Stakeholders and Power

Stakeholders and Power

Stakeholder Defined

A stakeholder is “any group or individual who can affect or is affected by the achievement of [an organization's] objectives” (Freeman, 1984: 24) (i.e., those who have or could have a stake or interest in the organization's activities). The stakeholder concept originates in Role theory, which posits a complex interdependent network of relationships for every person, marked by differing interests and expectations for each role relationship. Similarly, stakeholders constitute a complex relational environment for organizations (Rehbein, 2004).

Types of Stakeholders

An organization's core stakeholders - those with ongoing, intensely interdependent relationships - depend to some extent on the nature of the organization and its activities. Most organizations have the following types of core stakeholders: (1) constituents on whose behalf the organization exists and operates (e.g., business owners or voluntary association members); (2) employees who conduct the organization's affairs; (3) customers who receive the goods or services the organization produces; (4) suppliers who provide the input materials for the organization's activities; (5) government that guarantees an organization's rights and privileges, enforces its responsibilities, and regulates its behaviors through political processes (O'Rourke, 2003).

Organizations have many other stakeholders, including local communities, competitors, media, financial analysts and markets, financial institutions, voluntary organizations, environmental and consumer protection groups, religious organizations, military groups, political parties or factions, etc. Depending on the cultural context, any of these stakeholders can be very important to an organization. Furthermore, an organization's stakeholder set changes over time, as stakeholders enter and exit the environment, and as stakeholder interests and interdependencies change (Marens, 2002).

Defining Stakeholders

Business Owners: the person with ultimate responsibility for running the organization is also the primary owner—that is, he or she is an owner-manager. There may be other shareholders, perhaps family members or business partners, but the convergence of ownership and control of the firm means that the owner-manager acts as both principal and agent.

Employee: An individual who performs services for another individual or an organization in return for compensation.

Customer: Groups or individuals who have a business relationship with the organization--those who receive and use or are directly affected by the products and services of the organization.

Supplier: Individuals, companies or other organisations which provide goods or services to a recognisable customer or consumer.

From where do Stakeholders get Power? The Authority and Hierarchy Theory

In his 1937 article “The Theory of the Firm,” Ronald Coase noted that cooperative productive activity could take place entirely in a market. So, he asked, why do firms exist? The answer lies in the costs that would be incurred by individuals in coordinating joint or cooperative production in a market. The transaction costs of making and enforcing all the contractual agreements that would be required are substantial. These costs could be reduced by creating firms in which hierarchical authority relations replace the market as the means for coordinating joint productive activity. Thus, for Coase, markets and hierarchies constitute two fundamentally different means for conducting productive activity. The former operates by exchange, the latter by direct control (Kumar, ...