “bookend” stakeholder perspectives at the beginning and end of the CEO letter,
while expressing a stockholder orientation consistently in the middle. Ironically, for both firms in the 2000–2009 period, there was a
relatively good probability that the CEO letter, which has traditionally been viewed as a communication to stockholders, did not begin
or end by appealing to a stockholder view. In addition, the results
of the GEE analysis suggest that there is a relatively higher probability of observing a stakeholder perspective in the beginning and
ending of Biotech’s CEO letters over the period than for Finance.
DISCUSSION AND IMPLICATIONS
In this study, we present theoretical discussions and empirical evidence that illustrate how the dynamic equilibrium model of paradox (Smith and Lewis 2011) helps to make sense of the
stockholder–stakeholder tension in research and practice. Our presentation and analysis of the theoretical discussion suggests that
the academic literature has remained entrenched in a “vicious
cycle” whereby each “side” choses to emphasize the positives of its
own position and the negative of the other, resembling a “mindless
commitment” (Weick and Roberts 1993) to a particular position
and ignoring and vilifying the opposing arguments (see Table 1).
This current state of affairs provides no opportunity to use the
stockholder–stakeholder contradictions as a source of creative
energy and change, as advocated by the paradox literature.
Conversely, our analysis of the use of stockholder and stakeholder perspectives in CEO letters indicates that in practice firms
express these views both simultaneously and continuously, suggesting acceptance of the paradox in the sense of recognizing the
divergent interests of different constituents. This illustrates the
importance of tapping into practice to develop our theories, rather
than trying to translate our theoretically derived theories into practical implications (Schultz and Hatch 2005). However, as we discuss below our evidence indicates that the acceptance of the
paradox does not equate to actually “embracing” the contradictions
between divergent interests to produce resolutions that identify
opportunities for innovation and change, as is suggested by the
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FIGURE 4 (A) Book-Ending Effect for Standardized Biotech CEO
Letter (2000-2009). (B) Book-Ending Effect for
Standardized Finance CEO Letter (2000–2009).
CLARK, STECKLER, AND NEWELL
23
dynamic equilibrium model. Instead, the letters suggest either a
rhetorical “slight of hand” or a separation of the stakeholder and
stockholder views whereby the contradictions are acknowledged
but not actively confronted.
Our first contribution demonstrates how the stockholder–stakeholder paradox has not, in theory or practice, tended to produce
the dynamic and emergent productive outcomes of resolution that
are possible under conditions of paradoxical tension. Our data
shows how the reasons differ in relation to theory and practice: in
theory it is because the debate has produced a vicious cycle; in
practice it is because acceptance has not led to attempts toward
resolution but rather has tended to obscure the tensions through a
rhetorical obfuscation strategy (i.e., book-ending, hybridization).
Likewise, recent research has focused on whether or not the coexistence of distinctive perspectives will occur (e.g., Jarzabkowski
et al. 2009; Poole and Van de Ven 1989; Sundaramurthy and Lewis
2003) rather than on how co-existence does occur in practice. Thus,
we contribute to a more nuanced understanding of how these competing assumptions and beliefs may be expressed as co-existent.
Specifically, we found that stockholder and stakeholder views coexist in notable ways, namely simultaneously and continuously, as
well as through the existence of a hybrid form. We further found
that the co-existence of these competing assumptions was not random, as illustrated by the cadence and book-ending effects. Instances of co-existence and hybrid forms of expression as well as
patterns of presenting these views within CEO letters aptly illustrate
facets of a paradoxical approach, as we will explain below.
Simultaneous and Continuous Co-Existence
Stockholder and stakeholder theories, though widely assumed to
be distinct and contrary in academic theorizing (Donaldson and
Preston 1995; Marcoux 2003), are much more integrated in in
practice. When these two views co-exist simultaneously and continuously—occurring within a single CEO letter and across a
period of time—it implies that firms have recognized the legitimacy
of both views.
This merits a rethinking of the conventional stockholder–stakeholder debate in which theorists present more stark distinctions
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and often suggest that one perspective should or will displace and
delegitimize the other. This also potentially demonstrates the strategic “acceptance” response to paradox in which tensions are
appreciated and separated (Poole and Van de Ven 1989). It further
illustrates how firms might actually live with persistently puzzling
ideas or paradox but without actually working through them (Lewis
2000; Smith and Lewis 2011). This is achieved through strategies
in which stockholder and stakeholder orientations are expressed
as separate but co-existing, suggesting firms accept the tension,
but without moving to the next step of attempting to resolve the
tension or to leverage it.
