Academy of Management

Toward a Descriptive Stakeholder Theory: An Organizational Life Cycle Approach
Author(s): I. M. Jawahar and Gary L. McLaughlin

Source: The Academy of Management Review, Vol. 26, No. 3 (Jul., 2001), pp. 397-414
Published by: Academy of Management
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4 Academy of Management Review
2001, Vol. 26, No. 3, 397-414.
TOWARDA DESCRIPTIVESTAKEHOLDER
THEORY:AN ORGANIZATIONALLIFE
CYCLEAPPROACH
I. M. JAWAHAR
Illinois State University
GARY L. MCLAUGHLIN
Wal-Mart Stores, Inc.
We integrate theory and research from disparate areas to develop a descriptive

stakeholder theory. We (1) show that at any given organizational life cycle stage,
certain stakeholders, because of their potential to satisfy critical organizational
needs, will be more important than others; (2) identify specific stakeholders likely to
become more or less important as an organization evolves from one stage to the next;
and (3) propose that the strategy an organization uses to deal with each stakeholder
will depend on the importance of that stakeholder to the organization relative to other
stakeholders.
In the literature on organizations, scholars stages are likely to favor certain stakeholders
have tended to generate studies that focus ex- (see Gioia, 1999), depending on the extent to
clusively on mature organizations (Kimberly & which they are dependent on those stakeholders
Miles, 1980). This bias is apparent in the study of for resources critical to organizational survival.
corporate social performance (CSP) as well Organizations are unlikely to fulfill all the
(Thompson & Hood, 1993). Taking a long-term responsibilities they have toward each primary
perspective will permit researchers to study stakeholder group. Instead, they are likely to
how the strategies an organization uses to deal fulfill economic and all noneconomic responsi-
with multiple stakeholders change as the organ- bilities of some primary stakeholders but not
ization evolves through the stages of formation, others and, over time, to fulfill responsibilities
growth, maturity, and decline or revival. relative to each stakeholder to varying extents.
In an influential article Clarkson (1995) notes This variation in how organizations deal with
that a corporation's survival and continuing suc- different stakeholders, simultaneously and over
cess depends upon the ability of its manage- time (i.e., across life cycle stages), has not been
ment to create sufficient wealth, value, or satis- addressed in the extant literature. Changes in
faction for all primary stakeholder groups. the relative importance of primary stakeholders
Additionally, he argues that "the economic and over time have not been addressed because of
social purpose of the corporation is to create and the cross-sectional and almost exclusive focus
distribute increased wealth and value to all its in the literature on mature organizations. By tak-
primary stakeholder groups, without favoring ing a long-term perspective, we attempt to de-
one group at the expense of others" (1995: 112). scribe how an organization's relationship with
Similarly, Jones and Wicks argue that "the inter- each of the primary stakeholder groups is likely
ests of all (legitimate) stakeholders have intrin- to vary with the life cycle stage of the organiza-
sic value, and no set of interests is assumed to tion.
dominate the others" (1999: 207). These norma- In this article we integrate theory and re-
tive prescriptions may appropriately describe search on resource dependence theory, prospect
CSP of organizations in the mature stage. How- theory, and organizational life cycle models to
ever, organizations in start-up or decline/revival develop a descriptive stakeholder theory. The
theory explains heretofore overlooked but im-
We gratefully acknowledge the significant help of asso- portant questions, such as which primary stake-
ciate editor Arthur Brief and three anonymous reviewers holders are important, why and when they are
with previous versions of the manuscript. important, and how managers allocate re-
397

398 Academy of Management Review July
sources among primary stakeholders. The the- tions that society has of organizations at a given
ory is descriptive and contains many testable point in time" (1979: 500). Borrowing from Wilson
propositions, and it has the potential to focus (1974), Carroll notes that organizations could use
future empirical research on stakeholder man- the strategies of reaction, defense, accommoda-
agement. We base this theory on the premise tion, and proaction to address their economic,
that organizations face different pressures and legal, ethical, and discretionary responsibili-
threats at different stages in the organizational ties.
life cycle. Therefore, at different stages different Building on Carroll's work, Wartick and Coch-
stakeholders become critical for organizational ran (1985) attempted to construct a general
survival. Consequently, depending on who the model of CSP. They defined the CSP model as
critical stakeholders are at each stage, an "the underlying interaction among the princi-
organization is likely to use different strategies ples of social responsibility, the processes of
to deal with those critical stakeholders versus social responsiveness, and the policies devel-
other stakeholder groups. oped to address social issues" (1985: 758) and
We organize the paper as follows. First, we showed that several competing perspectives
briefly review the literature on CSP and stake- (economic responsibility, public responsibility,
holder management as a general backdrop. We social responsiveness) could be incorporated
then identify potential stakeholders and de- into their framework. Their model of CSP con-
scribe four possible strategies from the litera- tains the three components of CSR, corporate
ture that an organization could use to deal with social responsiveness, and social issues man-
each of those stakeholders. Next, we examine agement. In both models the processes of social
resource dependence theory and prospect the- responsiveness are identified as reactive, defen-
ory, because both of these theories have strong sive, accommodative, and proactive. In Wood's
implications for stakeholder management in our (1991a,b) model, CSP is defined as an organiza-
comprehensive stakeholder theory. Specifically, tion's configuration of principles of social re-
based on resource dependence theory, we argue sponsibility, processes of social responsiveness,
that stakeholders most likely to have access to and observable outcomes as they relate to the
resources needed for organizational survival firm's societal relationships.
will elicit more attention from organizational In recent years many scholars have proposed
decision makers than stakeholders who have that integrating CSP with stakeholder manage-
less access to such critical resources. Based on ment concepts could lead to a better under-
prospect theory, we argue that threats (or ab- standing of business and society relationships
sence of threats) to organizational survival will (e.g., Brenner & Cochran, 1991; Clarkson, 1995;
influence framing of resource allocation deci- Donaldson & Preston, 1995; Jones, 1995; Mitchell,
sions and, concomitantly, the "riskiness" of Agle, & Wood, 1997; Rowley, 1997). For instance,
strategies adopted by organizational decision Clarkson (1995) has proposed that CSP can
makers to deal with stakeholders. Finally, after be analyzed and evaluated more effectively by
briefly discussing the general stages in an or- using a framework based on how corporations
ganization's life cycle, for each stage we identify manage their relationships with stakeholders
the critical stakeholders and discuss the strate- than by using models and methodologies based
gies an organization is likely to adopt to deal on the concepts of CSR and responsiveness.
with critical stakeholders versus those who are Likewise, Wood and Jones (1995) argue that
less critical to the organization. stakeholder theory holds the key to understand-
ing the structures and dimensions of business
and society relationships. Several authors (e.g.,
A SELECTED REVIEW OF LITERATUREON
Brenner & Cochran, 1991; Jones, 1995) have
CSP AND STAKEHOLDER
MANAGEMENT
treated the stakeholder construct as the founda-
In a seminal article on CSP, Carroll (1979) ar- tion for a theory of the firm and as a framework
gues that economic and noneconomic responsi- for the business and society field.
bilities are not separate issues but, rather, are The concept of stakeholder management was
part of corporate social responsibility (CSR). introduced in the strategic management litera-
Carroll defines CSR as encompassing "the eco- ture by Freeman (1984). Recently, Donaldson and
nomic, legal, ethical, and discretionary expecta- Preston (1995) presented a taxonomy of stake-

