Journal of Business Ethics (2006) 64: 285-301
DOI 10.1007/s10551-005-5493-2
Stakeholder Theory and Managerial
Decision-Making: Constraints and
Implications of Balancing Stakeholder
Interests
© Springer 2006
Scott]. Reynolds
Frank C. Schultz
David R. Hekman
ABSTRACT. Stakeholder theory iswidely recognized as
a management theory, yet very little research has considered
its implications for individual managerial decisionmaking.
In the two studies reported here, we used
stakeholder theory to examine managerial decisions about
balancing stakeholder interests. Results ofStudy 1suggest
that indivisible resources and unequal levels ofstakeholder
saliency constrain managers' efforts to balance stakeholder
interests. Resource divisibility also influenced whether
managers used a within-decision or an across-decision
approach to balance stakeholder interests. In Study 2 we
examined instrumental and normative implications of
these two approaches. We conclude by considering the
contributions of this research.
KEY WORDS: stakeholder management, ethical decision-making,
balancing stakeholder interests
The recent rash of corporate scandals has brought
more and more attention to the concept of stakeholder
management. In short, stakeholder theory
Scottj. Reynolds is an AssistantProfessorof BusinessEthics at
the University of Washington Business school. His research
interest is in the area of individual ethical decision-making.
His research has appearedin the Journal of Applied Psychology,
Business Ethics Quarterly and the Journal of
Business Ethics.
Frank C. Schultz is a Lecturerin the OrganizationalBehavior
and Industrial Relations and the Economic Analysis and
Policy Groupsin the Walter A. Haas School of Business at
the University of California Berkeley. His research interests
are in the area of ethical and strategic decision-making of
senior executives.
David R. Hekinan is a Ph.D. student in the University of
Washington Business School. His research interests relate to
ethics and social identification.
argues that the organization has relationships with
many constituent groups and that it can engender
and maintain the support of these groups by considering
and balancing their relevant interests
(Clarkson, 1998; Evan and Freeman, 1993; Freeman,
1984; Jones and Wicks, 1999). As many have
noted, the theory fosters both instrumental predictions
and normative prescriptions (e.g., Hasnas,
1998; Kotter and Heskett, 1992), and has therefore
proven to be popular with both those interested in
profits and those interested in ethics.
Over the years, scholars have generally been
drawn to stakeholder theory's organizational
implications and as a result much of stakeholder research
has been conducted at the organizational level
ofanalysis. Donaldson and Preston (1995), however,
emphasized that "stakeholder theory is managerial in
the broad sense of that term" in that it portrays
managers as individuals who pay "simultaneous
attention to the legitimate interests ofall appropriate
stakeholders, both in the establishment of organizational
structures and general policies and in case-bycase
decision making" (p.67). Despite this clear focus
on managers as the central figures ofthe theory, very
little research has considered individual managerial
decision-making in the context of stakeholder management
principles. As any organizational decision is
ultimately made by an individual, we believe this
constitutes a significant gap in this area.
In an effort to address this void, we apply stakeholder
theory at the individual level to examine how
managers distribute scarce resources among those
with claims on the organization, a process known in
the stakeholder literature as balancing stakeholder
interests. Balancing stakeholder interests is arguably
ScottJ. Reynolds et al.
the most critical of stakeholder principles as it represents
the principal mechanism by which managers
"pay attention to," elicit, and maintain the support of
stakeholder groups with disparate needs and wants.
Although this task is crucial to stakeholder theory,
researchers have yet to consider how individual
managers actually balance the interests of those who
have a stake in the actions of the organization.
Subsequently, the objective ofthis article is twofold.
First, we consider factors that shape managers' decisions
to balance stakeholder interests, and second, we
consider implications of two approaches managers
use to balance stakeholder interests.
B3alancing stakeholder interests
Balancing stakeholder interests is a process of assessing,
weighing and addressing the competing claims of
those who have a stake in the actions ofthe organization.
The de,;ire to balance stakeholder interests is
the driving force behind such fundamental stakeholder
strategies as "keeping score" (Freeman, 1984),
prioritizing (Mitchell et al., 1997), and conducting
constructive negotiation (Froofnan, 1999). While
much of the balancing process may be cognitive
(at the individual level) or administrative (at the
organization level), it ultimately includes behaviors
that bring some kind of resolution to conflicting
stakeholder needs or requests. Several researchers
have examined these kinds of balancing behaviors
and have provided many interesting insights. For
example, Meznar et al. (1994) considered the withdrawal
of companies from South Africa as an act of
balancing stakeholder interests and determined that
such actions resulted in a negative stock market
reaction. Berman et al. (1999) discovered that the
balancing ofstakeholder interests, what they referred
to as the "managerial handling" of five stakeholder
relationships (employees, natural environment,
diversity, customers/product safety, and community),
moderated the relationship between firm
strategy and firm financial performance. Similarly,
Ogden and Watson (1999) found that in the British
water supply industry, expenses associated with
improving customer service were negatively associated
with current profits but positively correlated
with long-term shareholder returns, which suggested
to them that efforts to balance stakeholder interests
eventually paid-off for all of the stakeholders
involved.
While clearly informative, the literature on balancing
stakeholder interests has nonetheless focused
exclusively on the organization and has yet to consider
the individual decision-maker. This is a critical
omission for at least two reasons. First, since most
organizational decisions are ultimately made by
individuals, understanding how managers balance
stakeholder interests should have implications for
organizational efforts to balance stakeholder interests.
Second, stakeholder theory presents the manager
as the central figure of a stakeholder approach,
and therefore understanding managerial decisionmaking
might be key to understanding not just the
balancing of stakeholder interests, but other fundamental
principles of stakeholder management, as
well. In light of these kinds ofpotential benefits, this
research explores the balancing of stakeholder
interests at the individual level of analysis.
To do so, we acknowledge Donaldson and
Preston's (1995) claim and assume that managers are
individuals interested in balancing stakeholder
interests and motivated to do so. Such a position is
supported not just by stakeholder theory, but by
other literatures, as well. For instance, from a sociopsychological
view, the balancing of stakeholder
interests represents an institutionalized form of one
of the most basic human social activities: sharing.
Sharing is widely believed to be a prosocial behavior
because it fosters cooperation among individuals, it
results in the more efficient deployment ofresources
in the long-run, and it reduces conflict among
individuals and groups (Mussen and Eisenberg-Berg,
1977). Given these kinds of social benefits, it is
argued that attributes such as these are evolutionary
mechanisms that foster the survival of the species
(e.g., Frederick and Wasieleski, 2002). In short,
individuals are genetically and socially predisposed to
sharing, and thus there is a socio-psychological basis
for assuming that managers are naturally inclined to
distribute and balance resources among stakeholders.
