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Stakeholder Friction

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Abstract

A mainstay of stakeholder management is the belief that firms create value when they invest more time, money, and attention to stakeholders than is necessary for the immediate transaction. This tendency to repeat interactions with the same set of stakeholders fosters what we call stakeholder friction. Stakeholder friction is a term for the collection of social, legal, and economic forces leading firms to prioritize and reinvest in current stakeholders. For many stakeholder scholars, such friction is close to universally beneficial, but the associated costs—to both the firm and legitimate stakeholders—have been underspecified. Failure to account for the effects of stakeholder friction can cause managers to under-allocate attention and value to some legitimate stakeholders and to over-allocate attention and value to current stakeholders. We examine the concept of stakeholder friction and elaborate on three exemplar sources of friction prominent in the stakeholder literature. This is followed by an analysis of investments in stakeholder relationships and a consideration of the implications of stakeholder friction on the ability of firms to prioritize stakeholders. The tendency to reinvest in current stakeholders has, in addition to the oft-discussed benefits, a predictable downside.

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Notes

  1. We’d like to thank an anonymous reviewer for pressing us to make this explicit.

  2. Other sources of stakeholder friction include the existence of personal or familial relationships and commitments beyond those defined by firm position (Weitzner and Deutsch 2015), perceived managerial discretion (Hambrick and Finkelstein 1987; Phillips et al. 2010), the availability of alternative resources (Barney 1991), attention (Ocasio 1997), taken-for-grantedness (Suchman 1995), etc.

  3. Thanks to an anonymous reviewer for this point.

  4. Within the wide range in the “swollen middle” (Hennart 1993) between the pure make-versus-buy extreme, firms choose hybrids, mixed modes, and even plural outsourcing tactics (i.e., both make and buy) (Puranam et al. 2013). Hybrid governance structures with varying unilateral stakeholder-specific investment, such as offered with robust stakeholder relationships (Harrison et al 2010), offer alternatives to the make-or-buy decision and can be analyzed using the marginal substitution analysis offered by Coase (Williamson 1987).

  5. The justification for shifting to the stakeholder claim on an issue includes strategic (Eesley and Lenox 2006), managerial (Bundy et al. 2013; Reynolds et al. 2006), and ethical reasoning (Derry 2012; Neville et al. 2011; Santana 2012).

  6. Marginalized stakeholders was first introduced within stakeholder salience as those stakeholders without power or urgency but with legitimacy (Mitchell et al. 1997).

  7. The negative reinforcing cycle could also be incorporating illegitimate claims of current stakeholders.

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  1. University of Notre Dame, Notre Dame, IN, USA

    Kirsten Martin

  2. York University, Toronto, ON, Canada

    Robert Phillips

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Martin, K., Phillips, R. Stakeholder Friction. J Bus Ethics 177, 519–531 (2022). https://doi.org/10.1007/s10551-020-04652-9

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