Hybrid Form
The presence of the hybrid form in our data further enlarges an
understanding of how theoretically competing perspectives might
co-exist. While co-existing and continuous expressions of stockholder and stakeholder forms occur simultaneously in different
paragraphs of the same letter, the hybrid form expresses these
views simultaneously by grafting together elements of each in the
same paragraph. We found that a hybrid form of expression does
not involve switching or separation but rather entails the expression of a combined view that appeals to distinct audiences in an
integrated fashion, even when these audiences may be motivated
by different interests.
In this study context, a hybrid form of expression permits stockholders and stakeholders to perceive a practice or set of actions as
legitimate even though their interpretations may be anchored in
different sets of beliefs and values. Its presence demonstrates how
institutionally influenced values and beliefs may be deliberately
expressed to appeal to audiences with different and potentially conflicting interests simultaneously. By extension, the use of a hybrid
forms suggests both a new response to and operationalization of
institutional pluralism that may be deployed by firms subject to
multiple and competing influences (Kraatz and Block 2008). The
expression of a hybrid form enables firms to align with multiple
legitimating forces in the institutional environment (Smith and
Lewis 2011).
CLARK, STECKLER, AND NEWELL
25
While the hybrid form may seem reminiscent of an argument for
the instrumental view of stakeholder theory (Donaldson and Preston 1995; Boatright 2006), we found no inferences to the instrumentality of stakeholders for the purpose of benefitting
stockholders in the data. Moreover, the concurrent use of the
stockholder and stakeholder perspectives in practice may be
viewed as consistent with the argument that the instrumental
stakeholder view and the stockholder view are actually re-enforcing
(Boatright 2006), representing a nested paradox (Andriopoulos and
Lewis 2009), whereby to maximize firm value it is ultimately necessary to take various stakeholders’ interests into account. However,
we deliberately operationalized the normative stakeholder view as
incompatible with a stockholder perspective (Donaldson and Preston 1995), as is consistent with theory. The normative stakeholder
perspective argues for making decisions based on what is morally
right in relation to the various stakeholders rather than accommodating stakeholder interests because it will benefit stockholders.
Although the normative (e.g. pure) stakeholder view is considered
by many to be optimal and dominant (e.g., Donaldson and Preston
1995), it is notable that the hybrid form, an artful combination of
stockholder and stakeholder perspectives, was expressed more frequently within CEO letters for each firm than the pure stakeholder
form in all but one year over the 10-year study period.
The expression of a hybrid stockholder–stakeholder view is also
interesting in light of paradox theory. Such a mingling of values
could be viewed as a synthesis (Poole and Van de Ven 1989) of the
tension that accommodates competing or oppositional ideas. As
Smith and Lewis (2011, p. 386) explain, “resolution does not imply
eliminating a tension but, rather, finding a means of meeting competing demands or considering divergent ideas simultaneously.”
However, we argue that the hybrid perspective does not actually
resolve the paradox between stakeholder and stockholder
approaches; rather, it depends on different stakeholder groups
interpreting the same information in different ways. In this way,
managing a paradox does not necessarily involve resolution, but
nor does it indicate a tug-of-war (Andriopoulos and Lewis 2009).
For example, we know that framing information in particular ways
calls on certain cognitive categories that then guide interpretation,
and that framing equivalent information in different ways can
influence people’s interpretations differently (Messick and
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BUSINESS AND SOCIETY REVIEW
Bazerman 1996; Tversky and Kahneman 1981). Thus, it illustrates
a firm’s artful engagement with this tension to optimize the benefit
to the firm and to satisfy its wider set of audiences. However, this
hybridization by firms in our study, while “artful,” makes no
attempt to actually resolve the tensions between stakeholders—it
simply allows different interest groups to interpret the same idea
from their respective perspectives.
Cadence and Book-Ending
The pattern of “book-ending” a stakeholder view is notable as introductory and concluding content within a formal communication
effort tends to emphasize and frame the most important themes.
Bookending a stakeholder perspective in the CEO letter suggests
that this communication platform may be shifting from its original
use as a tool for informing and appealing to stockholders only, and
has instead evolved into a multivalent vehicle that is framed to
appeal to multiple audiences. Such a practice may point to the
change in stockholders themselves wherein they have become
more heterogeneous (Ryan and Schneider 2002), embracing interests that may go beyond, or may complement, a concern with
growth and profits.
