In additional to the theory of the firm and economic analysis, research on stakeholder theory has developed in several major directions. Donaldson and Preston (1995) recommend a taxonomy that divides stakeholder research into three distinct categories,
according to their underlying theoretical dimensions—the descriptive, the instrumental, and the normative perspectives. This taxonomy addresses three questions: “What happens? What happens if? and, What should happen?” (Jones, 1995, p. 406). In other words, these perspectives examine: (1) how managers of the firm actually behave, (2) what outcomes the firm might achieve if its managers behave in some ways, and (3) how managers of the firm should behave.
The descriptive approach proposes to show how the thoughts embedded in stakeholder theory correspond to specific characteristics and behaviours of firms and their managers in the real world. Donaldson and Preston (1995) defined descriptive stakeholder theory as “a model describing what the corporation is. It describes the corporation as a constellation of co-operative and competitive interests possessing intrinsic value” (p. 66). Research in this category describes the value-free facts of what firms do or what they are able to do (Stephens & Shepard, 2005; Swanson, 1999). It also needs to precisely present the environment in which firms operate (Dentchev, 2009). For example, Rowley (1997) examines power interplays between the focal firm and its diverse stakeholders, generated by different network structures. Mitchell et al.’s (1997) framework to portray stakeholder salience also belongs to this category. Defining saliency in terms of actions, Eesley and Lenox (2006) confirm Mitchell et al.’s (1997) framework by investigating 331 US firms responding to the requests dealing with the natural environment. Jawahar and McLaughlin (2001) describe that the types of strategy adopted by the firm for managing its stakeholders are determined by an assessment of the importance of the stakeholders. In brief, descriptive stakeholder theory describes how firms interact with their multiple stakeholders (Rowley, 1997).
The instrumental approach examines the relationships between the practice of stakeholder management and the goals of firm performance. Donaldson and Preston (1995) defined instrumental stakeholder theory as “a framework for examining the connections, if any, between the practice of stakeholder management and the achievement of various corporate performance goals” (p. 67). It seeks to understand what kind of (positive or negative) results may be achieved if a specific practice is adopted. For instance, as discussed earlier, Jones (1995) argues that firms, which interact with their multiple stakeholders based on mutual trust, will have competitive advantages over their rivals that do not. Moreover, Berman et al. (1999) argue that managing stakeholder relations with employees and customers could enhance firm financial performance. For the purpose of pursuing mutual benefit, Heugen and van Oosterhout (2002) suggest three boundary conditions for stakeholder selection: being sufficiently autonomous, having compatible interests, and capable of meeting their obligations. Furthermore, Hart and Sharma (2004) go beyond traditional thinking of stakeholder management and suggest that firms need to pay attention to stakeholders who are seemingly “powerless, non-legitimate, isolated, or disinterested”(p. 12).
The normative approach identifies moral or philosophical principles for managers to perform their role. According to Donaldson and Preston (1995), stakeholder theory is normative because “stakeholders are persons or groups with legitimate interests in procedural and/or substantive aspects of corporate activity” and “the interests of all stakeholders are of intrinsic value” (p. 67). Donaldson and Preston argue that although the three approaches to stakeholder theory are distinctive, “the normative base serves as the critical underpinning for the theory in all its forms” (1995, p. 66). They go on to assert that the theory of property rights also provides the
normative keystone for stakeholder theory. Except for Jones’s (1995) instrumental approach, most studies discussed in the previous subsection belong to the normative approach. Moreover, research in this stream demonstrates various themes to justify this normative core, such as Aristotelian ethics (Wijnberg, 2000), libertarianism (Freeman & Phillips, 2002), Kantian theory (Evan & Freeman, 1993; Lea, 2004), feminist theory (Lampe, 2001; Wicks et al., 1994) and the principle of fairness (Phillips, 1997; van Buren, 2001).