Second, from an economic perspective, the
"incomplete contracting" literature (Ezzamel and
Watson, 1997; Garvey and Swan, 1994; Hart; 1995;
Kay and Silbertson, 1995) argues that distributing
resources in a relatively equal fashion among relevant
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Stakeholder Theory and ManagerialDecision-Making
interests is critical for managerial survival. As a
matter of legitimacy, if a manager does not at least
occasionally meet the claims of certain stakeholders
groups, he or she will lose the support of those
groups. Thus, it is in a manager's own personal
interests to ensure that stakeholder interests are balanced
at least to some extent.
Given this kind of broad theoretical support, we
accept stakeholder theory's argument and assume that
managers are generally motivated to balance stakeholder
interests and are generally interested in doing
so. Nevertheless, we also recognize that managers do
not always achieve this end. We believe that this is
the case because situation-specific factors can arise
that constrain managerial efforts to balance stakeholder
interests. In Study 1 we identify two ofthese
factors, resource divisibility and relative stakeholder
saliency, and examine their influence on managerial
decisions about an organizational resource.
Study 1: Constraints on the balancing
of stakeholder interests
Resource divisibility
The centrality of balancing stakeholder interests in
stakeholder theory is a reflection of the fact that
stakeholders regularly place competing claims on the
organization's resources (Freeman, 1984; Hosseini
and Brenner, 1992). Whether the resources are
capital, profits, effort, or time, stakeholders can and
do disagree about how or where each should be
utilized. Ultimately, the manager decides how to
allocate a resource, but it is only recently that
scholars have explored how managers make resource
allocation decisions. Most research in the area has
focused on identifying tactics or strategies used to
allocate resources, and has demonstrated that individuals
generally learn resource allocation strategies
quickly, perform better when conditions are certain
as opposed to uncertain, and, when facing repeated
interactions in a fixed period of time, tend to share
more resources early in the relationship while
holding on to resources later in case unexpected
contingencies should arise (Langholtz et al., 1993,
2003).
Within the resource allocation literature, some
have considered the possibility that the divisibility of
the resource can influence resource allocation
behaviors. While it is theoretically possible to divide
most commodities, resource divisibility refers to the
overall cost of actually doing so (i.e., the transaction
costs of selling the commodity and splitting the
revenues). Allison et al. (1992) demonstrated that an
equal allocation was more likely to result among
group members when the resource was easily partitioned.
Similarly, Parks et al. (1996) discovered that
when adventitious resources were easily divisible,
individuals were more inclined to share them with
friends and with acquaintances. While researchers
have yet to consider the kind oflarge allocations that
managers make across diverse sets of groups and
individuals, we suggest that even at this scale managers
are still inclined to balance stakeholder interests
and that the divisibility of the resource acts as a
constraint on their ability to do so. In short, we
propose that the more a resource is or is perceived to
be easily divided, the more a manager will distribute
the resource equally among the relevant stakeholders
and thereby balance their interests. This argument is
presented in the following hypothesis:
Hypothesis 1.1. Highly divisible resources will lead
to more balanced stakeholder interests than will
highly indivisible resources.
Relative stakeholdersaliency
Managers can be constrained not only by the divisibility
of the resource, but also by the nature of the
stakeholder claims on that resource. While a manager
may have a natural inclination to balance the interests
ofall stakeholder groups associated with a particular
decision, the validity of one or more stakeholder
claims to the resources in question may require that
that stakeholder's claim take precedence over all
others. Mitchell et al. (1997) offered stakeholder
saliency as a means of conceptualizing and measuring
the validity of stakeholder claims. They defined
stakeholder saliency as the extent to which a stakeholder
is powerful, legitimate, and the claim is
urgent, and suggested that stakeholder saliency helps
managers to identify who and what really matters in
any given stakeholder decision. Agle et al. (1999)
empirically tested some ofthose claims by examining
how CEO perceptions of stakeholders influenced
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ScottJ. Reynolds et al.
critical organizational outcomes. They discovered
that CEOs' perceptions ofstakeholder power, legitimacy,
and urgency influenced CEO perceptions of
stakeholder saliency, but found little evidence to
support the notion that stakeholder saliency influences
such outcomes as profitability, employee relations,
community relations, or environmental
stewardship.
With regards to this study, we rely on Mitchell
et al.'s (1997) rationale and suggest that managers
assess every reltvant stakeholder and balance their
interests according to the relative saliency of their
claims. Granted, over the long-term, one stakeholder
group may be perceived as more salient than
other groups. On a decision-by-decision basis,
though, relati4e saliency can vary based on the
power, legitimacy, and urgency of the stakeholders'
claims in that specific circumstance. So while a
manager may view stockholders, for example, as the
most salient stakeholder in the larger organizational
strategy, on any specific decision, the needs of the
stockholders may be preempted by the urgency of
another powerfHl and legitimate stakeholder group's
claim. In this sense, the relative inequality of the
saliency of relevant stakeholders can constrain a
manager from fully balancing stakeholder interests
on the associated decision or decisions. Accordingly,
we suggest that to the extent the relative saliency of
the relevant stakeholders is equal, the more apt a
manager will be to balance stakeholder interests on
that decision. In contrast, the more unequal or
lopsided the relative saliency of the relevant stakeholders,
the less likely the manager will be to balance
stakeholder interests. This argument is presented in
the following hypothesis.
Hypothesis 1.2. Stakeholder claims of relatively
equal saliency will lead to more balanced stakeholder
interests than will stakeholder claims of relatively
unequal saliency.
Stockholdergroup membership
Embedded within discussions of stakeholder saliency
are issues associated with ownership, an area that has
received a great deal of attention in the stakeholder
literature. Some have suggested that because oftheir
unique fiduciary interests stockholders (owners)
maintain special status and are or should be afforded
certain perquisites in managerial decision-making
(e.g., Goodpaster, 1991). Others have suggested that
since all stakeholders have their own unique characteristics,
stockholders are no different than every
other stakeholder, and therefore they do not and
should not receive any sort ofpreferential treatment
simply because of their membership in this group
(e.g., Boatright, 1994). While this debate has primarily
focused on the normative implications of
stockholder status, it has noteworthy implications for
the balancing of stakeholder interests. We
acknowledge the possibility that stockholder group
membership, the mere fact that one of the stakeholders
involved are owners of the firm, might
influence a manager's decision-making. Of course,
much of the influence afforded by membership in
the stockholder group could be reflected in the saliency
of that group's claims. Subsequently, when
referring to the influence of stockholder group
membership, we refer to an influence over and
above that of the relative saliency of their specific
claims, an influence rooted in any inherent and
independent value ofbeing an owner ofthe firm. If
managers do afford unique privileges to certain
stakeholders simply because of their membership in
the stockholder group, then stockholder group
membership should skew any distribution of resource
in favor of the stockholders, thus leaving the
set of stakeholder interests less balanced than if only
other non-owner groups were involved. Given such
a possibility, we therefore consider the effects of
stockholder group membership in the following
hypothesis.