2001 Jawahar and McLaughlin 399
holder theory types-normative, instrumental, sistent results (see Donaldson & Preston, 1995:
and descriptive/empirical-and used the taxon- 77, and Griffin & Mahon, 1997: 6). In a majority of
omy to guide their discussion of the stakeholder the studies in which researchers have found a
literature. Much of the literature in stakeholder relationship, positive correlations have been re-
management is from the normative realm, ported between overall CSP (as opposed to CSP
which concerns how managers should deal with toward the different stakeholders) measured
corporate stakeholders. One of the central tenets across industries (as opposed to within indus-
of normative stakeholder theory is that firms tries) and various measures of financial perfor-
should attend to the interests of all their stake- mance. In the rest, researchers have attempted
holders-not just their stockholders. A common to justify post hoc why certain stakeholders in-
theme among these scholars is that firms should fluence corporate performance.
treat stakeholders as "ends" (e.g., Boatright, In contrast to the normative and instrumental
1994; Clarkson, 1995; Evan & Freeman, 1983; perspectives, very little descriptive theory or re-
Goodpaster, 1991). In general, scholars having search, which describes how organizations in-
normative perspectives prescribe how all stake- teract with stakeholders, exists in the extant
holders should be treated on the basis of some stakeholder management literature (Berman et
underlying moral or philosophical principles. al., 1999). Brenner and Cochran (1991) were the
The implication is that moral principles should first to propose a descriptive stakeholder theory
drive stakeholder relations-an implication not of the firm. According to them, "The stakeholder
supported by empirical research (Berman,
theory of the firm posits that the nature of an
Wicks, Kotha, & Jones, 1999).
organization's stakeholders, their values, their
Instrumental theory links "means" and "ends"
relative influence on decisions and the nature of
and contains such statements as "Certain out-
the situation are all relevant information for pre-
comes (corporate performance) are more likely if
dicting organizational behavior" (1991: 462; cf.
firms/managers behave in certain ways (strate-
Jones & Wicks, 1999: 208). Although Brenner and
gically manage stakeholders)." A fundamental
Cochran argue that "values which are highly
assumption is that the ultimate objective of cor-
weighted should be favored in actual choice
porate decisions is marketplace success, and
stakeholder management is a means to that situations" (1991: 462), they stop short of both
end. Synthesizing ethics and economics, Jones substantive prediction and description of the
(1995) presents the most well-articulated instru- mechanisms through which the predicted be-
mental theory. He makes a case for the general havior might occur (cf. Jones & Wicks, 1999: 208).
proposition that if firms contract (through their In another attempt at descriptive theory, Jones
managers) with their stakeholders on the basis proposes that "managers behave as if stake-
of mutual trust and cooperation, they will have a holders mattered because of the intrinsic justice
competitive advantage over firms that do not. In of their (stakeholders') claims on the firm"
general, instrumental stakeholder theorists stop (Jones, 1994: 100). Researchers have investigated
short of exploring specific links between cause claims of this type and found some support for
(stakeholder management) and effect (corporate them (e.g., Clarkson, 1995). As Jones and Wicks
performance) in detail, but such linkage is cer- note, "Claims of this type do not fully exploit the
tainly implicit (Donaldson & Preston, 1995). This possibilities for stakeholder-based descriptive
is most apparent in the research linking mea- theory" (1999: 208).
sures of CSP (e.g., Fortune Reputational Index, Recently, Mitchell et al. (1997) attempted to
KLD ratings) with financial performance (e.g., develop a descriptive stakeholder theory. Their
ROI, ROA, and so forth). propositions about stakeholder identification
Although there are only a few instrumental and stakeholders' salience to corporate manag-
stakeholder theories, the bulk of the research on ers are based upon the moral legitimacy of a
CSP/stakeholder management is implicitly stakeholder's claim, the stakeholder's power to
based on the instrumental perspective. Re- influence the firm, and the urgency of the stake-
search linking CSP with corporate performance holder's issue. The central thesis of their theory
is not based on theory, because the reasons for is that stakeholder salience will be positively
expecting a relationship are not clearly articu- related to the cumulative number of stakeholder
lated. Moreover, scholars have reported incon- attributes of power, legitimacy, and urgency.

Because the stakeholder theory we propose is Cohen (1995) and Donaldson and Preston (1995)
descriptive, we should consider extant descrip- have added both trade associations and envi-
tive stakeholder theory. For instance, Brenner ronmental groups to Clarkson's (1995) list of pri-
and Cochran's (1991) central proposition is so mary stakeholders (see also Freeman, 1984).
broad it is not falsifiable. Jones' (1994) claim is Several researchers have highlighted the high
falsifiable; a single claim, however, falls short level of interdependence between the corpora-
of a descriptive theory. And Mitchell et al.'s tion and its primary stakeholder groups (e.g.,
(1997) model is limited to describing attributes Donaldson & Preston, 1995; Freeman, 1984). For
that contribute to the salience of stakeholders; it instance, Clarkson (1995) has noted that without
does not specifically identify stakeholders who the continuing participation of primary stake-
will be salient to management but states only holders, an organization cannot survive as a
that stakeholders who possess more attributes going concern.
will be perceived as more salient than those Several scholars have suggested that an or-
who possess fewer attributes. The Mitchell et al. ganization could adopt different approaches to
model does not address an issue central to deal with each primary stakeholder group, in-
stakeholder management: how an organiza- cluding proaction, accommodation, defense,
tion's management deals with stakeholders who and reaction (Carroll, 1979; Clarkson, 1988, 1991,
vary in terms of salience. 1995; Gatewood & Carroll, 1981; Wartick & Coch-
In this article we offer a new and more com- ran, 1985). For instance, Carroll (1979) proposed
prehensive stakeholder theory in which we de- that organizations could use the aforementioned
scribe which stakeholders will be important (or approaches to address their economic, legal,
salient), when they will be important, and how ethical, and discretionary responsibilities.
firms will deal with stakeholders who vary in Wartick and Cochran (1985), following Carroll
terms of importance. Additionally, and in con- (1979), used the terms reactive, defensive, ac-
trast to the (implicit) focus of much of the organ- commodative, and proactive to characterize cor-
izational literature on mature organizations, our porate strategy toward social responsiveness.
proposed theory addresses the aforementioned Clarkson (1991, 1995) developed the RDAP scale
concerns within the context of each stage of the to measure the strategies of reaction, defense,
organizational life cycle. accommodation, and proaction and has success-
fully used the scale to describe strategies used
by organizations to deal with stakeholders.
STAKEHOLDERS
AND STAKEHOLDER According to these scholars (e.g., Carroll, 1979;
MANAGEMENTSTRATEGIES Clarkson, 1991; Wartick & Cochran, 1985), proac-
tion involves doing a great deal to address a
According to Freeman's now-classic defini- stakeholder's issues, including anticipating and
tion, "A stakeholder in an organization is any actively addressing specific concerns or leading
group or individual who can affect or is affected an industry effort to do so. Relative to proaction,
by the achievement of the organization's objec- the strategy of accommodation is a less active
tives" (Freeman, 1984: 46). Although debate con- approach of dealing with a stakeholder's issues.
tinues over whether to broaden or narrow the The defense strategy involves doing only the
definition (see Mitchell et al., 1997), most re- minimum legally required to address a stake-
searchers have used a variation of Freeman's holder's issues. And the strategy of reaction in-
definition of a stakeholder (e.g., Clarkson, 1995; volves either fighting against addressing a
Frooman, 1999; Rowley, 1997). stakeholder's issues or completely withdrawing
According to Clarkson (1995), and ignoring the stakeholder.
Primary stakeholder groups typically are com- Clarkson (1995) adds a posture or strategy el-
prised of shareholders and investors, employees, ement to this framework in order to aid in defin-
customers, and suppliers, together with what is ing the level of responsibility accepted for man-
defined as the public stakeholder group: the gov- aging stakeholder issues. The responsibility
ernment and communities that provide infra- posture or strategy for proaction is to anticipate
structures and markets, whose laws and regula-
tions must be obeyed, and to whom taxes responsibility, for accommodation to accept re-
and other obligations may be due (Clarkson, sponsibility, for defense to admit responsibility
1995:106). but fight it, and for reaction to deny responsibil-