In addition to Donaldson and Preston’s (1995) three perspectives of stakeholder theory, Freeman (1994) suggests the fourth perspective—metaphorical or narrative. In this sense, researchers use stakeholder concepts as metaphors to describe how people engage in their activities of value creation and exchange. Andriof and Waddock (2002) summarise the differences between the four perspectives of stakeholder theory according to their differences in rationale, unit of analysis, level of analysis, and underlying theory. Nevertheless, Donaldson and Preston (1995) argue that the three approaches to stakeholder theory are reciprocally supportive. Moreover, clear-cut distinction between descriptive, normative, and instrumental approaches would never be accurate (Freeman, 1999). Jones and Wick (1999) make a similar argument and say that “neither of the emergent forms of stakeholder theory is complete without the other and that convergent stakeholder theory, which combines normative and instrumental elements, meets many of the criteria for successful integration of normative and empirical theory” (p. 206). Responding to Jones and Wick, however, Freeman (1999, p. 233) argues “what we need is not more theory that converges but more narratives that are divergent—that show us different but useful ways to understand organisations in stakeholder terms.”
Interestingly, stakeholder theory has become one of the main theoretical foundations of the research stream of corporate social performance (CSP) (Clarkson, 1995; van der Laan, van Ees & van Witteloostuijn, 2008; Margolis & Walsh, 2003). There are three interconnected constructs related to CSP, which have been used throughout the literature, referring to different aspects of business involvement in social issues. First, corporate social responsibility (CSR, or CSR1) refers to the business philosophy that directs managers making policy and management decisions towards normatively correct performance regarding expectations of multiple stakeholders of the firm (Dentchev, 2009; Van der Laan et al., 2008). Carroll (1979, 1991) distinguishes social expectations as four dimensions of corporate social responsibility: economic, legal, ethical, and discretionary.
Second, corporate social responsiveness (CSR2) describes how firms respond to social issues. CSR2 is concerned with the “ability to achieve significant levels of social responsiveness” (Frederick, 1994, p. 156); the meaning of social responsiveness is “the ability to manage the company’s relations with various social groups” (Frederick, 1994, p. 156). Moreover, CSR2 can also be described as a process to resolve social issues for which a firm is accountable (Dentchev, 2009). Carroll (1979) suggests four responsiveness strategies to resolve social issues: reaction, defense, accommodation, and proaction. These CSR2 strategies are neatly summarised by Clarkson (1995). In particular, Clarkson (1995) emphasises the term responsiveness, arguing that “managers must resolve the inevitable conflicts between primary stakeholder groups over the distribution of the increased wealth and value created by the corporation” (p. 112). He goes on argue that ethical judgment and choices may turn out to be crucial to the firm’s survival.
Third, CSP is concerned with the outcomes of socially responsive behaviour. (Wood, 1991) describes CSP as the “the social impacts of corporate behaviour, regardless of the motivation for such behaviour or the process by which it occurs; the programmes companies use to implement responsibility and/or responsiveness; and the policies developed by companies to handle social issues and stakeholder interests” (p. 708). The CSP construct represents a feature of principle–problem–action framework that focuses on both stakeholders and social issues (Dentchev, 2009). There have been numerous studies on this topic based on a stakeholder perspective (e.g., Moore, 2001; Orlitzky, Schmidt & Rynes, 2003; Waddock & Graves, 1997; Makni, Francoeur & Bellavance, 2009). From the stakeholder perspective, meeting the expectations of multiple stakeholders would enhance a firm’s reputation and thereby have a positive impact on its financial performance. Conversely, failure to satisfy the needs of various stakeholders may, in many cases, result in a negative financial impact (Cornell & Shapiro, 1987; Margolis & Walsh, 2003; Preston & O’Bannon, 1997; van der Laan et al., 2008).
According to Dentchev (2009), the three constructs related to CSP can also be analysed in terms of Donaldson and Preston’s (1995) taxonomy. Firstly, CSR1 is mainly prescriptive. As Windsor (2001) puts it, “Responsibility must have a normative basis” (p. 228). Secondly, CSR2 suggests an instrumental approach to both social issues and stakeholders of firms by providing a business justification for firms responding to social issues. Lastly, CSP comprises a both normative and instrumental concept. Although stakeholder theory has frequently been used in the literature to support the constructs related to CSP, there are differences between them. While
stakeholder management focuses on various stakeholder groups, CSP is mainly concerned with both stakeholders and social issues (Dentchev, 2009).