Hypothesis 1.3. There will be a significant difference
in the balance of stakeholder interests between
decisions that involve stockholders/owners and
those that do not.
Balancingapproaches
Stakeholder theorists have noted the importance of
balancing stakeholder interests, but little has been
written about the methods that managers can use to
accomplish this goal. We argue that, generally
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Stakeholder Theory and ManagerialDecision-Making
speaking, managers balance stakeholder interests by
employing either a within-decision approach or an
across-decision approach. The within-decision
approach represents a literal interpretation of the
stakeholder admonition to balance stakeholder
interests. A manager employing the within-decision
approach faces every decision as a singular and independent
unit. With regard to that unit, the manager is
aware of the relevant stakeholder groups and their
interests and influence related to that decision. The
manager then attempts to balance the interests ofthose
stakeholders within the bounds of that decision and
tries to satisfythe demands ofeach stakeholder as ifthat
decision were the only decision to be considered.
While the within-decision approach represents a
strict interpretation of the stakeholder approach, the
across-decision approach is more consistent with the
spirit of stakeholder management. The stakeholder
approach draws from the "open systems" literature
(Freeman, 1984), which assumes that the organization
exists in a complicated network ofrelationships
where simple cause and effect predictions cannot
explain the myriad influences shaping organizational
outcomes (Barnard, 1938; Buckley, 1968; Katz and
Kahn, 1978; Senge, 1990). Moreover, the open
systems perspective recognizes that relationships also
have temporal dimensions, and that organizations are
impacted by elements of the system with as much
temporal variety (immediate versus delayed, instantaneous
versus prolonged) as they have positional
variety (Ackoff,1999). The across-decision approach
applies this open systems perspective to the tactical
deployment of stakeholder theory - it focuses on
balancing stakeholder interests across the system (a
series of decisions over time) rather than on a
decision-by-decision basis. A manager who adopts
the across-decision approach might completely sacrifice
the interests of a particular stakeholder on
several decisions, but would then compensate that
stakeholder on a future decision or series of decisions.
The manager would not ignore stakeholder
relationships, but would instead take a long-term
perspective toward developing and maintaining
those relationships. Ultimately, each stakeholder
group would be given the attention, resources, and
accommodations that it requires, not on every single
decision, but rather in the overall scheme of organizational
activity.
We contend that both the within-decision and
across-decision approaches are theoretically valid
means of balancing stakeholder interests, and therefore
managers are willing and able to use both.
Nevertheless, natural inclinations to address conflict
(Thomas, 1992) motivate managers to resolve
stakeholder concerns when they arise, and since the
divisibility of the resources holds implications for
how quickly managers can address their stakeholders'
concerns, resource divisibility affects the choice of
one approach over another. When a resource can be
easily divided, a manager can seize the opportunity
to balance the resources on that decision and
through the within-decision approach immediately
satisfy the demands ofthose stakeholders. In contrast,
when resources are highly indivisible, the difficulty
of balancing stakeholder interests on that particular
decision will instead lead the manager to choose a
long-term approach, an across-decision approach.
Granted, individual managers may vary in the extent
to which they balance stakeholder interests, but to
the extent they do balance stakeholder interests, we
believe that the approach they use will depend on
the divisibility of the resource in question.
Hypothesis 1.4. To the extent that managers balance
stakeholder interests, the more indivisible the resource
the more managers will employ an acrossdecision
approach rather than a within-decision
approach.
Method
Sample
Ninety-three students enrolled in the full-time MBA
program ofa large U.S. institution on the West coast
completed the instrument on a voluntary basis during
a break between course sessions. On average the
participants required 10-15 minutes to answer all
of the items. Sixty-three men and 30 women completed
the exercise. The average age was 28.9
(SD = 4.1) and the average tenure in business was
6.1 years (SD=3.5). They represented several functional
areas including finance, accounting, information
technology, human resources, sales, and others.
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Scottj. Reynolds et al.
Design
We tested our hypotheses using an experimental
vignette (AppendixA) in which participants divided
found monies among three stakeholder groups. The
experiment utilized a three-factor partially nested
design. The first factor was resource divisibility
(divisible/indivisible) and the second factor was
relative stakeholder saliency (equal/unequal). The
nested factor was stockholder group membership
(stockholder/non-stockholder), which was nested
within the condition of relatively unequal stakeholder
saliency.
The first segment of the vignette described a
manager who 'had sold a piece of property for the
firm and had beeft asked to distribute the incoming
funds ($100,000). The manager had been presented
three possible outlets for the money (a fund for
increasing stockholder dividends, a scholarship program
run by the employees, and a community group
youth program) and was now asking the study participant
for guidance. Participants were informed
that the company had other pieces of property and
that a similar decision might be made again in the
near future. After making a recommendation, the
participants then continued to the second segment of
the vignette wiere they learned that 1 week later the
manager had indeed sold another piece of property
and was facing the same allocation decision once
again. Thus, the participants responded to two
identical decision situations, once after the sale ofthe
first piece of property and then again after the sale of
the second piece of property. We provided this
second decision opportunity to gain insights into
the participantn' long-term intentions regarding the
balancing ofstakeholder interests, but we limited the
decision opportunities to two in order to better
isolate the factors that influence single decisions.
Prior to distributing the survey, we conducted
several rounds of pre-testing with business school
students to confirm that the manipulations functioned
as intended.
Measures
Independent variables
Resource divisibility was manipulated through the
comments of a vice president of accounting, an
individual with no direct authority over either the
decision-maker or the participant. In the indivisible
resource version of the vignette, the vice president
encouraged the decision-maker to "write one
check." In the divisible version, he encouraged the
decision-maker to divide the money however she
wanted. We manipulated perceptions ofthe resource
rather than the resource itself to avoid the confounding
effects of comparing categorically different
resources.