ity. For instance, the strategy used by Digital require more resources than using a reactive
Equipment Corporation to deal with suppliers is strategy-that is, denying responsibility for
a good example of proactive attention to a training and development.
stakeholder. Digital Equipment involves suppli- In the next section we describe resource de-
ers on its product planning teams (Bleakley, pendence theory and propose that the strategies
1995). Hewlett Packard uses a similar approach an organization uses to deal with different
to deal with suppliers (Burt, 1989), and Xerox stakeholders will be influenced by the extent to
shares blueprints with suppliers and involves which the organization is dependent on those
them in designing parts (Burt, 1989). Proaction stakeholders for resources critical to the organi-
thus involves attempts to enhance the interests zation.
of a particular stakeholder. Accommodation in-
volves accepting responsibility but, at the same
RESOURCE DEPENDENCE THEORY
time, bargaining to obtain concessions. For in-
stance, to avert a strike by the United Auto We believe that resource dependence theory
Workers in 1987, General Motors (GM) evidenced (Pfeffer & Salancik, 1978) can be used to explain
use of the accommodation strategy, promising the relative importance of primary stakeholder
job security to union members contingent upon groups to an organization. In this theory an or-
productivity gains to be developed by labor- ganization is conceptualized as being depen-
management committees (Zellner & Berstein, dent on resources in its environment for its sur-
1987). The defense strategy involves defending vival. The extent to which an organization is
against demands to do more than the minimum dependent upon external organizations and
legally required. An example of this strategy is stakeholders depends on the importance of a
Valero Energy Corporation's argument that be- particular resource to the organization, the de-
cause it is in full compliance with U.S. EPA reg- gree to which those who control the resource
ulations, claims of damages by community have monopoly over the resource, and the dis-
stakeholders are groundless (Elder, 2000). Fi- cretion they have over its allocation (Frooman,
nally, Ford Motor Company's refusal to recall 1999; Mitchell et al., 1997; Pfeffer & Salancik,
Pinto on the assumption that each explosion 1978). Because of resource dependencies, man-
was an isolated incident (Auto Week, 1989) and agers do not have unbridled strategic choice, as
Exxon's refusal to continue its oil-spill cleanup Andrews (1971) and Child (1972) originally pro-
efforts beyond September 15, 1989, regardless of posed, but must make strategic choices within
whether or not the cleanup was completed constraints (Hrebeniak & Joyce, 1985; Pfeffer &
(Egan, 1989), are two examples of the use of Salancik, 1978). These strategic choices will be
reaction strategy to deal with affected stake- aimed, at least in part, at managing external
holders. dependencies both to guarantee the survival of
The strategies of proaction, accommodation, the organization and to secure, if possible, more
defense, and reaction are legally defensible, al- independence and freedom from external con-
though the latter two may be less satisfactory to straints (Pfeffer, 1982: 192; see also Oliver, 1991).
stakeholders than proaction and accommoda- An organization could manage these external
tion. When the strategies of proaction, accom- dependencies by adapting to its environment,
modation, defense, and reaction are considered by altering constraints through interlocking di-
individually, the most resources (management rectorships and joint ventures, or by changing
attention and financial commitment) are likely the legality of its environment through the use of
to be necessary for proaction and the least for political action (Pfeffer & Salancik, 1978).
reaction. For instance, proactively addressing Hypotheses derived from resource depen-
employee compensation concerns by paying dence theory have been supported in studies of
premium wages and providing stock options social service agencies (Aldrich, 1976), univer-
and profit sharing is likely to require more re- sity administrative structure (Tolbert, 1985), and
sources than engaging in the defensive strategy organizational failure (Sheppard, 1995). In a
(doing only the minimum legally required) of dominant stream of research, scholars have in-
only assuring payment of wages and providing vestigated the relationship between board size
mandatory benefits. Likewise, proactively in- (number of directors) and financial performance.
vesting in training and development is likely to According to resource dependence theory, larger

boards are likely to be more effective than top managers give priority to stakeholders is
smaller boards at forming external links to se- substantially influenced by the power attributed
cure critical resources (Goodstein, Gautam, & to those stakeholders.
Boeker, 1994; Pfeffer & Salancik, 1978: 172). Al- Clearly, given that organizations have finite
though in a preponderance of studies evidence resources in terms of time and money, organiza-
in support of resource dependence theory has tions are unlikely to proactively address issues
been reported (e.g., Birnbaum, 1984; Pfeffer, 1972, and concerns of all stakeholders all the time.
1973), Yermack (1996) found that board smallness Theory (Pfeffer & Salancik, 1978) and research
was associated with higher market evaluations (e.g., Kreiner & Bhambri, 1991) on resource de-
as well as higher returns on assets and returns pendence indicate that organizations will pay
on sales. However, in a recent meta-analysis of more attention to stakeholders who control re-
131 samples (N = 20,620), Dalton, Daily, Johnson, sources critical to the organization than to
and Ellstrand (1999) reported a corrected mean stakeholders who do not control such critical
correlation of .16 between board size and finan- resources. We argue that the different levels of
cial performance. attention devoted to the different stakeholders
One of the basic tenets of resource depen- will be manifested in the form of different strat-
dence theory is that organizations will be con- egies (i.e., reaction, defense, accommodation,
cerned with, pay more attention to, and deal and proaction) used to deal with those stake-
with sources of critical resources to ensure con- holders.
tinued survival. This tenet, which is central to
our thesis, has received ample empirical sup-
PROSPECTTHEORY
port (e.g., Aldrich, 1976; Pfeffer, 1972; Sheppard,
1995; Tolbert, 1985). Prospect theory (Kahneman & Tversky,
In summary, resource dependence theory in- 1979)-a behavioral decision theory-nicely
dicates that "organizations must attend to the complements resource dependence theory in ex-
demands of those in its environment that pro- plaining how and why an organization's man-
vide resources necessary and important for its agement allocates different levels of attention to
continued survival ... organizations will (and different stakeholders. Central to prospect the-
should) respond more to the demands of those ory is the hypothetical value function depicting
organizations or groups in the environment that the relationship between the actual value of an
control critical resources" (Pfeffer, 1982: 193). Ex- option and the psychological value of that op-
tending this theory to stakeholders seems to tion. The hypothetical value function suggests
suggest that organizations will pay more atten- that an individual's estimate of the psychologi-
tion to and be more concerned with issues of cal value of an option differs systematically
stakeholder groups who control resources criti- from the actual value of that option. This differ-
cal to the survival of an organization (Agle, ence is attributed to the reference point individ-
Mitchell, & Sonnenfeld, 1999; Kreiner & Bhambri, uals use to evaluate options. A typical reference
1991). This dependence of firms on stakeholders point is the status quo-one's current posi-
for resources translates into power for the stake- tion-or it could be an aspiration-the level of
holder group(s) involved (Mitchell et al., 1997) benefit one hopes to achieve (Kahneman & Tver-
and gives those stakeholders leverage over sky, 1984).
firms (Frooman, 1999). Power is often a function Kahneman and Tversky (1979) posit that the
of the organization's dependence on the stake- reference point determines whether the out-
holder. Generally, the more dependent the or- comes are evaluated in terms of gains or losses.
ganization, the more powerful the stakeholder Any loss or postponement of a gain is framed as
(Frooman, 1999). For instance, in a study involv- a loss. The avoidance or postponement of a loss
ing insurance companies, Kreiner and Bhambri is framed as a gain. Because most subjects have
(1991) found that organizations were more con- an S-shaped value function that is concave in
cerned with and gave high priority to public the domain of gains and convex in the domain of
policy issues generated by critical stakeholders. losses, losses relative to the reference point
In a more recent study, in which data provided loom larger than gains such that one unit of loss
by CEOs of eighty large U.S. firms were used, is weighted more than an equal amount of gain.
Agle et al. (1999) found that the degree to which Consequently, individuals are risk seeking in

