A Stakeholder Approach To Strategic Management

Darden Graduate School of Business Administration

University of Virginia

Working Paper No. 01-02

A Stakeholder Approach to Strategic Management

R. Edward Freeman

John McVea

This paper can be downloaded without charge from the

Social Science Research Network Electronic Paper Collection at:

http://papers.ssrn.com/paper.taf?abstract_id=263511

A Stakeholder Approach to Strategic Management

R. Edward Freeman

And

John McVea

The Darden School

University of Virginia

Forthcoming in M. Hitt, E. Freeman, and J. Harrison (eds.)

Handbook of Strategic Management, Oxford: Blackwell

Publishing.

INTRODUCTION

The purpose of this chapter is to outline the development of the idea of

"stakeholder management" as it has come to be applied in strategic management. We

begin by developing a brief history of the concept. We then suggest that traditionally the

stakeholder approach to strategic management has several related characteristics that

serve as distinguishing features. We review recent work on stakeholder theory and

suggest how stakeholder management has affected the practice of management. We end

by suggesting further research questions.

A HISTORY OF A STAKEHOLDER APPROACH TO STRATEGIC

MANAGEMENT

A stakeholder approach to strategy emerged in the mid-1980's. One focal point in

this movement was the publication of R. Edward Freeman's Strategic Management- A

Stakeholder Approach in 1984. Building on the process work of Ian Mitroff and Richard

Mason, and James Emshoff [ For statements of these views see Mason and

Mitroff,(1982) and Emshoff (1978)]. The impetus behind stakeholder management was

to try and build a framework that was responsive to the concerns of managers who were

being buffeted by unprecedented levels of environmental turbulence and change.

Traditional strategy frameworks were neither helping managers develop new strategic

directions nor were they helping them understand how to create new opportunities in the

midst of so much change. As Freeman observed "[O]ur current theories are inconsistent

with both the quantity and kinds of change that are occurring in the business environment

of the 1980's...A new conceptual framework is needed."[Freeman, 1984, pg. 5] A

stakeholder approach was a response to this challenge. An obvious play on the word

"stockholder", the approach sought to broaden the concept of strategic management

beyond its traditional economic roots, by defining stakeholders as "any group or

individual who is affected by or can affect the achievement of an organization's

objectives". The purpose of stakeholder management was to devise methods to manage

the myriad groups and relationships that resulted in a strategic fashion. While the

stakeholder framework had roots in a number of academic fields, its heart lay in the

clinical studies of management practitioners that were carried out over ten years through

the Busch Center, the Wharton Applied Research Center, and the Managerial and

Behavioral Science Center, all at The Wharton School, University of Pennsylvania by a

host of researchers.

While the 1980's provided an environment that demonstrated the power of a

stakeholder approach, the idea was not entirely new. The use of the term stakeholder

grew out of the pioneering work at Stanford Research Institute (now SRI International) in

the 1960's. SRI's work, in turn, was heavily influenced by concepts that were developed

in the planning department of Lockheed and these ideas were further developed through

the work of Igor Ansoff and Robert Stewart. From the start the stakeholder approach

grew out of management practice. 1

1 Recently, Mr. Giles Slinger has revisited the early history of the idea of stakeholders.

Through more extensive interviews, and the examination of a number of historical

documents, Slinger rewrites the history as told in Freeman (1984). The essential

SRI argued that managers needed to understand the concerns of shareholders,

employees, customers, suppliers, lenders and society, in order to develop objectives that

stakeholders would support. This support was necessary for long term success. Therefore,

management should actively explore its relationships with all stakeholders in order to

develop business strategies.

For the most part these developments had a relatively small impact on the

management theories of the time. However, fragments of the stakeholder concept

survived and