The relative saliency of stakeholder claims was
manipulated in several statements that characterized
the groups and their claims. In the equal saliency
version, the three claims (stockholder dividend fund,
employee scholarship fund, and community youth
program) were presented with a commentary about
their similarity: "As the two of you review these
options it becomes apparent the each request has equal
merit." In the two unequal saliency versions, each
claim was accompanied by a specific commentary
about its saliency. In the stockholder-favored version,
the decision-maker learned that the chairman of the
board had identified dividends as his top priority,
while the employees' organization and the community
groups' organization were mismanaged. In the
employee-favored version, the decision-maker
learned that the chairman was not very interested in
dividends, that the community group's organization
was mismanaged, but that the employees' organization
was a well-run and well-respected program.
Dependent variables
The balance of stakeholder interests was operationalized
as the extent to which the participants distributed
the monies equally among the three
stakeholder groups over the two decision situations.
At the conclusion ofthe first segment ofthe vignette,
respondents were asked to complete the following
statement: "I would give.. ." The participants were thus
encouraged to list a stakeholder group or groups with a
dollar amount to be given to them. We used an open
format because it did not insinuate how the money
should be distributed, and thus it was more likely that
the participants would respond freely. After the
participants read the second segment of the vignette,
they were asked to complete this same statement
again. We then used a formula to create the
balance ofstakeholder interests measure. Following
Allison's (1978) logic of measures ofinequality, we
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Stakeholder Theory and ManagerialDecision-Mllaking
determined the total amount of money given to
each group and calculated the standard deviation
across the groups. Scores could range from 0
(perfectly balanced) to 115.47 (perfectly unbal-
anced).
Stakeholder balancing approach was operationalized
as the extent to which a manager divided
monies on a decision-by-decision basis or across the
two decisions. To measure this variable, we added
the absolute values of the differences of the distribution
to each stakeholder group from segment 1 to
segment 2. We then subtracted 100 to center this
figure. Scores could range from -100 (a within
decision approach) to 100 (an across decision
approach).
Manipulationcheck
To validate the vignette's conditions with the test
sample, respondents answered two questions on 7point
Likert scales (1 strongly disagree, 7 strongly
agree). The first focused on resource divisibility,
"The VP ofaccounting would prefer that the money
was not divided among the three groups." The
second, taken from Agle et al.'s (1999) measure of
saliency, checked the stakeholder saliency manipulation,
"The claims of these three groups were
essentially the same."
Results
Manipulations
Those who received conditions involving high
divisibility were significantly more inclined to believe
that the money could be divided (F= 88.05,
p = 0.00). Similarly, those who received versions of
the vignette where conditions indicated relatively
equal stakeholder saliency were more inclined to view
their claims as essentially the same (F= 12.99,
p = 0.00). Finally, neither manipulation influenced
the other (F = 0.15, p = 0.70; F = 0.17, p = 0.68),
which indicated that the manipulations functioned as
intended. With regards to the nested factor, those
receiving a stockholder-favored version did not see a
difference in relative saliency as compared to those
who received an employee-favored version
(F = 0.76, p = 0.52).
Hypotheses tests
We analyzed the first three hypotheses using
ANOVA. In our test of Hypothesis 1.1 (Table I),
resource divisibility significantly influenced the extent
to which participants balanced stakeholder
TABLE I
Study 1: Anova results and cell means
Effect F Condition n Balance ofstakeholder
interests'
Cell mean SD
Rtsource divisibility 7.66** Highly indivisible 46 92.25 29.58
Highly divisible 47 76.39 33.29
Relative saliency 5.68* Unequal 63 88.84 31.37
Stockholder group membership 2.52 Favoring stockholders 33 94.75 30.66
Favoring employees' group 30 82.33 31.37
Equal 30 74.57 32.71
Divisibilityxrelative saliency 0.48 Highly indivisible/unequal 29 96.56 29.15
Highly divisible/unequal 34 82.25 32.11
Highly indivisible/equal 17 84.90 29.70
Highly divisible/equal 13 61.07 32.57
'0 = Balanced, 115.47 = Unbalanced.
*P < 0.05.
**p < 0.01
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ScottJ. Reynolds et al.
interests across the two decision opportunities
(F = 6.80, p = 0.01). This supported Hypothesis
1.1. Similarly, relative saliency significantly predicted
the balancing of stakeholder interests (F= 8.80,
p < 0.01) and thereby provided support for
Hypothesis 1.2.. To test Hypothesis 1.3, we compared
cells where relative stakeholder saliency was
unequal. While those receiving the condition where
stockholders were perceived as more salient were
somewhat less inclined to balance stakeholder
interests, this difference was not significant
(F = 2.35, p = 0.13). Power analysis (Cohen, 1988)
indicated that the design could easily detect large
effects (0.88) and had considerable capacity to detect
medium effects (0.50). Given these results, we
concluded that there was no support for Hypothesis
1.3.
To test hypothesis 1.4, we conducted linear
regression. To account for the influence of individual
tendencies to balance stakeholder interests,
we used the balancing of stakeholder interests as a
control variable. We then examined the influence of
resource divisibility. Resource divisibility significantly
(p < 0.01) influenced the approach used to
balance stakeholder interests - the more indivisible
the resource, the more the managers employed an
across-decision approach to balancing stakeholder
interests (Table II). This provided support for
Hypothesis 1.4.
Discussion
Results of this study suggest that while individual
managers may be inclined to balance the interests of
the organization's stakeholders, the divisibility ofthe
resource and the relative saliency ofthe stakeholders'
claims constrain their efforts to do so. At an abstract
level, these findings support one of stakeholder
theory's central tenets, which is that managers are
actively engaged in balancing the interests of their
relevant stakeholders. At a more practical level, the
findings explain why a manager who is genuinely
interested and driven to balance stakeholder interests
may not do so on one particular decision or set of
decisions. So while managers may not be able to
change the nature of their resources or their stakeholders'
saliency, understanding the factors that
TABLE II
Study 1: Effects of resource divisibility on stakeholder
balancing approach
Variables Stakeholder
balancing approach
Model 1 Model 2
Balancing of stakeholder interests 0.73** 0.79**
Relative saliency 0.01
Resource divisibility 0.23**
AR2 0.05
AF 5.23**
R2 0.54 0.59
Adjusted R2 0.53 0.57
F 104.97** 41.74**
n - 93.
**p _< 0.01.
shape these kinds ofdecisions nevertheless establishes
a point from which we can begin to improve
managerial behaviors.