A paradox approach suggests the role of leadership is to support
contradictory elements and capture the persistent tension among
them to optimize the ability of the firm to improve and sustain itself
(Smith and Lewis 2011). The book-ending that we observed, however, does not demonstrate such firm leadership as book-ending
serves to separate the contradiction rather than proactively use the
tensions between the stockholder and stakeholder views to facilitate creative abrasion.
The book-ending and hybrid findings indicate that perhaps there
is opportunity for leadership to “embrace the tension.” Bookending effectively creates a temporal separation (Poole and Van de
Ven 1989) between the two orientations that accepts the tension of
stockholder and stakeholder views by addressing these competing
ideas in different places within the same communication tool but
without actually attempting to bring them together to identify innovative ways of resolving tensions. Hybrid paragraphs essentially
accept the tension using rhetorical framing to appeal to the
CLARK, STECKLER, AND NEWELL
27
different interests simultaneously without explicitly drawing attention to any tensions that may exist between these opposing
interests.
Furthermore, the book-ending pattern we observed indicates
that Biotech expresses a stakeholder view more consistently at the
beginning and end of its CEO letters than does Finance. One interpretation of this finding is that Biotech is relatively more stakeholder oriented than Finance over the time-period. Another
interpretation of this pattern is that Biotech is intentionally leveraging this perspective for maximum exposure and framing effect at
the beginning and ending of letters to conform to societal expectations of a firm’s stakeholder orientation, while Finance is less purposeful in its expression of a stakeholder perspective.
IMPLICATIONS FOR STOCKHOLDER–STAKEHOLDER
VIEWS AS PARADOXICAL OPPORTUNITY
Patterns of perspectives expressed in CEO letters could be a reflection of the leadership of each firm. The implicit assumption of
agency is anchored in the idea that leaders play a significant role
in what forms of expression a firm adopts, adapts, and conveys to
others, and that consistent leadership relates to a more uniform
expression (Selznick 1957). As the CEO of Biotech remained the
same over the 10-year period, Biotech’s CEO letters might have
been expected to reflect more uniform patterns of expressions. By
contrast, as the CEO of Finance changed twice during the study
period, Finance’s CEO letters might have been expected to reflect
more dynamic patterns. However, our findings did not conform to
these expectations. Rather, we observed a relatively more dynamic
expression of pure stockholder, pure stakeholder, and hybrid
forms in Biotech’s CEO letters, as well as an escalation of the
stockholder perspective in Biotech’s letters over the study period.
Given this disconfirming evidence, it is worth considering what else
might explain these patterns.
Our findings suggest that not only is there a more integrated use
of stakeholder and stockholder views in practice than in theorizing,
but there can be changes over discrete periods of time in the way
they are expressed by an organization, even when the leadership is
stable. This raises questions about the assumption that in an
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organizational setting the expression of values and beliefs over time
is fundamentally stable (Berger and Luckman 1967). By considering that institutional influences are interpreted, adapted, and
enacted through the communication strategies of the firm, this
research supports the notion that the leadership of firms can be
competent at “artfully mobilizing” (Friedland and Alford 1991;
Swan et al. 2010) certain values and beliefs to suit different circumstances (Jarzabkowski and Sillince 2007; Messick and Bazerman 1996). In this regard, it could be that some actors (such as
the CEO of Biotech) possess a greater capacity for being more
adaptable in their engagement with tension, which could enable
these actors to better leverage the institutional context to their
firm’s advantage.
Limitations and Future Research
Although CEO letters associated with annual reports represent a
rich and relevant data source for exploring the expression of beliefs
and values (e.g., Abrahamson and Park 1994), there are limitations
to using CEO letters as a comparative data source. First, general
information, prospects for the future, as well as structure and
style, is fairly discretionary and can vary between and among
organizations (e.g., Arndt and Bigelow 2000). Second, authorship
of the CEO letter is often indeterminate. The letter may have been
drafted by other organizational actors, or even outsourced, and is
likely to reflect both individual and collective inputs (Bettman and
Weitz 1983). At a minimum, we assumed that the CEO is involved
in the letter development process and approves the ultimate content for the given year. The possibility that the CEO alone may not
author the letter does not jeopardize the findings of this study. On
the contrary, distributed authorship of the CEO letter would be
expected to increase the likelihood for various viewpoints to converge in this communication vehicle as multiple actors might be
more receptive to different orientations. Future research might
examine the audience interpretations of these paradoxical expressions to further explore how potentially competing values and practices satisfy diverse audiences simultaneously.
