When Do Powerful Stakeholders Give Managers the Latitude to Balance All Stakeholders’ Interests?

Abstract

Research in instrumental stakeholder theory often discusses the benefits of a stakeholder strategy that balances all stakeholders’ interests as if the firm’s managers were not constrained much in choosing a strategy. Yet, through their value appropriation behavior, stakeholders with high bargaining power can significantly constrain managers’ choices. Our objective is, therefore, to understand when powerful stakeholders give managers the latitude to balance all stakeholders’ interests, rather than forcing them to satisfy primarily their own interests. Building on enlightened self-interest and the justice literature, we identify five motivational drivers that help explain powerful stakeholders’ value appropriation behavior. We next explore the endogenous relationship between the stakeholder strategy adopted by the firm and its effect on powerful stakeholders’ value appropriation behavior. This article complements instrumental stakeholder theory by looking at powerful stakeholders’ motivation to exercise their bargaining power, and in so doing brings powerful stakeholders’ moral responsibility in the treatment of weak stakeholders to the forefront.