How Important Are Stakeholder Relationships

ABSTRACT The importance of organizational-stakeholder relationships has recently been of interest in the organizational studies literature. The relevance of this topic is even greater given the recent governance failures involving Enron, Tyco, and WorldCom. Indeed, an excessive emphasis on stockholders is blamed for the neglect of other legitimate stakeholder groups. We should acknowledge that the central focus of studying any organizational relationship is the establishment, development, and maintenance of relationships between exchange partners (Morgan & Hunt, 1994). This study investigates the determinants of stakeholder relationship importance and the role it plays in determining whether relationships will continue. For managers, these results suggest that an organization's ability to develop and maintain strong relationships with their salient stakeholder groups improves the chance that relationships will continue. INTRODUCTION What determines the importance of stakeholder-organization relationships? The notion of "paying attention to key stakeholder relationships" (Freeman, 1999: 235) is and has been a major theme in the strategic management literature. In fact, superior stakeholder satisfaction is critical for successful companies in a hypercompetitive environment (D'Aveni, 1994). Research has begun to investigate empirically what determines the success or failure of relationships between exchange partners. This has been accomplished by examining both the characteristics of the organization as well as the specific stakeholder groups and the nature of the interaction between them (Pfeffer, 1981; Jensen & Meckling, 1976; Morgan & Hunt, 1994; Williamson, 1975, 1985). An implicit assumption in much of the empirical and conceptual work is that developing and maintaining relationships are desirable goals for both the stakeholder and the organization (Dwyer, Schurr & Oh, 1987; Wilson, 1 995). However, absent from much of the stakeholder management literature is a discussion of when relationships should be important. This paper presents one part of an overall research stream on the relationships between organizations and their stakeholders, the development and maintenance of these relationships, and the impact of these relationships on an organization' s strategies when dealing with their stakeholder groups. This study specifically focuses on three stakeholder groups: customers/clients, employees and suppliers/distributors. Porter (1980) recognized the importance of these stakeholder groups when he formulated his "Five Forces" model of competition, which included the bargaining power of customers and the bargaining power of suppliers. Due to the nature of the study, stockholders/owners were not included in this study. Stockholders are among the most important stakeholder groups. Collecting the type of data from this group needed for the study may have been problematic for several reasons. The nature of stockholder-organizational relationships can be very dynamic. A stockholder may buy and sell ownership in an organization within a period of minutes, thus making the measurement of the relationship with an organization almost impossible. Secondly, it may be very difficult to access information pertaining to a specific stockholder. Lastly, due to the nature of the relationship, any information gathered from a stockholder may not have been relevant to this study. Knowing what variables contribute to the success of relationships with stakeholder groups could have a beneficial effect on a firm's strategic actions. Therefore, the goal of this research was to determine what variables contribute to the importance of the organization-stakeholder relationship. This research helps strategic managers decide if they should promote stakeholder relationship strategies as effective managerial tools for their organizations. This research will also aid managers in identifying to which stakeholders the firm should cater. …