These findings also provide insights into a central
controversy of stakeholder management. We considered
the possibility that stockholder group membership
might influence the balancing of stakeholder
interests in that group's favor, but discovered that
stockholder group membership did not have a significant
effect on resource allocation beyond that
explained by resource divisibility and stakeholder
salience. Perhaps this was the case because the concept
of stakeholder saliency accounts for any special
considerations afforded to members of the stockholder
group, but it is also just as reasonable to suggest,
as many scholars have done, that stockholders do
not receive special treatment simply because of who
they are. Clearly, stockholders have a unique status,
but in this study their unique status did not translate
directly into special treatment from managers.
Finally, we considered the approaches that managers
use to balance stakeholder claims and suggested
two possible approaches to balancing stakeholder
interests, a within-decision approach and an acrossdecision
approach. The findings demonstrated that
managers use both approaches depending upon the
conditions of the particular decision-making situation.
This suggests that not only are managers
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Stakeholder Theoiy and ManagerialDedsion-11iaking
interested in balancing stakeholder interests, but that
they are prepared to do so in different ways. In this
case, when conditions would not facilitate a shortterm
approach to balancing stakeholder interests,
these managers were willing and able to adopt a
long-term approach. This point is particularly
interesting in that stakeholder theory claims both
instrumental and normative implications of its elements,
and therefore these two different approaches
to balancing stakeholder interests may hold very
different instrumental and normative implications for
managers. This possibility was the basis for Study 2.
Study 2: Instrumental and normative
implications of different approaches to
balancing stakeholder interests
Instrumentalimplications
According to stakeholder theory, considering and
satisfying a stakeholder group is instrumentally valuable
for the organization because it garners legitimacy
and trust from that group and thereby improves the
likelihood that the organization will achieve its goals
(Hill and Jones, 1992; Jones, 1995). To this end,
research has suggested that adopting the stakeholder
approach to management is beneficial to the organization's
bottom line (e.g., Anderson and Frankle,
1980; Belkaoui, 1976; Berman, et al., 1999; Bowman,
1978; Kotter and Heskett, 1992; Preston, 1978).
While instrumental value is often considered in
terms of dollars and cents (e.g., Ogden and Watson,
1999) we note that it could also be considered in
terms oflegitimacy (Phillips, 2003; Post et al., 2002).
Legitimacy is "the generalized perception or
assumption that the actions ofan entity are desirable,
proper, or acceptable within some socially
constructed system" (Suchman, 1995, p. 574).
Conceptualizing instrumental value as legitimacy deemphasizes
profitability and calls attention to the
importance of support or approval from critical
stakeholders. Recognizing more than just financial
achievements, legitimacy views validation, continuity,
and survival as fundamental measures ofsuccess.
While the core principles of stakeholder theory
suggest that any approach to balancing stakeholder
interests is instrumentally valuable in this sense, we
believe that the across-decision approach is more
instrumentally valuable than the within-decision
approach. The within-decision approach incurs costs
associated with finding and implementing balanced
solutions for every decision while the across-decision
approach does not. The across-decision approach
merely requires that managers remember previous
distributions and maintain balance in the long run an
approach that is less expensive in terms ofsearch
and analysis. We theorize that to the extent that
managers are aware of the difference between the
two approaches and sense (ifonly tacitly) a greater
efficiency and greater effectiveness in the acrossdecision
approach long term, they perceive the
across-decision approach to be more instrumentally
valuable than the within-decision approach. For the
decision-maker, instrumental value is critical for
both organizational and individual outcomes. The
manager is employed to see the organization survive,
but he or she also holds personal objectives. For this
reason, managers are motivated to create instrumental
value not only for the organization (financial
rewards, brand image, etc.), but also for themselves
(financial rewards, career advancement, etc.), as well.
Subsequently, we offer hypotheses that account for
the impact of these two approaches for both the
organization and the individual manager.
Hypothesis 2.1. The across-decision approach to
balancing stakeholder interests will be more
instrumentally valuable for the organization than
the within-decision approach.
Hypothesis 2.2. The across-decision approach to balancing
stakeholder interests will be more instrumentally
valuable for the individual manager than
the within-decision approach.
Normative implications
Scholars have spoken about the normative aspects of
the stakeholder approach from its earliest incarnations
(e.g., Dodd, 1932). At its theoretical foundation,
the stakeholder approach assumes that the
organization's relationships with its stakeholders are
inherently valuable and therefore must be treated as
such in the operation and management of the
organization. Consequently, the approach suggests
that by valuing these stakeholder groups, managers
293
Scottj. Reynolds et al.
are acting morally and ethically (Carroll, 1989; Jones
and Wicks, 1999).
Although both approaches legitimately balance the
interests of stakeholders, we suggest that managers
committed to stakeholder management will perceive
the across-decision approach as morally more
appealing. The crux of our argument is found in
Goodpaster's description ofthe stakeholder paradox.
Goodpaster (1991) argued that a manager's fiduciary
responsibility to stockholders is inherently different
from his or her responsibilities to other stakeholders
because stockholders have entrusted capital to the
manager for the return ofprofits. In any given series
ofdecisions, bcth the within-decision and the acrossdecision
approaches address the interests of all
stakeholders, but the across-decision approach
achieves comparable results without the added costs
of balancing all relevant interests on every decision.
Thus, decisions reached from an across-decision approach
are less costly and therefore meet the manager's
fiduciary responsibilities to the owners more
efficiently. It stands to reason, then, that regardless of
the manager's philosophical orientation (utilitarian,
Kantian, etc.), ifboth approaches are able to address
the non-owner stakeholders' interests equally but
one can more fully meet the manager's fiduciary
responsibilities, that approach will be perceived as
more ethical. Hence, we offer the following:
Hypothesis 2.3. The across-decision approach to
balancing stakeholder interests will be perceived as
more ethical than the within-decision approach.
Method
Sample
The participants in this study were 87 managers
enrolled in three different evening MBA strategy
courses at a large mid-western university. The
instrument was distributed during regular class sessions
as a voluntary activity. Thirty-seven of the
participants were females (43%). As a group, their
average age was 31.3 years (SD=5.8), their average
tenure in their organizations was 4.1 years (SD=3.2),
and they represented seven distinct functional areas
(finance, information technology, human resources,
management, marketing, research and development,
and operations).
Design and measures
The instrument included three vignettes (Appendix
A). The first vignette examined instrumental value
for the organization. Participants were asked to assume
the role of a manager in a fictitious company
and were then presented two other companies as
potential partners: one that tended to "compromise
over a series of decisions" and one that tended to
"compromise on every individual decision." Consistent
with our view of instrumental value as legitimacy,
instrumental value for the organization was
measured by asking the participants to select one
company over the other as a partner. Instrumental
value was also measured on a 5-point Likert scale as
the extent to which the participants preferred
working with each company.
