Stakeholder Orientation

Stakeholders are those individuals or groups who have power over an organization’s success or failure. Stakeholder orientation is how organizations perceive—and therefore behave toward—their stakeholders. This behavior in turn has an impact on how stakeholders feel about an organization, which affects how they talk about and behave toward that organization. An organization’s reputation draws significantly on its image—that is, how its stakeholders perceive it and the impact of that perception on the mental narratives those stakeholders share with one another. These narratives reflect the experiences stakeholders have with organizations, particularly the responsiveness of organizations to stakeholders’ needs and concerns. Stakeholder orientation is therefore a crucial element in establishing and maintaining organizational reputation. This entry provides an overview of the main points of significance in understanding the concept of stakeholder orientation.

Types of Stakeholder Orientation

The literature suggests that organizations should focus on four main stakeholder orientations: their (1) customers, (2) competitors, (3) employees, and (4) (where appropriate) shareholders. Recent research has concluded that these groups should be extended to include the community and the regulators. Some analysts propose that not all of these orientations should receive equal organizational attention, however, suggesting that those stakeholders who hold the most power, urgency, and legitimacy should get more consideration. Others suggest that the most important stakeholder orientation must always be that of an organization toward its employees. An organization’s orientation toward any given stakeholder can be positive or negative, weak or strong, or consistent or variable.

A positive stakeholder orientation is one in which the organization displays an interest in what its customers, competitors, employees, and shareholders are thinking and talking about. This interest is expressed in the active gathering of stakeholder input. The positively oriented organization behaves respectfully toward its stakeholders, treating them as partners in its continued success. This respect is demonstrated in the organization’s desire to respond to concerns raised by its stakeholders. This does not necessarily mean that the organization does what its stakeholders want, though. It might be more appropriate for the organization to respond by providing more information that explains and justifies its current decisions and behavior.

A negative stakeholder orientation is one where the organization operates as a closed system, perceiving the wants and needs of its stakeholders as of little significance to its decision making. Organizations with a negative stakeholder orientation often do not actively seek input from their customers, competitors, employees, or shareholders. Unsolicited information these organizations receive from stakeholders is disregarded or disparaged. The organization might not make any response to this input. Alternatively, any response the negatively oriented organization does make could be dismissive, attempting to shut down the conversation with its stakeholders. Other expressions of negative stakeholder orientation could involve an organization making decisions and/or undertaking behavior that is actually harmful or detrimental to its stakeholders.

A weak stakeholder orientation is one where the organization does not demonstrate clear or overt attitudes and behavior (positive or negative) toward its stakeholders. For example, an organization might perceive its stakeholders as a vital link in maintaining its success but not allocate enough resources to obtain information from those stakeholders or make significant changes in response to stakeholder needs.

A strong stakeholder orientation is one that is clearly visible in the behavior of an organization. Such behavior might be shown in positively oriented organizations by the provision of well-resourced information-gathering mechanisms (e.g., surveys, focus groups, social media monitoring), the open and transparent discussion of information found through these channels, and the making of overt responses. Negatively oriented organizations might display a strong orientation by criticizing their stakeholders publicly.

A consistent stakeholder orientation is one that does not change significantly over time or across an organization. In other words, a consistent stakeholder orientation is held by most organizational members for a long time.

A variable stakeholder orientation changes rapidly and frequently over time. It might also be demonstrated by differences between levels or departments within an organization.

The ideal combination is a stakeholder orientation that is positive, strong, and consistent. This type of stakeholder orientation has been directly linked to increases in organizational profits. However, organizations that prioritize and focus on their stakeholder orientation often do so because of nonfinancial imperatives and drivers, such as a desire to be good corporate citizens or a focus on operating as an ethical business. Challenges for organizations seeking to develop positive, strong, and consistent stakeholder orientations arise from the lack of homogeneity across and between stakeholder groups (how to reconcile competing or conflicting stakeholder agendas) and from difficulties in meeting stakeholder expectations that might appear unrealistic or hostile to the achievement of organizational goals and objectives.

Stakeholder orientation is dynamic and situational. In other words, it changes in response to variations in the organizational operating environment. This is true even for organizations that have a consistent stakeholder orientation, although their changes are less frequent and dramatic. For example, it might be difficult for an organization to maintain its positive orientation toward its stakeholders if it finds its plans constantly being blocked.

Development

Up to the middle of the 20th century, organizations often saw their stakeholders as tools to be used in order to achieve organizational success. This instrumentalist or market orientation toward their stakeholders meant that organizations perceived stakeholders as a means to an end—that end being organizational sustainability and profit. Stakeholders who did not clearly contribute to the achievement of organizational goals were ignored or dismissed, meaning that there was a tendency for organizations to focus purely on customers and competitors. This stakeholder orientation is summed up in the statement attributed to railroad magnate William Henry Vanderbilt: “Public be damned!” This type of stakeholder orientation is often characterized by a one-way or monologic communication by organizations.

Subsequent developments in approaches to organizational management led to the recognition that organizational reputations could be enhanced by broadening the scope of the concept of stakeholders to include employees and nonfinancial groups and accommodating the needs of these stakeholders into organizational planning and behavior. This change in the management of organizations resulted in the emergence of a more consultative form of stakeholder orientation, requiring a two-way communication between parties. Organizations used this two-way communication to find out what expectations stakeholders had of them and what responses were required to meet and/or manage those expectations so that organizational reputations were enhanced. Organizations began to perceive that their stakeholders had value as contributors to the formulation of strategies and tactics. Stakeholder influence was permitted, though only within the overarching set of goals and objectives determined by organizations. The increased level of responsiveness at the strategic and tactical level that characterizes this form of consultative stakeholder orientation signaled a radical departure from the previous instrumentalist perspective.

At this time, corporate social responsibility began to emerge as a significant consideration in organizational management. The consultative stakeholder orientation provided an ideal means through which organizations could both identify and satisfy stakeholders’ expectations of their role as good corporate citizens. There are therefore clear and frequent links in the literature between the concepts of corporate social responsibility and stakeholder orientation.

In the 21st century, a new type of stakeholder orientation emerged, linked to the rise of the empowered stakeholder. Multiple factors were responsible for this development including the spread of social media and the occurrence of a number of high-profile cases where organizations were shown to have engaged in irresponsible and unethical practices (e.g., Enron and Lehman Brothers). As a result, organizations began to realize that they could better protect and sustain their reputations by working together with their stakeholders to set organizational goals and objectives. This collaborative approach meant that expectations were clearly articulated and mutually acceptable. Meeting these co-created expectations was likely to increase stakeholder satisfaction and therefore enhance and even improve organizational reputations.

A co-creational stakeholder orientation is demonstrated in the conduct of dialogue, which goes beyond a simple two-way communication as it requires mutual respect, empathy, trust, and truthfulness. Dialogue occurs when there is a willingness and ability among participants to change their behavior to accommodate the needs of others. The rise of co-creational stakeholder orientation means that it can no longer be understood simply as the orientation organizations have toward their stakeholders. In contemporary business management, stakeholder orientation means the mutual orientation organizations and their stakeholders have toward one another.