the loss domain but risk averse in the gain do- Tversky's gain domain and loss domain. Threats
main. and opportunities refer to individual percep-
In studies investigating this framing hypoth- tions, whereas loss and gain refer to decision-
esis, researchers have demonstrated that dis- making perspectives. Indeed, Highhouse and
crete choices between a risky and riskless (cer- Yuce (1996) have presented evidence to show
tain) option of equal expected value indeed that threat/opportunity perceptions can have ef-
depend on whether the options are described in fects on risk independent of loss and gain per-
positive terms (e.g., lives saved) or in negative spectives. Second, the framing manipulation in
terms (e.g., lives lost). In their classic study Tver- studies that purport to contradict predictions of
sky and Kahneman (1981) demonstrated a choice prospect theory is of the outcome salience/
reversal in which the majority of the subjects attribute framing type, which is different from
who were given the positively framed version of the reference point/risky choice framing under-
the "Asian disease problem" (a certain option of lying prospect theory (see Levin et al., 1998, for a
saving one-third of the lives versus a one-third detailed discussion). For instance, Kuhberger
chance of saving all lives and a two-thirds (1998) argues that Staw et al.'s (1981) threat-
chance of saving no lives) selected the option rigidity hypothesis applies only to studies in
with the certain outcome, whereas the majority which the salience of outcome is manipulated
of subjects who were given the negatively (e.g., Hollenbeck et al., 1994) and has little to do
framed version (a certain loss of two-thirds of with prospect theory.
the lives versus a one-third chance of losing no Although in some studies researchers have
lives and a two-thirds chance of losing all lives) failed to find framing effects as predicted in
selected the risky option. After an exhaustive prospect theory (e.g., Smart & Vertinsky, 1977), in
review of the research on framing effects, Levin, studies that purport to have found results oppos-
Schneider, and Gaeth concluded that ing predictions of prospect theory, researchers
have inappropriately invoked prospect theory
overall, evidence for the effect of framing on risky
choice reveals a relatively consistent tendency (Kuhberger, 1998; Levin et al., 1998) to explain
for people to be more likely to take risks when results. In summary, a preponderance of re-
options focus attention on the chance of avoiding search has shown that individuals are risk
losses than when options focus on the chance to averse for gains of high probability, choosing a
realize gains. The opposite pattern, wherein risk certain option over a risky option, and are risk
taking is more common for the positive than the
negative frame, is rare (1998:153). seeking for losses of high probability, choosing
a risky option over a certain option (Tversky &
In a recent meta-analysis conducted with 157 Kahneman, 1992).
single effect sizes, Kuhberger (1998) reported an Labels such as threat and opportunity typi-
overall effect size of d = .5, providing strong cally used by strategic decision makers to clas-
support for the framing effects hypothesized in sify environmental events (Christensen, An-
prospect theory. drews, Bowen, Hamermesh, & Porter, 1982;
However, arguments and results purported to Dutton & Jackson, 1987) could serve as reference
contradict prospect theory have also been pre- points and influence how the decision question
sented. For instance, Staw, Sandelands, and is framed-that is, as a loss or as a gain. Pros-
Dutton (1981) presented the threat-rigidity hy- pect theorists posit that in the context of gains,
pothesis, positing that entities faced with individuals will be risk averse and choose the
threats will become rigid and more likely re- option with a certain outcome over a risky op-
spond in a conservative manner. Based on such tion, whereas in the context of losses, individu-
arguments, several authors have proposed that als will be risk seeking and choose the risky
empirical results of risk taking for opportunities option over the option with a certain outcome.
and risk aversion for threats contradict prospect Actively addressing the interests and issues
theory's prediction of risk aversion for gains and of all primary stakeholders would be a "certain"
risk seeking for losses (e.g., Hollenbeck, Ilgen, option-an option certain to elicit a continuous
Phillips, & Hedlund, 1994). flow of resources needed by the organization to
Such an interpretation is inaccurate for two survive and prosper. Theoretically, then, an or-
reasons. First, the constructs "threat" and "op- ganization's most risk-averse approach for deal-
portunity" are distinct from Kahneman and ing with stakeholders would be to address all

stakeholder groups and their issues in a proac- illustrative of risk seeking. Based on prospect
tive or accommodative manner. Proaction and theory and resource dependence theory, we pro-
accommodation involve anticipating and ac- pose two theorems.
cepting responsibility, respectively; both in-
Theorem 1: In the absence of threats to
volve addressing stakeholder issues to enhance
organizational survival, a gain frame
the interests of stakeholders. In contrast to the
will be adopted, and the organization
defense or reaction strategy, proaction and ac-
will pursue a risk-averse strategy and
commodation are the most risk-averse manage-
actively address all stakeholders' is-
ment strategies, because such strategies are
sues.
more likely to satisfy stakeholders. Satisfying
stakeholders is likely to prevent potential prob- Theorem 2: In the presence of threats
lems, such as unfavorable publicity, disruptive to organizational survival, a loss
employee actions, and lawsuits that could im- frame will be adopted, and the organ-
pede the flow of resources needed by the organization will pursue a risky strategy.
ization (Frooman, 1999; Mitchell et al., 1997). The risky strategy will involve ac-
The "riskiest" option would be to ignore the tively addressing issues of only those
interests and issues of all stakeholders. Because stakeholders who are relevant to the
organizations are dependent on other organiza- immediate loss threat while at the
tions and stakeholders for resources, this would same time defending or denying any
not be a viable strategy-not practical because responsibility for issues of other stake-
an organization cannot exist in a vacuum (Pfef- holders, taking, of course, the risk as-
fer & Salancik, 1978) but, rather, is dependent on sociated with such neglect.
stakeholders for resources. Some of these stake-
holders may control resources critical for sur-
LIFECYCLE
ORGANIZATIONAL
vival. Issues of these stakeholders have to be
addressed more actively than issues of stake- Models of life cycle stages are not new in the
holders who do not control such critical re- literature on organizations (Chandler, 1962).
sources. Stakeholders who are critical for sur- Chandler introduced stages to a life cycle model
vival have to be dealt with in a proactive in which he noted that as stages changed, so did
manner or, at the very least, accommodated. The firms' strategies and structures. Organizational
strategies of defense and/or reaction, however, life cycle models vary widely in a number of
could be used to deal with the less critical stake- features, including the actual number of stages.
holders. The defense strategy involves defend- Based on a study of 181 periods of history from
ing against the demands of stakeholders, and three dozen firms, Miller and Friesen (1980) sug-
the reaction strategy involves denying any re- gested a rough sequential ordering of stages:
sponsibility for stakeholder issues. Both of these birth, growth, maturity, and revival. Using Miller
strategies are likely to be less satisfactory to and Friesen's (1984) data, Drazin and Kazanjian
stakeholders than the strategies of proaction (1990) reanalyzed the life cycle progression hy-
and accommodation. Actively addressing the in- pothesis and found support for a four-stage
terests and issues of some but not all stakehold- model. Also, in a number of studies, researchers
ers would be a "risky" option, because stake- have used the four-stage model (see Baird &
holders whose interests were not addressed Meshoulam, 1988). In general, the life cycle of a
satisfactorily might either directly or through typical organization consists of four identifiable
other stakeholders hinder the supply of re- but overlapping phases of start-up, emerging
sources needed by the organization (Frooman, growth, maturity, and revival.
1999; Mitchell et al., 1997). Theory and research indicate that the behav-
In summary, actively addressing the issues of ior of organizations can be predicted by means
all stakeholders would be a "certain" option il- of organizational life cycle models (see Milli-
lustrative of risk aversion. Using the strategies man, Von Glinow, & Nathan, 1991). For instance,
of proaction or accommodation to address is- Smith, Mitchell, and Summer (1985) found that
sues of some stakeholders but using the strate- priorities of top management varied with or-
gies of defense or reaction to address the issues ganizations' life cycle stages. Cameron and her
of other stakeholders would be a "risky" option, colleagues have established a link between life