The second vignette examined instrumental value
for the individual. In the vignette, two managers had
to allocate 8 hours of available overtime to two
employees, each of whom wanted to work 8 hours
ofovertime. The within-decision manager suggested
that both employees work 4 hours of overtime
while the across-decision manager suggested that
one employee work 8 hours of overtime this
weekend and that he would guarantee the other
employee 8 hours of overtime in the future. As in
the first vignette, instrumental -value was measured
by having the participants indicate their preference
for one manager as their supervisor over the other.
Instrumental value was also measured on a 5-point
Likert scale as the extent to which the participants
would prefer working for each manager.
The third vignette was a 1x2 between-subjects
design. The factor was balancing approach (withindecision/across-decision).
In the vignette, BetaOmega,
a large oil company, faced two decisions. In
the first decision, the company was considering
whether or not to build a large on-shore apartment
complex for its employees that, according to the local
government, would negatively impact the local
ecosystem. In the second decision, Beta-Omega was
considering whether or-not to layoff employees by
plugging and abandoning an offihore well that was
just breaking even but was having a negative influ-
294
Stakeholder Theory and ManagerialDecision-Making
ence on the local government's tourism efforts. Inthe
within-decision version ofthe vignette, Beta-Omega
decided to build a smaller apartment complex and to
keep the well open for six more months while contributing
money to the local government's tourism
efforts (a compromise on both issues). In the acrossdecision
version, Beta-Omega first complied with
the local government by not building the apartment
complex, and then sided with the employees by
keeping the well open. Participants completed two
items as manipulation checks to confirm that they
understood to what extent the stakeholder groups
would benefit from Beta-Omega's decisions. Perceived
ethicality was measured on a 5-point Likert
scale as the extent to which the participant thought
Beta-Omega's decisions were ethical.
We recognized the possibility that a participant's
preference for any given stakeholder group might
influence his or her responses in the final vignette.
Therefore, in the last section ofthe questionnaire we
asked, "How much consideration do you think
managers should give the following groups?" Participants
were instructed to allocate 100 points
between six stakeholder groups: stockholders, government,
employees, community, suppliers, and
customers. We then measured relative preference for
the employee group as the points allocated to
employees divided by the points allocated to both
the employee group and the government, and
controlled for its influence in the analysis.
We pre-tested the entire instrument with 21
managers from a separate evening MBA class. Based
on their feedback, we made minor changes in the
verbiage and presentation of each of the vignettes.
Results
Results from the first vignette are presented in
Table III. Sixty-one percent expressed a preference
for the across-decision company, a statistically significant
ratio (t =-2.08, p = 0.04). Recognizing
that a forced choice could exaggerate very slight
preferences, we examined participants' evaluations
ofeach company. The mean response for the acrossdecision
company was 3.24 compared to 2.92 for the
within decision company. This more favorable
evaluation of the across-decision company was statistically
significant (t = 2.12; p = 0.04). We also
examined differences in each participant's evaluation
of each company (paired samples t-test). The mean
difference in participants' responses was 0.32
(SD = 1.79), which yielded a marginally significant
t-value of 1.68 (p = 0.10). These results indicated
that the forced choice question did not exaggerate
small preferences but reflected a statistically significant
preference for the across-decision approach as
compared to the within-decision approach. These
results provided support for Hypothesis 2.1.
The results of the analysis of the second vignette
are presented in Table IV. Sixty-three percent of
participants chose the across-decision manager, a
statistically significant ratio (t = 2.78, p = 0.01). The
across-decision manager received a mean evaluation
of 3.55 while the within-decision manager's mean
evaluation was 3.15. This difference was also significant
(t = 1.97; p = 0.04). The paired samples
t-test yielded a statistically significant value of 2.65
(p = 0.01). These results provided strong evidence
for Hypothesis 2.2.
To test Hypothesis 2.3, we analyzed the
manipulation checks and removed those who did
not fully understand how each stakeholder group
had benefited from Beta-Omega's decisions. We
also removed the responses of two participations
TABLE III
Study 2: Analysis of instrumental aspects - t-tests of
organizational instrumentality
Across-decision Within-decision
company company
Witli whom would you preferto work?
Responses 53 34
Percentage 61% 39%
t-test t = -2.08 (p = 0.04)
To what extent would you prefer working with:
n 87 87
Mean 3.24 2.92
Standard deviation 0.95 1.05
Two sample t-test t 2.12 (p = 0.04)
Paired sample 0.32
difference
Paired sample 1.79
standard deviation
Paired sample t-test t 1.68 (p 0.10)
295
Scott_J. Reynolds et al.
TABLE IV
Study 2: Analysis ofinstrumental aspects - t-tests of
individual instrumentality
Across-decision Within-decision
manager manager
With whom woull you prefer to work?
iResponses 55
Percentage 63%
t-test t = 2.78 (p = 0.01)
To what extent would you prefer working with:
n 87
Mean 3.55
Standard deviation 0.89
Two sample t-test t = 1.97 (p 0.04)
Paired sample 0.40
difference
Paired sample 1.41
standard deviation
Paired sample t-test t - 2.65 (p 0.01)
32
37%
87
3.15
0.88
who failed to properly allocate points to the
stakeholder groups. Of the 63 participants ultimately
included in this analysis, 31 received the withindecision
version and 32 received the across-decision
version. We analyzed this data using regression
analysis (Table V). The regression model contained
the control variable, relative preference for the
employee group, and the independent variable,
balancing approach (0 = within-decision approach,
1 = across-decision approach). Even when controlling
for relative preference for the employee group,
balancing approach significantly influenced the
perceived ethicality of the situation (p = 0.02).
Those who received the across-decision version
were significantly more inclined to see
Beta-Omega's decisions as ethical than those who
received the within-decision version. These results
supported Hypothesis 2.3.
Discussion
This study explored the instrumental and normative
implications of two different approaches to balancing
stakeholder interests. In these situations, the. acrossdecision
approach proved to be more instrumentally
valuable for both the organization and the individual
manager than the within-decision approach. While this
design did not address the specific reasons underlying
this preference, we speculate that managers have a tacit
knowledge ofthe added costs associated with a withindecision
approach and view the across-decision approach
as a more efficient way of achieving desired
outcomes. Regardless, it is interesting to note that
when given two viable options for balancing stakeholder
interests, managers selected the approach that is
more consistent with the spirit of stakeholder management.
