Running Head: POWERFUL STAKEHOLDER THEORY
Powerful Stakeholder Theory:
Evaluation and Overview Plus the Analysis of a Shell Case Study
Morgan McCleery
University of North Texas
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Powerful Stakeholder Theory
Abstract
The key stakeholder theory has been addressed, published, and reproduced so many times the
plethora of meanings have, somewhere along the lines, skewed the perceptions of many
educators and students alike. A stakeholder, through the lens of Edward Freeman, is defined as,
“any group or individual that can affect or is affected by the achievement of a corporation’s
purpose” (Freeman, 1984). Quickly we find the many changes and additions made by other
theorists – Thomas Donaldson and Lee Preston – create a different picture about stakeholder and
theory. Both believe the theory that lies within management and has been evaluated under the
critique descriptive accuracy, instrumental power, and normative validity. The final variation
analyzed deals with prioritizing stakeholders through; James Grunig and Todd Hunt’s linkage
model; Ronald Mitchell, Bradley Agle and Donna Wood’s attributes model; relationship, and
communication strategies. Once completed, I will be able to identify the theory and its many
variations; the weaknesses of said theory; and finally will be able to breakdown the case study of
Shell’s oil and gas company through the implementations of the theory and stakeholder needs.
Keywords: publics, stakeholder, stakeholder theory
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Powerful Stakeholder Theory
Powerful Stakeholder Theory:
Evaluation and Overview Plus the Analysis of a Shell Case Study
Pubic relations practices, within an organization, can be implemented to support, relate,
and collaborate with other key members of the institution. These key members can be from
within, outside, or heavily influenced by the organization. Categories of stakeholders include;
chief financial and executive officers; the government; owners, stockholders and investors;
employees and unions; suppliers and partners; associations; the media; buyers, customers, and
future prospects; and even competitors. Primary, or market, stakeholders – such as customers,
creditors, employees, and stockholders – are usually internal creating transactions with the
business. These classifications are all important to the success and well–being of the company
although, in regards to that specific company, there are levels of importance depending on their
wants and needs.
Literature Review
The significance of these individual groups of stakeholders resides within the
organization they are affiliated. Maintaining an open line of communication is imperative to
build valuable relationships, which develop between the stakeholders and the company. McKee
and Lamb write about an open system of exchange “In public relations terms…occurs through
the building of mutually beneficial relationships based on a balanced flow of information from
and to the organization and its key publics” (McKee & Lamb, 2009, 1). Further research
conducted proves there are many other assumptions, concepts, and thoughts directed toward key
stakeholder theory and its importance within a company or organization.
Powerful Stakeholder Theory
Discussion
Edward Freeman, writer of Strategic Management: A Stakeholder Approach, broadly
describes a stakeholder as “any group or individual that can affect or is affected by the
achievement of a corporation’s purpose” (Freeman, 1984). During this time the stakeholder
theory, in Freeman’s eyes, was envisioned as a strategic management theory. His basic
argument for the book was to explain managerial methods to stakeholder theory while analyzing
speaking effectiveness with key stakeholder groups. Freeman further lists six strategies that
summarize his novel including; 1.) Regardless of your purpose or stance, you must realize the
effects of your actions on others and vise versa; 2.) Ability to understand stakeholder behaviors,
values, and backgrounds; 3.) Answers to the question, “What do we stand for;” 4.) How these
relationships work at different levels; 5.) Applies ideas to work through new business functions,
processes, and structures, and finally 6.) Explains the way stakeholders’ interests should be
balanced over time (Freeman, 2004). After publication, Freeman has ever since gone back and
revisited his initial argument, cleared up common misconceptions, major weaknesses, and how
they can be fixed.
In a paper by Freeman, he discusses the re-examination of his previous novel by
exploring the research of a stakeholder approach. This concept is studied by many regarding
four sub-fields including, “normative theories of business; corporate governance and
organizational theory; corporate social responsibility and performance; and, strategic
management” (Freeman, 2004). This new approach stresses the significance of investing in
relationships with individuals who hold stake in the company, for it is them who collectively
determine companies’ success or failure.
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Powerful Stakeholder Theory
Although, Freeman has proved himself an expert in the field, there are many others who
advanced his research and remain active in analyzing stakeholders, particularly regarding theory.
Since then, Thomas Donaldson – from Georgetown University – and Lee Preston – from The
University of Maryland – produced The Stakeholder Theory of the Corporation: Concepts,
Evidence, and Implication. The research provided by the two directly relate to business practice.
In their analysis they state, “The stakeholder theory has been advanced and justified in the
management literature on the basis of its descriptive accuracy, instrumental power, and
normative validity. These three aspects of the theory, although interrelated, are quite distinct”
(Donaldson & Preston, 1995).
With that said the stakeholder theory is descriptive, meaning it depicts a corporation or
business as a collection of interests – cooperative and competitive –holding inherent value.