More generally, while we acknowledge the existence of external
pressures on the expression of one or another orientation in
CLARK, STECKLER, AND NEWELL
29
practice, we did not fully explore these influences. As Matten and
Moon (2008) suggest, there may be country level considerations
that affect how organizations respond to their constituents’ interests. This would be a fruitful lens through which to further explore
and compare the expressions of stakeholder and stockholder orientation across firms in a global context. Further, as different combinations and interactions of various environmental, organizational,
and contextual elements are likely to explain organizational practices, corporate strategies, and firm behavior (March and Olsen
1976), we suggest that future research consider factors such as
organizational culture and leadership styles to enhance or challenge the findings of this study. Future research could extend these
findings by exploring the extent to which an expression of stockholder or stakeholder views corresponds with firm behaviors and
practices, as well as underlying intentions or motivations for
choosing and utilizing particular orientations in certain ways. For
such an endeavor, a broader sample of firms with respect to stockholder, stakeholder, and hybrid variations would be generalizable
to a larger population of firms. Future research could also address
whether there are differences between firms in terms of their use of
a separation strategy or a rhetorical strategy and whether stakeholder/stockholder tensions relates to differences in terms of using
such paradoxes as a source of creative energy.
While our analysis of theory and practice has suggested the paradoxical tension between stakeholder and stockholder views has
not necessarily fulfilled the potential from such tension, we note
that some recent initiatives appear more promising. However, as
they are new forms, we did not include these views in our analysis.
First, in relation to the academic literature there have been recent
attempts at bringing the basic assumptions of these theories closer
together (e.g., Freeman 2008; Jensen 2008; Porter and Kramer
2011) without assuming away their paradoxical nature. Thus, in
relation to theory, the idea of value creation (Harrison et al. 2010;
Freeman 2008) has been proposed to mean that stakeholders contribute to the value creation of the firm by having a say in how the
firm distributes its various resources. Recently, stockholder
researchers have moved toward using the term “maximizing total
firm value” instead of
“maximizing the value of the firm’s equity” (Jensen 2008), which
results in social welfare being maximized (Jensen 2002).
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This premise seems to embrace the central idea of stakeholder
theory—that “focusing on stakeholders, specifically treating them
well and managing for their interests, helps a firm create value along
a number of dimensions and is therefore good for firm performance”
(Wicks and Harrison 2013, p. 101). It is also complementary to the
principle of shared value, which involves creating economic value in
a way that also creates value for society by addressing its needs and
challenges (Porter and Kramer 2011). In these ways, there is movement towards engaging the tension in the theoretical domain.
Similarly, in practice, the creation of integrated reporting frameworks are an attempt to leverage the paradox by highlighting organizational sustainability aspects that reinforce one another—the
economic, social and governance (ESG) practices of firms (Emerson,
2003). As a primary example, the International Integrated Reporting
Council (IIRC 2013) framework combines ESG and financial elements
to produce a single report on business strategy. Currently, however,
very few firms produce an integrated report according to the IIRC.
CONCLUSIONS
With this study we consider the stockholder–stakeholder debate
from a paradox theory lens. We demonstrate that the theoretical literature has tended to reinforce the separation between stockholder
and stakeholder views of the firm, so that rather than embracing
the paradox and identifying opportunities for new theories there has
been a tendency to spiral the debate into a vicious cycle that reinforces each camp at the expense of the other. Although there are recent
efforts to more virtuously embrace this paradox (e.g., Porter and
Kramer 2011), we advocate for renewed scholarship in this direction, whereby theory can be generated by attempts to embrace and
resolve the paradox rather than vilify the opposition.
In terms of practice, we see how competing viewpoints co-occur,
with co-existing patterns of expression deliberately mobilized in different ways. Thus, we demonstrate empirically that in practice, perspectives in tension—here, stockholder and stakeholder views—can
co-exist without wholesale domination or suppression (Poole and
Van de Ven 1989; Smith and Lewis 2011), both in pure and hybrid
forms. These revealed patterns of harmonization strongly suggest
that there has been an unnecessary and impractical fixation in
CLARK, STECKLER, AND NEWELL
31
scholarship on polarizing stockholder and stakeholder theories and
on offering one or the other as the straw man. Thus, we not only
question the theoretical stagnation that has occurred because academics have not embraced this paradox, but also demonstrate that
this trajectory has undermined the practical relevance of the separation between stockholder and stakeholder values.
