Normative Approach of Stakeholder Theory

Normative Approach of Stakeholder Theory is a theory states that Managers ought to pay attention to key stakeholder relationships. Stakeholders should be given importance while taking decisions. Relationship between manager and stakeholder is based on morals and normative commitments.

According to this perspective, managerial relationships with stakeholders are based on normative, moral commitments. Rather than on a desire to use those stakeholders solely to maximize profits. In short, a firm establishes certain fundamental moral principles. These guide how the company does business, in particular with respect to how it treats stakeholders. And the corporation uses those principles as a basis for decision-making.

• One genesis of this normative model is the fact that company decisions affect stakeholder outcomes. Ethics, generally speaking, deals with obligations that arise when an individual or corporate agent's decisions affect others; regardless of precisely what constitutes an ethical decision, decisions made without any consideration of their impact on others are usually thought to be unethical. Donaldson and Preston (1995) captured the implications of this view for stakeholder management well by stating that the stakeholder interests have intrinsic worth. That is, certain claims of stakeholders are based on fundamental moral principles. They are unrelated to the instrumental value of the stakeholders for a corporation. A firm cannot ignore or cannot abridge these claims, simply because honoring them does not serve its strategic interests, or is strategically inconvenient. In a sense, these claims are independent of, and should be addressed prior to, corporate strategic considerations. Stakeholder interests are thought to form the foundation of Corporate Strategy itself. They represent what we are as a company, and what we think is important. Given such a stakeholder orientation, a firm shapes its strategy around certain moral obligations to its stakeholders. In this vein, a Kantian posture (Bowie, 1994; Evan & Freeman, 1983), a feminist perspective (Wicks, Gilbert, & Freeman, 1994), and a fair contracts approach (Freeman, 1994; Phillips, 1997) are examples of moral principles that can form the normative foundation for stakeholder-oriented management. Freeman and Gilbert explicated this perspective: We cannot connect ethics and strategy. Unless there is a point of intersection between the values and ethics we hold, and the business practices that exemplify these values and ethics. To build strategy on ethics and to avoid a process that looks much like post hoc rationalization of what we actually did, we need to ask :"what do we stand for?" in conjunction with our strategic decisions.
• The second genesis of a normative stakeholder orientation based on moral principles is the argument that making a strategic commitment to morality is not only conceptually flawed but is also ineffective. To strategically apply ethical principles means that a firm only acts according to moral principles when this is to its advantage. However this is by definition not following ethical principles at all. In addition, Quinn and Jones (1995) argued that if the purpose of acting ethically is to acquire a good reputation that, in turn, will provide a firm with economic benefits, why not pursue the good reputation directly without the intellectual excursion into moral philosophy? In some cases, of course, the behavior called for will coincide with that dictated by ethics, but in others it may not. What difference does ethics make if one can act instrumentally without reference to ethics? From a practical perspective, Jones (1995) argued that the instrumental benefits of stakeholder management paradoxically result only from a genuine commitment to ethical principles. He argued that firms which create, and sustain, stakeholder relationships based on mutual trust and cooperation will have a competitive advantage over other firms that do not act in this way (cf. Barney & Hansen, 1994). If a firm's commitment to trust and cooperation is strategic rather than intrinsic, it will be difficult for the firm to maintain the sincere manner and reputation (Frank, 1988) required for its differential desirability as an economic partner. In other words, trustworthiness, honesty, and integrity are difficult to fake. Thus, to reap the instrumental benefits of stakeholder management, a firm must be committed to ethical relationships with stakeholders. Regardless of the expected benefits. Strategically applied moral commitments are not really moral. And, paradoxically, they cannot cause the desired strategic outcomes.