cycle stages and criteria for evaluating organi- adopt a loss frame and to interact with stake-
zational effectiveness. For instance, in one study holders whose participation is most essential
Quinn and Cameron (1983) developed a model to for meeting those critical needs in a proactive
show that criteria used to evaluate effectiveness or, at the very least, accommodative manner.
vary with the stage of the organization in the The strategy of proaction involves anticipating
organizational life cycle. In another study Cam- and accepting responsibility and, therefore, can
eron and Whetten (1981) used eighteen simu- only be used when threats are forecasted. If a
lated organizations to demonstrate that the cri- threat currently exists, then it will be too late for
teria for effectiveness varied with the stage of proaction, and firms can at best only use accom-
the organization. Here we show that the relative modation. The strategy of defense or reaction is
importance of stakeholders to an organization likely to be used in interacting with the other
will vary with the life cycle stage of the organi- stakeholders whose participation is not essen-
zation. tial for meeting those critical needs. Alterna-
Theory and research suggest that the pres- tively, in other life cycle stages, needs are un-
sures, threats, and opportunities in the external likely to rise to such a level as to threaten
and internal environment of an organization organizational survival. In the absence of such
vary with the life cycle stages (see Anderson & critical life cycle-specific needs, the decision
Zeithaml, 1984; Dodge, Fullerton, & Robbins, maker is likely to adopt a gain frame, pursue a
1994; Dodge & Robbins, 1992). For instance, risk-averse strategy, and actively address con-
Dodge and Robbins (1992) analyzed 364 small cerns and issues of all stakeholders.
business case reports to identify the relative
frequency of major problem categories over the THEORY
STAKEHOLDER
A DESCRIPTIVE
life cycle and found that small businesses con-
tend with different problems in the various In this section we integrate organizational life
stages of the organization's life cycle. In another cycle theory, resource dependence theory,
study Dodge et al. (1994) found that firms in the prospect theory, and stakeholder management
early stages of the life cycle were more con- strategies to present a descriptive stakeholder
cerned with potential obstacles to the attain- theory. We (1) show that at any given organiza-
ment of capital requirements than those in the tional life cycle stage, certain stakeholders,
later stages. In another study involving 105 because of their potential to satisfy critical or-
firms, Kazanjian (1988) found that problems per- ganizational needs, will be more important than
ceived as dominant by managers varied with others; (2) identify specific stakeholders likely to
the life cycle stage of the organization. Although become more or less important as an organiza-
a few specific hypotheses tested in these studies tion evolves from one stage to the next; and
did not receive empirical support, in general, (3) propose that the strategy an organization
the aforementioned studies individually and uses to deal with each stakeholder will depend
collectively demonstrate that the threats and op- on the importance of that stakeholder to the organ-
portunities vary with the life cycle stages of ization relative to other stakeholders.
organizations. Because an organization is dependent on its
Because threats and opportunities vary with environment for resources (Pfeffer & Salancik,
life cycle stages, organizations are likely to 1978), the importance of a stakeholder will de-
have different needs, in terms of resources, in pend on the needs of the organization and the
different stages of the organizational life cycle. extent to which the organization is dependent
From the perspective of prospect theory, these on that stakeholder, relative to other stakehold-
needs in the light of organizational resources ers, for meeting its needs. Therefore, at any
have the potential to serve as reference points given time, some stakeholders will be more im-
for making resource allocation decisions. In portant than others. Because the needs of an
some life cycle stages, certain needs are likely organization change over time, the relative im-
to be so critical that if they are not fulfilled, the portance of stakeholders will also change as the
organization is unlikely to survive. If fulfillment organization evolves through the stages of start-
of such critical life cycle-specific needs is se- up, growth, maturity, and transition. We also
verely threatened or is forecasted to be severely identify the particular stakeholders who are
threatened, then the decision maker is likely to likely to become more or less important. Organ-

izations do not simply respond to each stake- strategy. The risk-seeking strategy involves
holder individually; they respond, rather, to the the choice of the risky option: actively ad-
interaction of multiple influences from the entire dressing the issues and interests of some
stakeholder set (Rowley, 1997). We believe that, stakeholders while simultaneously defending
depending on the relative importance of the against or denying responsibility for issues of
stakeholders, an organization will use different other stakeholders. We invoke resource depen-
strategies to deal with different stakeholders. dence theory to propose that issues of stake-
The theory we present here identifies the partic- holders who control resources critical to a
ular strategy a firm might use to deal with each start-up organization will be addressed ac-
of the primary stakeholders in each stage of the tively, whereas issues of stakeholders on
organizational life cycle. Identifying the relative whom the start-up organization is not depen-
importance of stakeholders and describing dent for survival will not be actively ad-
strategies an organization might use to deal dressed.
with those stakeholders is or should be the es- Relative to other stakeholders, shareholders
sence of any viable descriptive stakeholder the- and creditors are likely to be the primary sup-
ory. This paper is the first to advance such a pliers of critical start-up funds, and customers
comprehensive descriptive stakeholder theory. the primary source of revenues. Consequently,
shareholders, creditors, and customers are
likely to have the most potential to influence
Start-up Stage
organizational survival. Therefore, based on re-
The start-up stage is the period in which de- source dependence theory, we propose that or-
veloping and implementing a business plan, ob- ganizations will be proactive in attracting both
taining initial financing, and entering the mar- stockholders and creditors and in addressing
ketplace are dominant concerns. In this stage their issues. Proactive attention to customers
the most critical needs, which have the potential and their issues might also be expected, be-
to threaten organizational survival, are start-up cause they represent the source of continuing
funds, cash flow, and customer acceptance cash flow. Enticing adequately trained appli-
(Dodge et al., 1994; Dodge & Robbins, 1992). For cants to join the start-up venture as employees
instance, using data provided by 105 firms, is likely to at least require a competitive com-
Kazanjian (1988) found that securing financial pensation package, along with the assurance
resources was perceived as a crucial problem in that future compensation will be tied more
the start-up stage. In another study, conducted closely with organizational profits. Similarly, to
with data collected from 364 firms, Dodge and ensure timely supply of quality materials and,
Robbins (1992) found that finance and marketing at the same time, obtain price discounts, man-
problems were perceived as crucial for organi- agement might be expected to attempt to nego-
zational survival. The specific marketing prob- tiate flexible contractual arrangements with
lems identified were establishing customer con- suppliers. Such flexible contractual arrange-
tact and assessing and defining target markets; ments might take the form of management's
finance problems were undercapitalization and making an exclusive commitment to a supplier
locating financial resources. These findings are for a specific duration in order to obtain a steady
supportive of the argument that the viability of supply of an item (or items), with pricing contin-
the firm and subsequent movement to the next gent upon the quantity of item(s) actually pur-
stage depend upon securing financial resources chased.
and gaining customer acceptance for products Although employees and suppliers, as stake-
and/or services. holders, are important for survival, most likely
The threat of organizational failure will they will only be accommodated because of the
serve as the reference point; resource alloca- tremendous resources (time and financial com-
tion decisions are likely to be framed as losses mitment) already expended to proactively ad-
or potential losses and a risk-seeking strategy dress the concerns and issues of stockholder,
adopted. As discussed earlier (see the discus- creditor, and customer groups. Actively address-
sion of prospect theory), decision makers who ing issues of suppliers of capital and material
are evaluating options in the loss frame will resources, customers, and employees is often
choose a risky strategy over a riskless (certain) emphasized in the literature as critical for