Despite being descriptive, stakeholder theory is also instrumental and in that sense provides
structure for observing the relationship amid reaching business related performance goals and
stakeholder management. The thought behind this concept is stakeholders will maintain success
in aspects of profitability, stability, progress and more when the company applies stakeholder
management techniques. Lastly, stakeholder theory is essentially normative – “identified by their
interests in the corporation, whether the corporation has any corresponding functional interest in
them…the interests of all stakeholders are of intrinsic value, that is, each group of stakeholders
merits consideration for its own sake and not merely because of its ability to further the interests
of some other group” (Donaldson & Preston, 1995).
While many sustained confusion over Freeman’s portrayal of stakeholder theory there was
still an ongoing need to rationalize the issue. “In turn, the rational manager would not make major
decisions for the organization without considering the impact on each of these specific stakeholders.
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Powerful Stakeholder Theory
As the organization changes over time, and as the issues for decision change, the specific
stakeholder map will vary”(Mayer, n.d.). One last attempt at altering the theory is Brad
Rawlins analysis throughout – Prioritizing Stakeholder for Public Relations – he addresses the
question about the amount of attentiveness each stakeholder group deserves or demands
(Rawlins, 2006). His review spotlights stakeholders through, “identifying potential stakeholders
according to their relationship to the organization and prioritizing stakeholders by attributes,
relationships, and prioritizing publics according to the communication strategy” (Rawlins, 2006).
Grunig and Hunt would consider identifying potential stakeholders by their relationship
within the organization and using the four linkages model to do so. The model includes enabling,
functional, diffused, and normative linkage. Enabling linkages are stakeholders who have gained
control and authority over an organization such as State Legislators, congress, and stockholders.
Functional linkages – employees, distributors, retailers, etc. – are those who help keep the
business running or provide work and resources to create something, like a good or service for
the company. Associations, or stakeholders such as competitors and political groups, have
similar thoughts and ideals and an overall common interest. The last linkage is diffused linkage
and by far the most difficult to identify because of their lack of interaction with the company or
organization. The diffused linkages come out when the company is experiencing a crisis and
these stakeholders include the media, special interest groups, and also community residents.
Once going through the linkage model, the organization should now have identified their
stakeholders with understanding to how each one is represented internally and externally within
the organization.
The next step is to prioritize stakeholders by attributes of power, legitimacy, and urgency.
If stakeholders have power they are usually able to sway others to make a decision they may not
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Powerful Stakeholder Theory
have normally made. Legitimacy is based on, “whether the stakeholder has a legal, moral, or
presumed claim that can influence the organization’s behavior, direction, process or outcome”
(Rawlins, 2006). It is usually said that those who exhibit legitimacy and power hold authority.
The next attribute, urgency, is described as the quickness to responding to a stakeholder claim.
Those stakeholders who posses all three attributes are said to be definitive and hold the utmost
precedence. Studying Grunig and Hunt’s linkage model and Mitchell, Agle, and Wood’s
attributes model, “a stakeholder priority hierarchy becomes apparent” (Rawlins, 2006). In other
words, the combination of both models faced the realization that priority amongst stakeholders is
based upon linkages and according attributes.
The third step analyzes situational theory to describe the priority of stakeholders by
relationship to the situation. As Rawlins declares, “within the stakeholder categories, situational
theory can identify which publics will communicate actively, passively, or not at all about
organizational decisions that affect them” (Rawlins, 2006). This step recognizes the level of
involvement to which individuals connect with a situation on a personal level. It also deals with
problem recognition or the account that people will seek understanding only if they recognize the
correlation between them and a problem. Basically this step determines stakeholder priority by
having active publics who show high problem identification and high levels of involvement.
They also show lower levels of constraint recognition because they become aware of how a
situation disturbs them meanwhile believing they can do something to change it.
Overall the three steps are used to analyze stakeholder priority by first identifying who
stakeholders are, then categorize them into groups, and finally prioritizing. More importantly,
organizations and companies alike should realize the importance of developing and maintaining
positive relationships with their stakeholders. Powerful or priority stakeholder theory has been
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Powerful Stakeholder Theory
widely reviewed and with almost every analysis there have been weaknesses or critiques found
within the research.
Weaknesses and Critiques
With the large number of publications, definitions, and scholarly articles on stakeholder
theory there still seems to be confusion and in some cases, rejection of the theory all –together.
Many find the theory or variations of the theory surprisingly uncertain and vague. Samantha
Miles – Stakeholder: Essentially Contested or Just Confused? – utters, “others have suggested
that there is just too much ambiguity in the definition of the central term for it ever to be
admitted to the status of theory” (Miles, 2012). Eric Orts and Alan Strudler also shares there
critique by stating, “we want to make the case as strongly as possible that stakeholder theory is
not a very good, reliable, or even cogent philosophical approach for dealing with many of the
most difficult ethical problems in business” (Orts & Strudler, 2009).
