1. PROJECT STAKEHOLDER
MANAGEMENT PROCESS
PART 1: NORMATIVE STAKEHOLDER THEORY
Week 2 & 3

2. Lecture Outcome
 2.1 Stakeholder Theories
 2.2 Principles of Stakeholder Management
 2.3 Identifying Stakeholders
2.3.1 Primary Stakeholders
2.3.2 Secondary Stakeholders
2.3.3 Internal Stakeholders
2.3.4 External Stakeholders
 2.4 Approaches in Stakeholder Management
 2.5 Examples: Implementing Practical
Strategies in Managing Stakeholders

3. Stakeholder Theories
Normative Stakeholder
Theory
Stakeholder
Theories
Analytic Stakeholder
Theory

4. Normative Stakeholder Theory
 Is consider the core of stakeholder theory.
 Normative can refer to:
The norms or standard practices of society as it exists
The way one would live in an ideal „good‟ society
What we ought to do, either in order to achieve a good
society or unconnected with any notion of the „good‟

5. Type of Normative Theories
Theories of the first kind
• In a just society, business should be managed for the benefit of
stakeholders (Ideal just society).
Theories of the second kind
• Changes in the law and institutions of society are required to
ensure greater corporate responsibility towards stakeholders
(Laws and institutions).
Theories of the third kind
• Manager should take account of the interest of all the
stakeholders in the firm, given the existing legal and
institutional environment (Corporate response).

6. Type of Normative Theories
Normative Normative Normative
theories of the theories of the theories of the
first kind second kind third kind
• Ecology & • Feminist Theories • Property Rights:
Spirituality: Starik Donaldson &
(1994) Preston (1995)
• Kantian Stakeholder • Stakeholder
Theories Paradox:
• Integrative Social Goodpaster (1991)
Contract Theory: • Public Policy:
Donaldson & Boatright (1994)
Dunfee (1994, • Aristotelian
1999) Stakeholder Theory:
• Rawlsian Wijnberg (2000)
Stakeholder Theory
• The Common Good:
Argandona (1998)

7. Normative
theories
1st kind
Ecology & Spirituality: Starik (1994)
 Starik‟s contribution lies in his argument that non-
entities, particularly the natural environment, is as
important as stakeholder status due to the extent of
environment deterioration of the planet caused by
human.
 Starik includes the natural environment (living and non-
living) in terms of elements (particular landmarks),
categories of elements (trees, rocks) and systems of
elements (like river delta systems on a micro scale and
the cosmos on a macro scale)

8. Normative
theories
1st kind
Ecology & Spirituality: Starik (1994)
Proposed a very
broad stakeholder
definition.
Ecology &
Spirituality: “Any naturally occurring entity
Starik which affects or is affected by
(1994) organizational performance”
Clear example of unconstrained Justifies using 4
first kind of NST reasons:
Heavily criticized

9. Normative Ecology & Spirituality: Starik (1994)
theories
1st kind Justifies using 4
reasons:
#1
The natural environment is a business environment. As
nature provides many constraints on business life, it
ultimately affects and is affected by organizations.
Stakeholder idea to include social-emotional (spiritual),
ethical and legal (Eg. Slaves, political prisoners who
#2 although do not have political voice would be counted as
stakeholders). Traditional: Those without political and
economic power, to have their voices heard by the
organization cannot be regarded as stakeholders.

10. Normative Ecology & Spirituality: Starik (1994)
theories
1st kind Justifies using 4
reasons:
Human stakeholders, acting as proxies for the
environment through activists groups and government
#3 agencies, are necessary but insufficient given how
degraded the natural environment is.
People can try to manage their interaction with the natural
#4 environment using stakeholder management processes
as evidenced by environmental audits impact statements.

11. Normative
theories Kantian Stakeholder Theories
1st kind
 Immanuel Kant (1724 – 1804) – considered
moral actions to arise from the sense of duty
(obligation).
 Focuses on the intention or motive behind the
act rather than the consequences that make
actions good.
 Example: If corporate managers support a
charity only because they believe it will bring
cheap advertising or enhance corporate
reputation, it cheapens the act and cannot be
thought of as moral.

12. Normative
theories
Kantian Stakeholder Theories
1st kind Kantian Capitalism: Evan & Freeman (1988, 1993)
 The true purpose of the organization is to
pursue the interest of stakeholders
 Management have the duty to stakeholders to
act as their agents and stakeholders must
participate in determining the future direction
of the firm in which they have a stake.

