By Flore Bridoux & Pushpika Vishwanathan
Managers are confronted with many stakeholders, some of whom have significant economic power (i.e. powerful stakeholders) and some have far less (i.e. weaker stakeholders). Managing the interests of these different stakeholders may be extremely challenging. When managers fail to successfully consider the interests of all stakeholders, for example, in the event of corporate misconduct, they are often portrayed as the key culprits. We argue, however, that powerful stakeholders are also in part responsible when companies harm weaker stakeholders and society.
Tech giants, such as Facebook, Twitter, Snapchat, and Google, are illustrative of these quite common relationships among companies’ stakeholders, whereby some stakeholders are very powerful and others much less so. The Cambridge Analytica scandal revealed to all that the core of the business model of many tech giants is to charge advertisers for accessing a wealth of personal data about their users. This business model makes advertisers very powerful because the tech giants are highly dependent on the revenues from advertisement (e.g. 98 percent of Facebook’s revenues come from advertisers). In contrast, users of these products are powerless: they enjoy the service for free and depend on it to connect with friends and acquaintances, while often unaware of how much personal information the company actually collects and how it is used. Under these conditions, managers at tech giants may be inclined to give in to the demands of powerful advertisers, for example to access more data, without fully respecting the privacy rights of users.
When powerful stakeholders leverage their bargaining power (i.e. negotiation power) to appropriate a large portion of the value created by a company, they may not leave the company with enough resources to address the needs of weaker stakeholders. In our article , we discuss the conditions under which powerful stakeholders are likely to give managers the latitude to balance the needs and interests of all stakeholders, including the weak ones, rather than forcing managers to give priority to powerful stakeholders’ own needs and interests. When powerful stakeholders are driven by self-interest, they will use their bargaining power to impose their demands, and thereby reduce the possibility for managers to care for weak stakeholders as well. This paints a bleak picture. However, self-interest is by far not the only motivational driver that can guide powerful stakeholders’ behaviors.
We build on the justice literature in psychology and organizational behavior, which posits that people’s feelings, thoughts, and behaviors are often shaped by their assessments regarding what is appropriate and fair. Accordingly, we argue that powerful stakeholders can be willing to give up on their demands to some extent in order to ensure more fairness towards weak stakeholders because fairness fulfills three important needs humans have, next to the accumulation of personal material outcomes. These are: a need to reduce uncertainty regarding future personal outcomes, a need to belong to close and prestigious groups, and a need for morality.
Finally, we argue that when managers balance the interests of all stakeholders, they trigger in powerful stakeholders’ minds precisely these three needs described in the previous paragraph that will make them willing to give up on some demands in order to ensure more fairness. In other words, we claim that managing for all stakeholders (rather than only for the powerful ones) is one way to create the very conditions to pursue this strategy without backlash from powerful stakeholders.
Thus, one way in which tech companies, such as the ones listed earlier, can balance the interest of powerful and weak stakeholders is by instilling a more fairness-oriented mindset in these powerful stakeholders. If advertisers care at least to some extent about the fair treatment of users, they may refrain from imposing their demands on the company and create the latitude for managers to treat users better.
Reference:
Bridoux, F.M., & Vishwanathan, P. 2020. When Do Powerful Stakeholders Give Managers the Latitude to Balance All Stakeholders’ Interests?, Business & Society, 59(2). https://journals.sagepub.com/doi/full/10.1177/0007650318775077