In addition, the interpretation of our findings through a paradox
lens also enables us to show how firms can accept the tension
between the stakeholder and stockholder views without necessarily
resulting in a virtuous cycle that culminates in embracing and
resolving the paradox to produce creative solutions (Smith and
Lewis 2011). The patterns of harmonization that we identify either
(1) accept the tension by appealing simultaneously to the interests
of a wide audience through a rhetorical slight of hand (e.g., hybrid
statements), or (2) accept the tension and separate the appeal to
different constituents in different places without acknowledging
any contradictions (e.g., book-ending and cadence). Conceptually,
we argue that these patterns represent an intentional and proactive strategy to accept the stockholder–stakeholder paradox by
optimizing interpretive valence but without actually having to
embrace and resolve the paradox.
While we see no evidence in the CEO letters of how a virtuous
cycle of paradox resolution might work, we can identify some steps
in practice that are moving in this direction and can be considered
as attempts to harness the tension of these approaches to simultaneously support and embolden both views (Smith and Lewis 2011).
For example, integrated reporting can be viewed in this way. Such a
cycle embodies the possibility that by treating all stakeholders with
due consideration for their respective interests, stockholders will
benefit, employees will be satisfied with their jobs, customers will be
happy with company products, and efforts will be made to reduce
the ecological footprint. In parallel, if long-term stockholder interests
are pursued through sustainable growth and risk-taking that is
done based on due consideration of all types of risks (not just financial), then other stakeholders’ interests will also be served.
In the context of stockholder and stakeholder perspectives, managing a paradox involves challenging how scholarship might overcome a vicious cycle by rising beyond a conventional divisive
stance that promotes one view over the other as the “best” way to
manage the firm. It also involves challenging how practice might
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further leverage the potential of a virtuous cycle, going beyond
acceptance of the two views toward more creative and innovative
approaches. In a dynamic institutional environment of powerful
and contradictory influences, harnessing the potential of paradox
represents a substantial opportunity horizon in terms of creativity
and optimization as well as a substantial strategic challenge in
terms of proactive and artful management and expression of tension for maximum benefit.
ACKNOWLEDGMENTS
We wish to express our sincere thanks to the EGOS paradox track
participants along with Sandra Waddock, Candace Jones, Jeff Moriarty, Jacky Swan, Steve Lacey and Bayar Tumennasan for their
invaluable comments on earlier drafts of this article.
Notes
1. We specifically look at the normative view of stakeholder theory, not the
instrumental view, as this view is commonly referred to as the core of stakeholder theory. To quote directly, “. . .the stakeholder theory is fundamentally
normative. We observed at the close of our discussion of instrumental justifications that the instrumental case for stakeholder management cannot be satisfactorily proved.” (see Donaldson and Preston 1995, p. 86).
2. We are using “theory,” “view,” “perspective,” and “orientation” as synonymous given that each theory has been referred to by all four terms.
3. Even while these distinct camps strongly govern a researcher’s perspective, we acknowledge that others may believe that because stakeholder theory
includes stockholders that these theories are, in fact, compatible. However, we
suggest that they are on the whole positioned as not compatible because
stockholder theory assumes primacy for the stockholder and financial returns
while stakeholder theory assumes nonprimacy and social returns. Furthermore, a paradox perspective is defined by contradictory yet interrelated elements (Smith and Lewis 2011).
4. According to Hasnas (1998, p.7): “In most cases, however, the stockholders issue no such explicit directives [to] purchase stock for the sole purpose of maximizing the return on their investment. When this is the purpose
for which the stockholders have advanced their money, the managers’ fiduciary obligation requires them to apply it to this end. For this reason, the
CLARK, STECKLER, AND NEWELL
33
stockholder theory is often imprecisely expressed as requiring managers to
maximize the financial returns of the stockholders.”
5. Stakeholder theory has recently asserted that managers have a duty to
both the firm’s shareholders and individuals and constituents that contribute
to a company’s wealth creating capacity and activities and who are potential
beneficiaries and/or risk bearers (Post et al. 2002).
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