13. Normative
theories
Kantian Stakeholder Theories
1st kind Kantian Capitalism: Evan & Freeman (1988, 1993)
 Any theory of corporations must be consistent
with the Kantian principles of:
Corporate • The corporation and its managers
may not violate the legitimate rights of
rights others to determine their own future.
Corporate • The corporation and its managers are
responsible for the effects of their
effects actions on others.

14. Normative
theories
Kantian Stakeholder Theories
1st kind Kantian Capitalism: Bowie (1999)
 Proposes 7 principles for Kantian approach to business:
The interests of all affected stakeholders
#1 should be considered on any decision a firm
makes.
Those affected by the firm‟s rules and policies
#2 should participate in determining those rules
and policies before they are implemented.
#3 One stakeholder‟s interests should not
automatically take priority for all decisions.

15. Normative
theories
Kantian Stakeholder Theories
1st kind Kantian Capitalism: Bowie (1999)
 Proposes 7 principles for Kantian approach to business:
When stakeholder group interests conflict,
#4 decisions should not be made solely on the
grounds of there being a greater number of
stakeholders in one group than in another.
#5 Universal laws of nature and never treat
people as means to an end.

16. Normative
theories
Kantian Stakeholder Theories
1st kind Kantian Capitalism: Bowie (1999)
 Proposes 7 principles for Kantian approach to business:
#6 Every profit-making firm has a limited, but
genuine duty of beneficence.
#7 All firms must establish procedures designed
to ensure relations among stakeholders are
governed by rules of justice.

17. Normative
theories Integrative Social Contract Theory:
1st kind Donaldson & Dunfee (1994, 1999)
 ISCT was intended to be a general business
ethics theory.
 Is based on social contract.
 Suggests that management should take into
account the norms (not interests) of certain
stakeholders because society allows
corporations to operate in exchange for the
promotion of society‟s interest.

18. Normative
theories Integrative Social Contract Theory:
1st kind Donaldson & Dunfee (1994, 1999)
 Donaldson & Dunfee stated that a person is
entitled to object or to try and change a norm
(voice), leave an economic group (exit), or
refuse to obey a norm (civil disobedience).

19. Normative
theories Rawlsian Stakeholder Theory
1st kind
 John Rawls (1921 – 2002) – Believe that politics
based on justice and could not rely on our
intuitions about good social outcomes.
 Based on fair play and each person has equal
right.

20. Normative
theories Rawlsian Stakeholder Theory
1st kind Fair contracts: Freeman (1994, 2004)
 According to Freeman, stakeholder theory
should reflect the principle of stakeholder
fairness based on the concept of fair play.
 Introduced: 6 ground rules – Doctrine of Fair
Contract

21. Normative
theories Rawlsian Stakeholder Theory
1st kind Fair contracts: Freeman (1994, 2004)
The • The contract has to define processes that
Doctrine of Fair Contract
clarify entry, exit and renegotiation
principle of conditions for stakeholders to decide when
entry & exit an agreement exists and if it can be fulfilled.
The • Procedures for changing the rules of the
principle of game must be agreed by unanimous
(majority) consent.
governance
The • If a contract between A and B imposes a
cost on C, then C has the option to become
principle of a party to the contract, and the terms
externalities renegotiated.

22. Normative
theories Rawlsian Stakeholder Theory
1st kind Fair contracts: Freeman (1994, 2004)
The principle
• All parties to the contract must share in the
Doctrine of Fair Contract
of contracting cost of contracting.
costs
The agency • Any agent must serve the interests of all
stakeholders. It must resolve conflicts
principle within the bounds of the other principals.
The principle • The corporation shall be managed as if it
of limited can continue to serve the interests of
immortality stakeholders through time.

23. Normative
theories Rawlsian Stakeholder Theory
1st kind Stakeholder fairness: Phillips (1997, 2003b)
 Obligations of fairness arise when individuals or
groups of individuals interact for mutual benefits.
 Such persons and groups engage in voluntary
activities that require mutual contribution and
restriction of liberty.
 This voluntary activities provide a normative
justification for the idea of stakeholder
management.

24. Normative
theories The Common Good: Argandona (1998)
1st kind
 Is the only religion-based value used to develop
normative stakeholder model.
 The concept is largely associated with Christian
theologians.
 The common good of a company is to create the
conditions that will enable its members to
achieve their personal goals.
 The company facilitates achieving these
personal goals through achievement of its own
goal.

25. Normative
theories Feminist Theories
2nd kind
 Feminist ethics is related to virtues.
 It emphasis that caring is good and that
marginal voices must be heard.
 The ethics of care focuses on virtues that are
associated with sympathy, compassion and
friendship.

