Introduction

Stakeholders are any person or group who has an interest in an organisation.

Stakeholders

Stakeholder claims - These are the demands that the stakeholder makes of an organisation. They essentially 'want something' from an organisation.

• The stakeholders may seek to influence the organisation to act in a certain way, or may want it to increase or decrease certain activities that affect them.
• Direct stakeholder claims are usually unambiguous, and are often made directly between the stakeholders and the organisation.
• Stakeholders typically making direct claims will include trade unions, employees, shareholders, customers and suppliers.
• Indirect claims are made by those stakeholders unable to express their claim directly to the organisation. They have no 'voice'.
• This lack of expression may arise from the stakeholder being powerless (an individual customer of a large organisation), not existing yet (future generations), having no voice (natural environment) or being remote from the organisation (producer groups in distant countries).
• The claim of an indirect stakeholder will need to be interpreted by someone else in order to be expressed.

Classifications of stakeholders

There are a number of ways of classifying stakeholders according to criteria based on how stakeholders relate to organisational activities.

Internal and external stakeholders

This is the distinction between stakeholders inside the organisation and those outside.

• Internal: includes employees and management, and possibly trade unions.
• External: includes customers, competitors and suppliers.

Narrow and wide stakeholders

This is the extent to which the stakeholder group is affected by organisational activity.

• Narrow: those most affected or who are dependent on corporation output, shareholders, employees, management, customers, suppliers.
• Wide: those less affected or dependent on company output such as government, the wider community and non-dependent customers.

Primary and secondary stakeholders

This focuses on the opposing view in Freeman's definition, that stakeholders affect organisations as well as being affected by organisations.

• Primary: those that have a direct affect on the company and without whom it would be difficult to operate, government, shareholders and customers.
• Secondary: those that have a limited direct influence on the organisation and without whom the company would survive, the community and management.

Active and passive stakeholders

This categorisation distinguishes between those that seek to participate in organisational activity and those that do not.

• Active: those that wish to participate of course includes management and employees, but may also include regulators, environmental pressure groups and suppliers.
• Passive: those that do not wish to participate may include shareholders, local communities, government and customers.

Voluntary and involuntary stakeholders

This categorisation removes the element of choice associated with active and passive participation, sub dividing the active group into two elements.

• Voluntary: those stakeholders that choose to be involved in organisational decision making such as management, employees' environmental groups and active shareholders. These stakeholders can withdraw their stakeholding in the short-term.
• Involuntary: those stakeholders that do not choose to be involved in organisational decisions, but become involved for a variety of reasons. This could include regulators, key customers, suppliers, government, natural environment and local communities. They cannot withdraw in the short- to medium-term.

Legitimate and illegitimate stakeholders

This is the extent to which the claim of the stakeholder is considered a valid claim. It can be a subjective classification with debate surrounding certain group's claims, and can lead into the concept of whether stakeholders are recognised by the organisation or not.

• Legitimate: those with an active economic relationship with an organisation, such as customers and suppliers.
• Illegitimate: those without such a link, such as terrorists, where there is no case for taking their views into account when making decisions.

Stakeholder mapping - Mendelow

The model provides a framework for assessing the general nature of action to be taken following classification of stakeholders according to power and interest.

The matrix was designed to track interested parties and evaluate their viewpoint in the context of some change in business strategy.

Power relates to the amount of influence (or power) that the stakeholder group can have over the organisation. However, the fact that a group has power does not necessarily mean that their power will be used.

The level of interest indicates whether the stakeholder is actively interested in the performance of the organisation. The amount of influence the group has depends on their level of power.

Low interest - low power

These stakeholders typically include small shareholders and the general public. They have low interest in the organisation primarily due to lack of power to change strategy.

High interest - low power

These stakeholders would like to affect the strategy of the organisation but do not have the power to do this. Stakeholders include staff, customers and suppliers, particularly where the organisation provides a significant percentage of sales or purchases for those organisations. Environmental pressure groups would also be placed in this category as they will seek to influence company strategy, normally by attempting to persuade high power groups to take action.

Low interest - high power

These stakeholders normally have a low interest in the organisation, but they do have the ability to affect strategy should they choose to do so. Stakeholders in this group include the national government and in some situations institutional shareholders. The latter may well be happy to let the organisation operate as it wants to, but will exercise their power if they see their stake being threatened.

High interest - high power

These stakeholders have a high interest in the organisation and have the ability to affect strategy. Stakeholders include directors, major shareholders and trade unions.

Donaldson and Preston

Donaldson and Preston draw a distinction between two motivations as to why organisations act in relation to the concerns of stakeholders.

The instrumental view of stakeholders:

• This relates to motivation stemming from the possible impact of stakeholder action on the objectives of the organisation.
• The organisation reacts to stakeholder input because it believes that not to do so would have an impact on its primary objectives (which may be profit, but could be other objectives for organisations such as charities).
• Such a view of stakeholders is therefore devoid of any moral obligation.

The normative view of stakeholders:

• This relates to motivation stemming from a moral consciousness that accepts a moral duty towards others in order to sustain social cohesion (the good of society).
• Such an altruistic viewpoint appreciates the need to act in a general sense of what is right rather than in a narrow interpretation of what is right for the company to achieve its profit targets.

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