This provides some evidence ofa managerial
pragmatism - perhaps in the day-to-day grind of
business managers recognize that decisions must be
made quickly and opportunities to rectify any imbalances
that might occur will be available in the future.
The across-decision approach was also perceived
to be more ethical than the within-decision approach.
This finding is particularly intriguing given
the other possible outcomes. For example, if participants
had perceived no ethical difference
between the two approaches, this would suggest that
a manager could theoretically choose either approach
without jeopardizing his or her ethical
standing. Alternatively, if participants'had perceived
that the within-decision approach was a more ethical
approach, this would have suggested that managers
must choose between the instrumental value of the
across-decision approach (per Hypotheses 2.1 and
2.2) and the normative value of the within-decision
approach. In such a case, managers would truly have
to choose between profits and ethics. As it was,
though, the across-decision approach was perceived
to be a more ethical approach for balancing stakeholder
interests. This indicates that what is instrumentally
valuable for a manager or an organization is
also perceived by managers to be the most ethical
course ofaction. This is contrary to a "profits versus
ethics" perspective and echoes one of stakeholder
management's central premises: good ethics is good
business (Bowie, 1999; Donaldson and Preston,
1995; Hill and Jones, 1992; Jones, 1995).
General discussion
Using stakeholder theory as our basis, we assumed
that managers are interested in and motivated to
balance stakeholder interests, but that certain factors
296
Stakeiolder Theory and ManagerialDecision-Making
TABLE V
Study 2: Normative implications of tvo balancing
approaches
Variables Perceived ethicality
Model 1 Model 2
Relative Preference -0.07 -0.03
for Employees
Balancing Approach .30*
AR2
0.09
AF 6.00*
R2 0.01 0.09
Adjusted R 2
-0.01 0.06
F 0.26 3.12*
n = 63.
*p! 0.05.
constrain their efforts to do so. The results of the
first study suggested that resource divisibility and
relatively unequal levels of stakeholder saliency
indeed constrain managers from balancing stakeholder
interests, but the mere fact that one set of
stakeholders was owners of the company did not
influence this process. The findings further suggested
that resource divisibility impacts whether a
manager will try to balance stakeholder interests
with a within-decision approach or an across
decision-approach. The second study demonstrated
that, while both are theoretically valid approaches
to balancing stakeholder interests, the across-decision
approach generates more instrumental value
and is perceived to be more ethical than the
within-decision approach.
This research is not without limitations. First, in
each study the participants were low to mid-level
managers, and therefore it is unclear to what extent
the findings can be generalized to higher-level
managers (e.g., executives). In response, we point
out that the participants were representative of a
large population of managers to whom stakeholder
principles are theorized but research has yet to
explore. In this sense they fulfilled a specific research
purpose. Moreover, the sample demonstrated
diversity along numerous demographics, which
suggests that the results might be generalizable to
managers at all levels in the organization. Future
research can examine this point further.
Second, the research utilized vignettes, which
have been criticized because of their artificial and
overly simplistic nature (Weber, 1992). Indeed,
these vignettes, particularly those in study 2, focused
on very specific conditions, and it can be difficult to
draw general conclusions based on such finite situations.
Nevertheless, scholars agree that vignettes are
justified when research on a topic is in its early
exploratory stages, when a large degree of control is
necessary to isolate complicated relationships, and/or
when the sensitive nature of a topic does not lend
itself to in-depth exploration (Cavanagh and Fritzsche,
1985). In this case, each of these conditions
applied. Moreover, the vignettes were carefully designed,
pre-tested and checked to enhance their
validity. For these reasons, we believe that their use
was theoretically justified and empirically defensible.
Still, future studies could use methodologies that
more accurately reflect "real world" experiences to
verify and further these findings.
Despite its limitations, the research makes several
contributions to the stakeholder literature. First, this
study demonstrates the value offocusing stakeholder
theory on the individual decision-maker. While
stakeholder researchers tend to position the organization
as the hub of the stakeholder network,
stakeholder theory is perhaps more accurately
depicted with the manager, the principal decisionmaker,
in the center. In such a model, the principles
of stakeholder management apply to individuals first
and then to the organization. By addressing the
individual manager as the central decision-maker this
research draws attention to this critical distinction
and encourages more research at this level of analysis,
whether it be in this particular area or any area
related to stakeholder management.
Second, this research reveals some of the potential
value found in exploring the descriptive aspects of
stakeholder management, an area that has largely
been overlooked by stakeholder researchers
(Donaldson and Preston, 1995). While stakeholder
theory does indeed predict great economic and
moral outcomes, we argue that there is also much to
be gained by understanding the processes by which
managers and organizations make stakeholder decisions.
While we believe that descriptive information
297
Scottj. Reynolds et al.
is valuable in its own right, we also note that because
of the purported interrelatedness of the different
aspects of stakeholder management Gones and
Wicks, 1999), exploring the descriptive aspects of
stakeholder management might also generate unique
instrumental and normative insights, too. In short,
the potential benefits of exploring the descriptive
aspects of stakeholder management exist at many
levels.
Lastly, these findings provide insights for the
practice of management. For example, the findings
support the argument that managers are inclined to
balance the resources entrusted to them among their
various stakeholders. This may seem contrary to
what appears in the media to be the most recent
trends, but it does suggest that the principles of
stakeholder management are the norm, and that
those acts that fill the headlines represent exceptional
behaviors. In addition, these findings provide the
manager practicing stakeholder management with
concepts and language for explaining and justifying
his or her resource allocation decisions, particularly
when those decisions appear to one stakeholder
group or another to be contrary to the principles of
the stakeholder approach. Lastly, the results are
encouraging because they suggest to managers that
even though certain factors of their decision-making
situation may constrain one attempt to balance
stakeholder interests, their stakeholder obligations
can still be ffilfilled. In this research we considered
just two approaches for achieving this goal, but to
the extent that managers are able to adapt to these
kinds of circumstances, their options may be limit-
less.
In conclusion, we feel that describing the factors
that shape managerial decisions about the distribution
ofresources is an important endeavor - not only
for those stakeholders who stand to gain directly
from the resource distribution, but also for society as
a whole. This research suggests that despite what
might be currently described as a crisis of confidence
among stakeholders everywhere, we can take some
encouragement: in evidence that paints managers as
individuals who are generally interested and motivated
to balance resources among stakeholders. The
key is to identify those factors that limit a manager's
ability to' do so and to plan accordingly.
