Interaction between Stakeholders

The increased interest in firms’ relationship with their stakeholders could be attributed to the realisation of the difficulties associated with trying to describe the company, without a proper understanding of the various relationships on

85 which it depends (Freeman and McVea, 2001). These relationships are crucial to the survival of the firm or company as pointed out by Jahansoozi (2006) when she asserted that these should benefit all parties involved because they affect the firm’s license to operate. This section will therefore explore the interactions that exist between stakeholders, based on various standpoints of theory. However, before that will be done there is the need for the meaning of relationship to be understood, hence the presentation of different definitions of the subject below as a precursor to the main discussion of interactions between stakeholders.

3.3.4.1

Relationship

A relationship could be seen as the association that exist between two or more entities (Chen, 1976), which could be between humans or individual persons, as well as between individuals and institutions or firms. Pye (1968, cited in Simmons & Munch, 1996, p.92) had earlier asserted that relationships are often interpersonal, with such relationships referring to “a powerful web that holds a person in place and gives him a basic orientation in life”. Further exploring the meaning of relationships, Simmons and Munch (1996) made reference to the Chinese word “guanxi” which means relationships, with its characters when directly translated meaning “joined chain” (p.92). This implies the existence of some level of connection or linkage between those concerned, for there to be any form of relationship between them.

3.3.4.2

Stakeholder Relationships

There have been different positions on both what the relationship is between firms and stakeholders as well as what they should be. Freeman (1984) in his

86 proposition of a stakeholder model had pointed out that the relationship that exists is just between the firm and its various stakeholders on a one-to-one basis. Hill and Jones (1992) saw these relationships as a network consisting of separate implicit contracts between the particular stakeholder in question and the firm represented by the management. Williamson and Winter (1991) disagreed with this, hence their view of the firm as a nexus of contracts. This means that the firm is involved in not just direct relationships as Freeman’s (1984) hub and spoke conceptualisation tended to have implied and by so doing presenting such relationships as independent. On the contrary, these relationships are dependent, intertwined and multiple between the firm and its diverse stakeholders who sometimes align together with others in order to influence business decisions in their favour. Rowley (1997) agreed that what exist between stakeholders are multiple and interdependent interactions (relationships) and not the dyadic ties presented of stakeholder relationships by Freeman (1984). Neville and Menguc (2006 citing Oliver, 1991) referred to the firm’s diverse relationships with its stakeholders as stakeholder multiplicity which is “the degree of multiple, conflicting, complimentary, or cooperative stakeholder claims made to an organization” (p.380). These various claims need to be measured to determine how much they match with each other as well as the firm’s strategic direction, which calls for a ranking of stakeholders to get their hierarchy. This could then result in synergy between stakeholders thereby leading to a better result for all, bringing to mind Rousseau’s (1762) concept of the good of all. The above work by Neville and Menguc (2006) tends to neglect that the levels of salience possessed by each stakeholder group is

87 transient and so may not be the same at all times as other factors come into play.

Frooman (1999) in his contribution to the debate on relationships applied resource dependence theory and came up with a typology of resource relationships utilising the work of Pfeffer and Salancik (1978). The typology mainly reflects how the level of dependence existing between stakeholders in terms of resources being exchanged between them influences the power balance between them. The stakeholder’s dependence on the firm for resources moving in its direction puts it at the mercy of the firm thereby resulting in firm power. Similarly, firm reliance on the stakeholder for resources required for its continued survival means that the stakeholder determines the fate of the firm because it leads to stakeholder power. Somewhere in between the extremes of firm and stakeholder power lies the point of interdependence, which could either be low or high depending on the level of symmetry in the exchange relationship existing between the stakeholders involved in the relationship. Frooman (1999) posits that this further determines what kind of influence strategy (withholding, usage, indirect or direct) to be applied by the various stakeholders in the relationship to get decisions in their favour (as discussed below).

The above typology by Frooman (1999) has contributed to the advancement of studies into the relationships that exist between stakeholders, but it has the problem of over-simplification of the dependency of stakeholders on each other. It focuses so much on finding out if these dependencies exist or not, which in this author’s view has little to do with the debate of the area at the moment since the issue has to do more with the extent to which these relationships exist

88 than if they do exist which seems to be agreed already even by the author. Frooman (1999) admits that this might be problematic, which brings up the question of how to measure dependence in stakeholder relationships. He asserts that this could be done by looking at the way each stakeholder is consulted in the relationship before decisions are made or by exploring how much or the extent of dependence for resources that exist therein.