Strategy, stakeholders and managerial discretion

Abstract

Stakeholder theorists, like most strategists, are fond of telling managers what to do. Managers have moral obligations to stakeholders; managers should consider stakeholders' well-being if they wish to maximize firm performance. We are generous with advice, even when the empirical evidence of the central relationship is ambiguous (Margolis and Walsh, 2003;Rowley and Berman, 2000; cf. Dalton et al., 2007). Less often do we (strategy and stakeholder scholars) consider whether and to what extent managers have the freedom or capacity to act according to stakeholder theory's moral and instrumental prescriptions. To our knowledge, no published study of the relationship between stakeholder engagement and firm performance accounts for the fact that managers and firms face significant constraints on their freedom. In today's economic environment -with growing regulatory pressures, international wage and price tensions, scarce resources and increased pressures from the media and civil society -this omission is a conspicuous one. Stakeholder theorists would be well served to recall the axiom that 'ought implies can'. Any claim that an agent should behave in a certain way (normatively and instrumentally) necessarily assumes that it is possible to do so. Yet, the question of the very possibility of hewing to stakeholder theory's prescriptions remains unexplored.More deeply, stakeholders are themselves the source of many (perhaps most) of the constraints and catalysts faced; and the relationship between stakeholder treatment and firm performance is likely a dynamic and interactive one. In this essay we elaborate on the role of stakeholders as constraints and catalysts, and on the dynamism in relationships between firm managers and stakeholders. We argue that neglecting the dynamics of managerial discretion represents a serious oversight in stakeholder theoretic studies of firm strategy.We begin by elaborating on the building blocks for understanding the dynamic interrelationships between stakeholder theory, managerial discretion and stakeholder orientation. We then provide a sketch of the dynamic between managerial discretion and stakeholder orientation and their likely interaction. We conclude by considering some future research directions motivated by this dynamic. So!apbox Editorial EssayStrategic Organization 8(2) 176-183

Toward a Comprehensive Model of Organizational Evolution: Dynamic Capabilities for Innovation and Adaptation of the Enterprise Model

“…From a behavioral standpoint, the two enterprise models differ primarily in terms of the extent of stakeholder voice or involvement in governance and strategic decision‐making processes (including resource allocation decisions and strategic change initiatives), in terms of the type of goals and performance targets to be achieved, and in terms of management control and incentive systems. In the shareholder primacy enterprise model, non‐shareholding stakeholders' interests and demands are mostly conceived as limits to managerial discretion (Phillips et al ., ) and are, therefore, not integrated into the firm's governance, let alone involved in strategic decision‐making processes (Berman et al ., ). The claims of all stakeholder groups, except for shareholders, are protected through their contracts with the firm, and shareholders are the only category of stakeholders that are compensated through residual claims.…”

Corporate Philanthropy Through the Lens of Ethical Subjectivity

“…Duarte 2010;Ibarra-Colado et al 2006;Wang et al 2015). Managers' ''personal value system and concept of morality develops a background for identifying and evaluating the ethicality of business decisions'' (Gavai 2010, p. 6), which corresponds with the argument that executives' values are key in strategy processes Phillips et al 2010). Social responsibilities are tied to company strategy or interest, delineating the interplay between individual, organisational and contextual factors in managerial choice (Hambrick 2007).…”

“…Ethical subjectivity entails a ''process of becoming'' (Loacker and Muhr 2009, p. 268), which is characterised by heterogeneous practises. Stakeholders play an important role in this process through their influence on managerial discretion and expected behaviour (see Phillips et al 2010). This study identifies intuition and trust as core modalities of action in (philanthropic) choice processes, providing novel insights to the formation of ethical subjectivity in practise-based approaches to business ethics.…”

The ‘Leadership–Stakeholder Involvement Capacity’ nexus in stakeholder management

“…Managerial decisions and actions are the key factors that influence organisational-stakeholder relationships (Phillips, Berman, Elms & Johnson-Cramer, 2010). …”