Shell Case Study
For better understanding of stakeholder theory we examine the case study of balancing
stakeholder needs within, Shell, a large energy company to analyze the implications stated in the
theory. Shell’s headquarters reside in the Netherlands and provides three percent of the world’s
natural gas along with two percent of the oil. As one of the most prevalent and profitable
companies globally, Shell, just like any other company remains accountable for balancing the
needs of each group of stakeholders. Shell aims to, “engage efficiently, responsibly and
profitably in oil, gas, chemicals and other business and to participate in the search for the
development of other sources of energy to meet evolving customer needs and the world’s
growing demand for energy” (The Times 100).
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Powerful Stakeholder Theory
This case study in particular, analyzes how Shell pursues the needs of its stakeholders
while managing to compete with the environmental challenges and demands of new and
alternative sources of energy. Powerful stakeholders in the Shell case consisted largely of
shareholders from three main categories: institutional stockholders, employees, and the general
public. Shell simply believes its key concern lies within shareholder protection so they will
continue investing in the company. These investments provide more than only dividends to the
shareholders but moreover help maintain competition with other companies. Staying
competitive means, having the ability to conduct research on new products and energy sources as
well managing the reservation of fuel. By maintaining open communication between the
different stakeholders and considering every groups needs the company believes it will flourish.
When it comes to decision making Shell uses three conditions to, “assesses whether: the
economic impact of the activity is likely to yield a good return for shareholders; the social impact
will be suitable for employees and communities; and the long-term effect of its activity will harm
the environment”(The Times 100). In regards to these criteria for decision-making, Shell steadily
attempts to maintain social opportunities or impact and financial return or risk. The success of
your company will only accomplish its full potential if the communication between important
and powerful stakeholders is high and transparent. Furthermore, Shell continues to examine the
importance of maximizing profit, accounting for everyone’s needs, and an environmental
concern for the planets’ safety. With all these thoughts in mind it is apparent Shell plays a
conscious effort in determining stakeholder priority and accounting for, “everyone’s needs and
expectations in making decisions for today and the future” (The Times 100).
Conclusion and Future Study
Powerful Stakeholder Theory
For all the theorists constantly trying to achieve a more direct conclusion for stakeholder
theory, they remind me our realm of knowledge is not fully ever developed. In addition, we
should always be altering and adapting our minds to new experiences and research since this is
what gives us the chance to grow and create success within the companies we work. In this
synopsis, powerful stakeholder theory is evaluated first by Edward Freeman; next by Thomas
Donaldson and Lee Preston; and finally by James Grunig and Todd Hunt. Freeman’s description
of stakeholder theory is commonly used as a reference for other theorists, although it is these
other researchers who do not accept a vague and confusing theory but rather seek to enhance the
current theory by; descriptive accuracy, instrumental power or normative validity. Or like
Grunig and Hunt believe about stakeholder theory of identifying, categorizing, and prioritizing
stakeholders. More importantly each opinion raises questions and brings a different viewpoint to
the table of explaining stakeholder theory and its weaknesses. Examining case studies, like
Shell, promote the application of actual knowledge and learned materials through everyday
events. Making it only easier to flee from the student mindset rather than be thrown in to the
strictly business mentality of relating concepts.
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Powerful Stakeholder Theory
References
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Donaldson, T., & Preston, L. E. (1995). The stakeholder theory of the corporation: concepts,
evidence, and implications. Academy of Management Review, 20(1), 65-91.
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Freeman, R. E. (1984). Strategic Management: A Stakeholder Approach. Boston, MA: Pitman
Freeman, R. E. (2004). The stakeholder approach revisited. ZeitschriftF Fuer Wirtschafts- Und
Unternehmensethik, 5(3), 228-241
Grunig, J. E. & Hunt, T. (1984). Managing public relations. Holt, Rinehart and Winston.
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McKee, K. B., & Lamb, L. F. (2009). Applied Public Relations: Cases in Stakeholder
Management. New York, NY: Routledge.
Miles, S. (2012). Stakeholder: essentially contested or just confused? Journal of Business Ethics,
108(3), 285-298. doi:10.1007/s10551-011-1090-8
Mitchell, R. K., Agle, B. R., & Wood, D. J. (1997). Toward a theory of stakeholder identification
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Management Review, 22(4), 853-886. doi:10.5465/AMR.1997.9711022105
Orts, E. & Strudler, A. (2009). Putting a stake in stakeholder theory. Journal of Business Ethics,
88, 605-615. doi:10.1007/s10551-009-0310-y
Powerful Stakeholder Theory
Rawlins, L. B. (2006). Prioritizing Stakeholders for Public Relations. Institute for Public
Relations. Retrieved November 7, 2012, from http://www.instituteforpr.org/wpcontent/uploads/2006_Stakeholders_1.pdf
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