avoiding failure of start-up organizations (Rous- achieved a degree of success; the previously
sel, 2000). dominant concern for survival has largely been
Given the loss frame and risk-seeking strat- overcome, and the firm is actively seeking and
egy expected during start-up, the organization engaged in expansion opportunities. Typical
will pursue a risky strategy to deal with the problems faced as sales activity steadily in-
remaining stakeholders, unless, of course, the creases are stabilizing production and product
start-up requirements indicate a critical need (and/or service) reliability, matching demand in-
(e.g., obtaining a grant, permit, and so on) for creases, maintaining cash flow, and formalizing
such stakeholders (e.g., government). There- organizational structure (Dodge & Robbins,
fore, a start-up firm is likely to pursue a de- 1992). The emerging growth stage is the period
fensive strategy to deal with government and in which significant new investment is likely
community stakeholder groups, only satisfy- and the number of employees, customers, and
ing the minimum requirements at the latest geographic contact is expanded. Although these
possible date, primarily to avoid any reprisal, needs may be significant, they are unlikely to be
legal or otherwise. This expectation is consis- critical enough to seriously threaten organiza-
tent with the "not-too-uncommon" reports of tional survival. This assertion is consistent with
start-up firms facing cash-flow problems that Hrebiniak and Joyce's (1985) position that firms
defer tax remittances as much as possible to in the growth stage find their environment nei-
ensure survival. ther threatening nor constraining. In the ab-
Because of the loss frame and the concerns sence of critical needs, and given initial suc-
of the more important stakeholders, a start-up cess, resource allocation decisions are likely to
firm will use a reaction strategy to deal with be framed from the gain domain and a risk-
trade associations and environmental groups. averse strategy adopted.
These stakeholders will be ignored, unless, of As described earlier, a risk-averse strategy
course, the trade association or environmental involves the choice of a certain option-that is,
groups have something very valuable to offer an option most likely to ensure continued supply
to the firm, such as permits, endorsements, or of resources needed by the organization. Exer-
critical information. In summary, we propose cise of this option will be manifested in the form
the following. of addressing the issues of all stakeholders in a
Proposition 1: During the start-up proactive or accommodative manner. Based on
stage, resource allocation decisions resource dependence theory, we suggest that
will be framed in the context of losses, the choice between proactive and accommoda-
and a risk-seeking strategy of defense tive strategy will, of course, depend on the rel-
or reaction will be pursued to deal ative importance of stakeholders in terms of
with stakeholders not critical for their ability to meet the needs of an emerging
organizational survival. Specifically, organization.
a corporation will assume the risk of During this highest growth period, organiza-
using the strategy of reaction to deal tions fine-tune themselves into a clockwork op-
with trade associations and environ- eration and tend to develop a bureaucratic
mental groups and the strategy of de- structure (Modis, 1994). Upon movement into this
fense to deal with government and rapid growth and expansion stage, the firm's
community stakeholders. However, attention to stockholder issues may be reduced
the corporation will use the strategy of to accommodation. Stockholder equity is al-
proaction to deal with stockholders, ready committed, and, generally, the stock mar-
creditors, and customers and the strat- ket is very generous to companies during this
egy of accommodation to deal with period. However, if expansion were to be funded
employees and suppliers, since these with equity instead of debt, the assumption of
stakeholders are critical for survival. accommodation for stockholders would be inap-
propriate, and in such cases stockholders would
be dealt with in a proactive manner. Creditor
Emerging Growth Stage
issues, however, could be expected to continue
The emerging growth stage follows the receiving proactive attention, since creditors
start-up stage. By this stage, the firm has would most likely be the source of funding for

growth and expansion. In many cases invest- In the mature stage most stakeholders will be
ment bankers would also be a source of profes- dealt with in a proactive manner. For example,
sional guidance. Proactive attention is likely to employees will be dealt with in a proactive
be devoted to employee and supplier stakehold- manner, and substantial investments in training
ers in order to address the need to build a qual- and development activities are likely in this
ity workforce and products and to obtain re- stage. Incentive programs to enhance productiv-
sources to accommodate such rapid growth and ity are likely to be implemented, and innovation
expansion. is likely to be encouraged and supported to fa-
Demand usually exceeds supply during rapid cilitate the search for new direction. Commu-
growth, and, consequently, attention to cus- nity, trade association, government, environ-
tomer issues may be reduced to accommodation. mental, and supplier stakeholders will also be
Also, during the growth stage, an organization addressed proactively because of the availabil-
may become proactively involved with relevant ity of excess cash and management's motivation
trade associations in order to learn as much as to live up to the leadership self-image. As the
possible about potential opportunities and mature stage progresses, stock prices are likely
threats. To minimize potential risks, the firm will to decline because of the reduced rate of growth.
accept responsibility for government, environ- Because stock prices decline owing to the re-
mental, and community stakeholders, and their duced potential for future earnings, proactive
concerns will be accommodated. Therefore, we attention to shareholders' concerns may be es-
offer the following proposition. sential for lengthening the tenure of the organi-
Proposition 2: During the emerging zation's top management. However, because of
growth stage, resource allocation de- excess cash and the relative ease with which
cisions will be framed in the context of mature organizations can raise capital (Dodge
gains, and a risk-averse strategy will et al., 1994), attention to creditors will be reduced
be pursued to deal with stakeholders. from proaction to accommodation. Creditors will
Specifically, issues of creditors, em- be accommodated to the extent they are needed
ployees, suppliers, and trade associa- to maintain as strong a credit rating as possible
tions will be addressed proactively, for outstanding debt.
and concerns of stockholders, custom- Our assertion-in the mature stage a firm is
ers, governments, communities, and likely to deal with all primary stakeholders
environmental groups will be accom- (with the exception of creditors) in a proactive
modated. manner-is consistent with theoretical argu-
ments (e.g., Burke, Logsdon, Mitchell, Reiner, &
Vogel, 1986; McGuire, Schneeweiss, & Sundgren,
Mature Stage
1988) and empirical findings. For instance, Burke
The mature stage is the relatively flat period et al. (1986) propose that larger firms attract
that follows the rapid growth period. As an or- more attention from external constituents and
ganization enters the mature stage, managers need to respond more openly to stakeholder de-
often regard the company and themselves as mands. Given that firms are likely to be larger in
successful, respected leaders and role models. the mature stage than in any other stage, Burke
Although the rate of growth has slowed, this et al.'s proposal may be interpreted as support-
stage is often characterized by the overconfi- ive of our theoretical position that most, if not
dence of success, tempered, of course, with the all, stakeholders will be dealt with proactively
uncertainty of the search for a new direction that in the mature stage. In a sample of Fortune 500
could potentially lead the organization through firms, Stanwick and Stanwick (1998) found that
another period of rapid growth (Modis, 1994). The larger firms have higher levels of profitability
mature stage is often attended by strong cash and CSP as measured by the Fortune Reputa-
flows, without particularly attractive investment tional Index. Similar findings have been re-
opportunities. In light of the leadership image, ported by others (e.g., Fombrun & Shanley, 1990).
overconfidence, excess cash, and the absence of From the slack theory's perspective, availability
critical needs, resource allocation decisions are of slack resources provides opportunities for or-
likely to be framed from a gain domain, and a ganizations to invest in social performance
risk-averse strategy is likely to be pursued. domains (see McGuire et al., 1988). Because of

