How could doing more for stakeholders than necessary help a business compete?

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This paper presents a theoretical explanation of how managing for stakeholders could create value and support a firm’s competitiveness. It defines this approach as allocating more resources to meet legitimate stakeholders’ needs and demands than would be necessary merely to retain their voluntary participation in the firm’s productive activities. The explanation addresses both the additional potential for value creation and the conditions that facilitate or disrupt that process.

The argument is that firms managing for stakeholders develop trusting relationships based on distributional, procedural and interactional justice—fairness in distributions, procedures and interactions. Under these conditions, stakeholders are more likely to share nuanced information about their utility functions, meaning what they value and what satisfies them. This information increases the firm’s ability to direct resources toward what will best satisfy stakeholders, thereby increasing demand for business transactions with the firm. The information can also spur innovation and help the firm deal better with changes in its environment.

The authors argue that competitive advantages from managing for stakeholders can be sustainable because they are associated with path dependence and causal ambiguity. They conclude that these explanations provide a strong rationale for including stakeholder theory in discussions of firm competitiveness and performance.

Copyright © 2009 John Wiley & Sons, Ltd.