26. Normative
theories Feminist Theories
2nd kind
 Traditional economics-based approaches to
management have concentrated on the
legalistic, contractual, masculine side of human
existence.
 Managers are presumed to view the corporation
as being competition with others and they need
to act to protect and further the interests of the
corporation.

27. Normative
theories Feminist Theories
2nd kind
 Feminist interpretations of stakeholder theory
are classified as the 2nd kind of theories – They
argue that norms, already existing in certain
spheres and among certain people, should be
extended to other situations.
 They call for more cooperative, caring type of
relationship in which firms seek to make
decisions that satisfy stakeholders, leading to
situations where all parties are involved in a
relationship gain.

28. Normative
theories Property Rights: Donaldson & Preston
3rd kind (1995)
 Argue that the basis for stakeholder theory can
be based on the evolving theory of property.
 Traditional view suggests that corporations
should be managed for the exclusive benefit of
the shareholders as their property rights are
superior to all other interests in the corporation.
 Donaldson & Preston – Property rights are not
exclusively related to the interest of owners.
Property is viewed as a bundle of many rights,
some of which may be limited.

29. Normative
theories Property Rights: Donaldson & Preston
3rd kind (1995)
 Central to the notion of property is the notion of
human rights and the restrictions against
harmful uses.
 This brings the interest of non-owner
stakeholders into the picture and does not
support the claim that management should act
only in the interest of the stakeholders.

30. Normative
theories Stakeholder Paradox: Goodpaster (1991)
3rd kind
 Argues that stakeholder synthesis is naturally either
strategic (business without ethics) or multi-fiduciary
(ethics without business).
Strategic Stakeholder Multi-fiduciary Stakeholder
Management (SSM) Management (MSM)
• SSM is non-moral • MSM treats all stakeholders as
• Specific rules: having equally important
(a) Maximize the benefits and interests and deserving joint
minimize the costs to maximization.
stockholder group, short and
long term.
(b) Pay close attention to the
interest of other stakeholder
groups that might potentially
influence the achievements of
(a).

31. Normative
theories Stakeholder Paradox: Goodpaster (1991)
3rd kind
 Goodpaster‟s model attempts to develop an
account of the moral responsibilities of
management that:
a) Avoids surrendering the moral relationship
between management and stakeholders as the
strategic view does, while
b) Not transforming stakeholder obligations into
fiduciary obligations.

32. Normative
theories Public Policy: Boatright (1994)
3rd kind
 Boatright (1994) asks what is so special about
stakeholders?
 Why are they given special status as discussed
in Goodpastel (1991)

33. Normative
theories Public Policy: Boatright (1994)
3rd kind
 Argues that shareholders do not need additional
fiduciary duties because they are given rights,
such as to elect directors and to receive
dividends, and have the ability to sell their
shares on the open market if they are
disappointed with how the corporation is being
run.
 Fiduciary duties of management are and ought
to be determined by considerations of public
policy.

34. Normative
theories Public Policy: Boatright (1994)
3rd kind
 If public policy is accepted as the basis for
fiduciary, a different solution can be
suggested.
 This is based on the premise that the
obligations of management to shareholders
can be differentiated according to whether they
are fiduciary or non-fiduciary.

35. Normative
theories Public Policy: Boatright (1994)
3rd kind
 Fiduciary duties – those for which they are
held personally liable (act with due diligence
within the scope of their authority and exercise
ordinary care and prudence)
 Non-fiduciary duties – All other obligations for
which there is no corresponding personal
liability.

36. Normative
theories Aristotelian Stakeholder Theory: Wijnberg
3rd kind (2000)
 A moral virtue is gained from action, a good
person of practical wisdom needs moral
dilemmas: to have to act politically and to deal
with conflicting interests.
 The corporation is a political association in which
decisions have to be made that affect the interests
of different stakeholders and express the values
of the decision-makers.
 The end is the good life of the individual decision
maker, not the welfare of the corporation or the
society.

37. Normative
theories Aristotelian Stakeholder Theory: Wijnberg
3rd kind (2000)
 Recommendations from Wijnberg:
1. Corporate structure must permit sufficient
autonomy to allow managers to practice their
practical wisdom.
2. A systematic identification of shareholders and
their interests to identify their influence so that
decision makers can strive to acquire and
exercise.
3. Codes of conduct or mission statement can be
fruitfully used to enforce or encourage virtuous
decision-making.
4. Education is of crucial importance.

38. END