excess cash, organizations in the mature stage slows (Ford, 1980). Shareholders' concerns will
are likely to actively address issues of all stake- be addressed proactively, if not to stabilize stock
holders. For instance, in a recent study con- prices at the very least to lengthen top manage-
ducted with Standard and Poors 500 organiza- ment tenure. Lengthening tenure by garnering
tions, Waddock and Graves (1997) reported that political support has been reported as a high
a multidimensional index of CSP was positively priority for top-level managers of firms in ad-
related to financial performance of the previous vanced stages (Smith et al., 1985).
year. Based on the aforementioned theoretical Attention to employees and suppliers most
proposals and empirical findings supportive of likely will be reduced to accommodation, and
our arguments, we propose the following. the organization, in an effort to cut costs and
stabilize stock prices, will entertain and some-
Proposition 3: During the mature times implement extreme cost-cutting mea-
stage, resource allocation decisions sures, including downsizing, outsourcing, or re-
will be framed in the context of gains, ducing the diversity of operations. For instance,
and a risk-averse strategy of proaction when Chrysler found itself in the revival/
will be used to deal with all stake- transition stage, it bargained for and obtained a
holders, except for creditors, who will wage concession from employees. That is,
be accommodated. Chrysler's strategy to deal with employees
shifted from proaction to accommodation.
Just as in the start-up phase, unless govern-
Decline/Transition Stage
ment, community, trade association, and envi-
As an organization begins to slip from the ronmental stakeholder groups are needed for
mature stage into the stage of decline or transi- survival, organizations are likely to pursue a
tion, management is likely to reassess the strat- defensive strategy toward governments and
egies currently in use to deal with the different communities, and they may ignore trade associ-
stakeholder groups. In this stage the demand for ations and environmental groups. This assertion
an organization's traditional products and/or is consistent with arguments put forth by other
services will be reduced, prompting manage- scholars. For instance, Meznar, Chrisman, and
ment to consider such strategies as mergers, Carroll (1991) argue that start-up firms and firms
downsizing, and layoffs to ensure organization- on the verge of bankruptcy often resort to a clas-
al survival. Since this is a survival stage, corpo- sical strategy. A firm employing the classical
rate decisions that pertain to CSP generally will strategy concerns itself with nothing other than
be framed from the context of losses, and a risk- economic performance and focuses primarily on
seeking strategy will be used to deal with stake- economic stakeholders. Decisions are made,
holders other than those most needed for organ- given legal constraints, entirely on the basis of
izational survival. how they will affect the bottom line. Meznar et
In the decline/transition stage, customer is- al. add that "since a failed firm will add no
sues may be given proactive attention in an value to society, a classical strategy may be
effort to build a new market or rebuild market warranted and preferred over the demise of the
share. Scholars have argued that technical effi- firm" (1991: 59). According to these authors,
ciency is important when the rate of growth "Greyhound Bus Lines, as it downsized and re-
slows (e.g., Adizes, 1979). Indeed, in a field study negotiated contracts in order to survive in an era
Smith et al. (1985) found that regaining technical dominated by planes and automobiles, illus-
efficiency was an important concern of top-level trates the economically oriented 'classical' strat-
managers. Similarly, Kazanjian (1988) found that egy" (Meznar et al., 1991: 59-60).
firms were especially concerned with develop- Chrysler did address governmental concerns
ing second-generation or completely new prod- proactively, but only because the government
ucts to spur growth. Creditors also will be ad- was a source of funding-and funding was es-
dressed proactively in order to obtain more sential for Chrysler's survival. Nevertheless, the
funding, because most likely the excess cash Chrysler example confirms that as the threat to
from the mature stage will now be depleted. For survival becomes dominant in the decline/
instance, studies have shown that organiza- transition stage, firms proactively manage
tions' munificence or slack decreases as growth stakeholders important for survival. Relative to

organizations like Chrysler, most other organi- customers-than to government and community
zations are less important to the economy and, stakeholder groups.
consequently, are unlikely to attract as much In this article we integrated theory and re-
attention as Chrysler did from the government. search from disparate areas to present a de-
Because of resources expended to deal with im- scriptive stakeholder theory. The theory is
portant stakeholders like stockholders, credi- founded upon the premise that organizational
tors, customers, employees, and suppliers, and needs vary with life cycle stages. The particular
because of the lack of attention from govern- stakeholder or stakeholders with potential to
ment stakeholder groups, organizations in the meet those needs will be perceived as critical to
decline/transition stage are likely to use the organizational well-being, and their concerns
strategy of defense to deal with the government and issues will be addressed proactively, or at
stakeholder group. Therefore, we offer the fol- least accommodated. Stakeholder strategies of
lowing proposition. defense and reaction will be used to deal with
other stakeholders, depending on the extent to
Proposition 4: During the decline/ which the organization relies on those stake-
transition stage, resource allocation holders.
decisions will be framed in the context Rowley (1997) argues that firms do not respond
of losses, and a risk-seeking strategy to each stakeholder individually but, instead,
of defense or reaction will be used to address the simultaneous demands of multiple
deal with stakeholders not critical for stakeholders. Our theory goes a step further to
organizational survival. Specifically, show that organizations are likely not only to
the strategy of reaction will be used to use different strategies to deal with different
deal with trade associations and envi- stakeholders at a given time but to use different
ronmental groups and the strategy of strategies to deal with the same stakeholder
defense to deal with government and over time. For instance, according to our stake-
community. However, the strategy of holder theory, in the start-up stage stockholders,
proaction will be used to deal with creditors, and customers will be addressed pro-
stockholders, creditors, and customers, actively, and employees and suppliers will be
and the strategy of accommodation accommodated. However, a start-up organiza-
will be used to deal with employees tion will use the strategy of defense to interact
and suppliers, since these stakehold- with government and community stakeholders
ers are critical for survival. and the strategy of reaction to deal with trade
associations and environmental stakeholder
groups. As noted before, the strategy an organi-
DISCUSSION
zation uses to deal with a stakeholder will vary
Stakeholder management is fundamentally a with the life cycle stage of the organization. For
pragmatic concept (Donaldson, 1999). Organiza- instance, employees will be accommodated in
tions have finite resources, and managers must the start-up stage, addressed proactively in the
effectively deal with many pressures in their growth and mature stages, and then only ac-
competitive environments, in addition to those commodated in the decline/transition stage.
exerted by stakeholders. Finite resources and In contrast to Brenner and Cochran's (1991)
business concerns are likely to substantially in- model, our stakeholder theory is falsifiable, and
fluence corporate decisions, including those re- it is much more comprehensive than earlier at-
lating to CSP. Indeed, Carroll (1979), Shrivastava tempts to develop descriptive stakeholder mod-
(1995), and others (e.g., Gioia, 1999) have all em- els (e.g., Jones, 1994; Mitchell et al., 1997). For
phasized the primacy of economic responsibility instance, it is more comprehensive than Mitchell
over noneconomic responsibilities. Results of a et al.'s (1997) model because we not only identify
recent study provide indirect support for such the critical stakeholders but also detail the
arguments. For instance, in a study that in- strategies most likely to be pursued by manage-
volved CEOs, Agle et al. (1999) found that top ment to deal with those critical vis-a-vis other
managers attributed more importance to stake- stakeholders in each stage of the organizational
holders who contributed to the traditional pro- life cycle. Identifying the relative importance of
duction function-shareholders, employees, and stakeholders and describing strategies an or-