Appendix A
Study 1vignette
You're sitting in your office when Joan, another
manager at GunderAll and a good friend of yours,
knocks on your door. As she sits down across from
your desk, she explains "Our division recently sold
one of our abandoned warehouses, and I'm
responsible for distributing the $100,000 we made in
the sale of that building. I'm considering three different
possible outlets for the money, but I can't
seem to make up my mind. I need your advice." She
then explains her three options:
1. One of her co-workers has suggested that
some or all of the money be added to next
quarter's dividend payment to stockholders.
(nothing) (The new Chairman of the Board
has identified dividends as his top priority, so
this would mean a great deal to him and to
the stockholders of the organization) (The
Chairman of the Board has said that he
thinks dividends are meaningless, so this
would not mean much for him or the stockholders
of the organization).
2. Another co-worker has suggested that some
or all of the money should be given to a college
scholarship program that was developed
and is administered by the employees. (nothing)
(You know, though, that the program
has had serious funding problems and will
probably die very soon regardless of whether
or not they get any more funds) (The program
has sent dozens of kids to college and is
a very highly regarded program.)
3. A third co-worker has suggested that some
or all of the money should be given to a
youth development program run by a local
community group. (nothing) (However, you
saw on the local news last night that the
leaders of this program are under investigation
for the misuse of funds).
(As the two of you review these options it becomes
apparent the each request has equal merit. Each
group would benefit by receiving additional funds
298
Stakeholder Theory and ManagerialDecision-Making
and each group has a valid claim to this money.
Furthermore, in the short run the company will get
about the same amount of economic and "PR'
advantage no matter how the money is distributed.)
As the two ofyou discuss the situation, the phone
rings. On the line is the vice president ofaccounting.
He asks, "Is Joan there?" You turn the phone over
to Joan. She listens for a few minutes, says, "OK,"
and then hangs up the phone. She then turns to you
and says, "That was the VP of accounting. He
knows that I'm supposed to distribute this money
and he wants me to (feel free to divide the money
however I want to) (avoid dividing up the money he
only wants to write one check)."
As you consider these options one last time, you
remember that the company has four other abandoned
warehouses so it is very likely that she will have
to make this same decision again in the near future.
Joan then turns to you and asks, "What should I do?"
What will you recommend? Given the requests of
the stockholders, the employees' group, and the community
group, what would you do with the money?
(WEEK #2) Today you checked your voice mail
and found a message fromJoan. She called to express
her gratitude - she distributed the money exactly as
you suggested and everything turned out great. She
also wanted you to know that GunderAll sold a
second warehouse and therefore she is required to
distribute another $100,000. Once again, she wants
you to make a recommendation on how to distribute
the funds. In her message, she says that she'll call
back this afternoon to get your advice.
Apparently, word aboutJoan's request has leaked
out because following her voice message are four
others. The first is from a stockholder who wants
you to take this opportunity to increase the stockholders'
dividends. The second is from an employee
who wants you to give the money to the employee's
scholarship program. The third is from a member of
the community youth program who wants you to
give the money to them, and the last message is from
the VP ofaccounting reminding you that the money
(can be divided any way you want to) (shouldn't be
divided - he only wants to write one check).
Joan will be calling back soon. Once again, you
have requests from the stockholders, the employees,
and the community. What will you recommend this
time?
Study 2 vignettes
Instrimentalaspects: Organizational
You are a manager at Storit, a manufacturer ofshipping
cartons. Your company has developed an entirely
new kind ofcarton that is much cheaper to make and
much stronger than any other carton available. The
carton has been tested in the lab, but now management
wants to enter into an agreement with a Storit
customer to test the product in the field. You willbe in
charge ofthis testing phase, and based on lab tests, it
appears that whichever customer you select as the
'test' organization will have a tremendous short-term
competitive advantage. You've narrowed your decision
to two firms in the same industry: Company A
and Company B. The companies are essentially the
same in all respects. However, you know from
experience that they make decisions very differently:
Company A prefers to compromise over a series of
decisions while Company B tries to compromise on
every individual decision. In other words, when faced
with several difficult decisions, Company A asks those
parties who are involved to give-up what they want
on one decision so that they can get what they want on
another decision. Company B, on the other hand, tries
to maketheir decisions one at a time, asking those who
are involved to give-in a little bit on every decision.
Instriiientalaspects: Individual
Two employees have both volunteered to work
8 hours of overtime this weekend. The budget,
though, will only allow for 8 hours of overtime total
per weekend. One supervisor, John, has suggested,
"Let one of them work the first 4 hours, and let the
other one work for the second 4 hours." Another
supervisor, Larry, has suggested, "Let one of the
employees work this weekend, and we'll guarantee
the other employee 8 hours of overtime work the
next time."
Nontative aspects
Beta-Omega, a large petrochemical company, was
faced with two difficult decisions. First, Beta-Omega
had an offihore oil well in northern Alaska and they
wanted to build a $1 M on-shore apartment complex
to house those employees (and their families).
They knew that such a complex would drastically
reduce employee travel expenses and would
improve morale, but the government was opposed
299
ScottJ. Reynolds et al.
to the idea from the beginning. The government
had indisputable proof that the apartment complex
would cause irreparable damage to that particular
ecosystem, and so they were pleading with
Beta-Omega not to build the complex. In a separate
situation, Beta-Omega was trying to determine
whether or not to close an existing offshore oil well,
KR4, in southern Alaska. KR4 had been functioning
for over 35 years, but in the past few years the oil
supply had begun to dwindle and the oil collected
wasjust barely covering the oil well's expenses. The
government believed that this particular drill,
because it was near the cruise ship sailing lines, decreased
tourism revenues in southern Alaska by
about $1 M. They felt that by dosing the oil drill
they could bring more tourists to the area. On the
other hand, the employees at KI4, fearffl of losing
their jobs, argued that as long as the oil well was
making money, it should be kept open. Beta-Omega
ultimately made two decisions. In the first situation,
they spent only $500,000 and built a much smaller
apartment complex than the one originally proposed
thereby minimizing the damage to the ecosystem
and yet allowing their employees a place to live. In
the second situation, [they decided to give KR4 six
more months to become more profitable. They then
donated $500,000 to the government to help
improve tourism in the area.] [they decided to
comply with the government's request and not build
the apartment complex. In the second situation, they
guaranteed the employees that as long as KR4 was
pumping oil it would remain open.]
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TITLE: Stakeholder Theory and Managerial Decision-Making:
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SOURCE: Journal of Business Ethics 64 no3 Mr 2006
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