ganization might use to deal with those stake- Larger, diversified organizations with multiple
holders is or should be the essence of any viable divisions may have the resources to actively
descriptive stakeholder theory. This paper is the address stakeholders of divisions that are in the
first to advance such a comprehensive descrip- start-up or revival stages. In future research
tive stakeholder theory. The explicitly stated scholars should investigate this possibility to
theorems and propositions present a wealth of delineate potential boundary conditions. Be-
research opportunities that have at least the cause the incidence of certain kinds of threats is
modest potential to elevate our stakeholder the- much more common in some life cycle stages
ory into the ranks of major theories of the organ- than in others, we have focused attention on
ization. threats specific to life cycle stages. However, we
realize that organizations may face threats in-
dependent of life cycle stages (e.g., government
LIMITATIONS AND RESEARCHIMPLICATIONS
intervention in the form of regulation/deregula-
The stakeholder theory presented here con- tion, technological innovation) that could cause
tains several propositions that can be tested organizations to be out of sync with cycle-
using the methodology devised and used by specific predictions. Even in such cases, our fun-
Clarkson (see Clarkson, 1988, 1991, 1995). A com- damental argument that an organization will
prehensive test of our theory will require cate- use proaction, accommodation, defense, and re-
gorizing organizations into one of the life cycle action strategies to deal with stakeholders, de-
stages, measuring organizational decision mak- pending on the extent to which those stakehold-
ers' perceptions of threats and their framing of ers have the ability to fulfill the "critical"
resource allocation decisions, and using Clark- business needs of the organization, is likely to
son's RDAP scale to discern strategies used to hold.
deal with stakeholders. Such a comprehensive Our stakeholder theory may be limited to tra-
test will involve multiple levels of analysis and ditional businesses. The recent phenomenon of
the use of multiple methods of data collection. dot.com companies appears to defy traditional
The stakeholder theory we present ignores in- business models. Investors provide funding for
dividual differences. Managers' beliefs, values, dot.com companies, even when such companies
and ideologies are likely to influence the strat- acknowledge bleak prospects for profits in the
egies the managers use to deal with different short to midterm. In contrast to traditional organ-
stakeholders. For instance, Greer and Downey izations, because of the ease with which dot.com
(1982) report that managers' values relative to businesses can raise capital, such companies
social regulation influenced their reaction to may not actively address the issues of creditors
stakeholders covered by those statutes. Simi- and investors in the start-up stage. Instead, the
larly, top managers' beliefs regarding the role of key concern for dot.com business start-ups ap-
corporations in society have been shown to in- pears to be attracting talented employees with
fluence insurance firms' responses to social the technical expertise to develop the product/
pressures (Miles, 1987). Our theory does not ex- service. As electronic commerce matures, it will
plicitly address the politics involved in the de- be interesting to observe if the forces that drive
cision-making process (Cohen, March, & Olsen, dot.com companies shift toward and more
1972). Clearly, politics are likely to be most evi- closely align with the models and concepts
dent in decisions that pertain to the allocation of relevant to traditional business organ-
scarce resources (Pfeffer & Salancik, 1978). For izations.
instance, functional managers, in order to in- The descriptive stakeholder theory we present
crease their power, may exaggerate threats from does not explicitly address how CSP may vary
their stakeholders, leading top managers to with the industry of the organization. For in-
form an inaccurate picture of demands on the stance, during the start-up stage, environmen-
organization. Such acts of self-interest may tal, government, and community groups are
cause the organization to be out of sync with the likely to be among the critical stakeholders for a
predictions of our stakeholder theory. hazardous waste disposal company but not for
This stakeholder theory was developed to spe- a financial institution. Consequently, whereas a
cifically describe the CSP of strategic business disposal company in the start-up stage will pro-
units as they evolve from one stage to the next. actively address issues of environmental, gov-

ernment, and community groups, a financial in- Birnbaum, P. H. 1984. The choice of strategic alternatives
under increasing regulation in high technology indus-
stitution is unlikely to do so. Also, Waddock and
tries. Academy of Management Journal, 27: 489-510.
Graves (1997) note that the average level of CSP
varies with industry. However, research also Bleakley, F. R. 1995. Some companies let suppliers work on
site and even place orders. Wall Street Journal, January
shows that firms in the same industry might 13: Al, A6.
exhibit different responses to similar institu-
Boatright, J. 1994. What's so special about shareholders?
tional pressures (Bhambri & Sonnenfeld, 1988; Business Ethics Quarterly, 4: 393-408.
Miles, 1987). In future research scholars should
Brenner, S. N., & Cochran, P. L. 1991. The stakeholder theory
examine such industry differences and also in-
of the firm: Implications for business and society theory
vestigate the influence of individual differences and research. International Association for Business and
and organizational politics on an organization's Society Proceedings: 449-467.
stakeholder management strategies. Burke,L., Logsdon, J. M., Mitchell, W., Reiner, M., & Vogel, D.
1986. Corporate community involvement in the San
The complexity of organizations and organ- Francisco Bay area. California Management Review,
izational phenomena guarantees that theories 28(3): 122-141.
and models, especially universal ones, cannot Burt, D. N. 1989. Managing suppliers up to speed. Harvard
give a complete representation. Our attempt to Business Review, 67(4): 127-135.
develop a descriptive stakeholder theory from Cameron, K. S., & Whetten, D. A. 1981. Perceptions of organ-
the contingency perspective and stretch the ization effectiveness across organizational life cycles.
bounds of current thinking on stakeholder Administrative Science Quarterly, 26: 525-544.
management is the primary contribution of Carroll, A. B. 1979. A three dimensional conceptual model of
this article. corporate social performance. Academy of Management
Review, 4: 497-505.
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I. M. Jawahar is an assistant professor of management at Illinois State University. He

received his Ph.D. in human resource management and organizational behavior from
Oklahoma State University. His current research interests include performance ap-
praisal, organizational justice, and social issues in management, particularly stake-
holder theory and practice.
Gary L. McLaughlin is the senior director for International Tax at Wal-Mart Stores, Inc.
He received his MBA from the University of Arkansas. His interests include stake-
holder management and the management of global cross-functional teams.


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Toward a Descriptive Stakeholder Theory: An Organizational Life Cycle Approach

Author(s): I. M. Jawahar and Gary L. McLaughlin

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We integrate theory and research from disparate areas to develop a descriptive

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This content downloaded from 86.155.145.10 on Sat, 17 May 2014 11:32:09 AM

This content downloaded from 86.155.145.10 on Sat, 17 May 2014 11:32:09 AM

I. M. Jawahar is an assistant professor of management at Illinois State University. He

This content downloaded from 86.155.145.10 on Sat, 17 May 2014 11:32:09 AM

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