Reviewing the Stakeholder Value Creation Literature: Towards a Sustainability Approach
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The purpose of this study is to examine distinctive narratives of stakeholder value creation and discuss how they consider sustainability. Based on an extensive research review spanning over three decades of material, we present four categories of the stakeholder value creation literature: (1) a focal firm orientation with an economic value perspective, (2) a stakeholder orientation with an economic value perspective, (3) a focal firm orientation with a multiple value perspective, and (4) a stakeholder orientation with a multiple value perspective. In each of these categories, we identified several narratives of stakeholders, value creation, and sustainability. This study reveals an increased interest in sustainability issues and their more coherent incorporation into stakeholder research in recent years. We suggest that, with respect to sustainability, future research should consider the dynamic, systemic, and multilevel nature of stakeholder relationships and collaboration. Additionally, a more versatile understanding of value and value creation, as well as a broader comprehension of stakeholders and their needs, should be incorporated into future research. Finally, conceptualising sustainability and the normative core of sustainable business, as well as elaborating on the purpose and role of business regarding sustainability, are interesting focus areas for future research.
KeywordsStakeholder theory Value creation Sustainability Research review
Stakeholder theory is one of the main management frameworks used to discuss social responsibility issues in business. As stakeholder theory perceives stakeholders broadly, referring to those who can affect or are affected by a firm’s operations (Freeman 1984), the theory has acquired a prominent place as a framework that addresses social responsibility issues as a natural part of business. Moreover, stakeholder theory has been described as a management theory of the 21st century suitable for understanding and redefining the role of business and value creation in society (Freeman 2010). Freeman et al. (2010) argue that stakeholder theory is fundamentally ‘about value creation and trade and how to manage a business effectively. “Effective” can be seen as “create as much value as possible”.’ However, academics and business practitioners have given sustainability increased attention, leading to calls for management scholars to rethink extant management theories and their underlying assumptions in the context of sustainability (e.g., Derry 2012; Starik and Kanashiro 2013). Stakeholder theory has also been advanced directly regarding sustainability. In effect, Hörisch et al. (2014) examined the applicability of stakeholder theory in sustainability management and developed a conceptual framework to enhance the theory’s application in the context of sustainability. Scholars have particularly emphasised the need to incorporate sustainability management into conventional management theories to have an impact on more sustainable business decisions instead of building distinctive theories and new languages to learn for this purpose (ibid.).
Stakeholder theory has served to analyse and understand multiple phenomena in various fields of the organisational sciences, such as strategic management (e.g., Freeman 1984; Haksever et al. 2004; Strand and Freeman 2015), corporate responsibility (e.g., Brower and Mahajan 2013; Sachs and Maurer 2009; Smith and Rönnegard 2016; Strand et al. 2015), business ethics (e.g., Phillips 1997; Purnell and Freeman 2012; Wicks 1996), and international business (e.g., Ansari et al. 2013; Christmann 2004; Lehtimaki and Kujala 2015). Moreover, stakeholder value creation has been used in many recent studies to better understand stakeholder concerns and cooperation (e.g., Garcia-Castro and Aguilera 2015; Garriga 2014; Harrison and Wicks 2013; Rühli et al. 2017; Schneider and Sachs 2015; Tantalo and Priem 2016). Therefore, we need a comprehensive understanding of what stakeholder value creation means in the organisational sciences and what value means in the stakeholder literature.
While stakeholder theory was not originally developed to address complex sustainability issues, its potential for further development has been acknowledged and acted on (Freeman 1994; Hörisch et al. 2014), and it has served as a traditional management theory in research on corporate sustainability to some extent (Montiel and Delgado-Ceballos 2014). However, stakeholder theory, like other management theories, has been criticised quite heavily for being too focused on economic, firm-centric value creation with anthropocentric premises in the context of sustainability (e.g., Banerjee 2000, 2001; Clifton and Amran 2011). Starik and Kanashiro (2013) have also criticised management theorists as lacking a systematic examination of sustainable development, which has been the case in stakeholder research. In essence, calls have been made for researchers to pay attention to the premises of their research, including research questions, assumptions, and broader paradigms followed in their studies (e.g., Derry 2012).
The purpose of this study is to examine distinctive narratives of stakeholder value creation and discuss how they consider sustainability. Analysing the stakeholder value creation literature from the sustainability viewpoint allows researchers and practitioners to become more aware of the various uses of the concepts and of the impacts different research questions, settings, and ontological and epistemological assumptions have on research findings. Hence, the findings of this study help us better understand how the chosen approaches influence the development of management theories and business practices.
Sustainability, or sustainable development, is understood in this study via its most profound definition, which refers to ‘development which meets the needs of the present without compromising the ability of future generations to meet their own needs’ and consists of economic, social, and environmental dimensions (United Nations World Commission on Environment and Development 1987). Sustainability has been regarded as somewhat difficult to translate and implement in traditional businesses (e.g., Gallo and Christensen 2011), and compromises have often been made between the economic, social, and environmental dimensions (Gallo and Christensen 2011). For true sustainability, though, all three dimensions should be considered equally and acted upon (Bansal 2005). Studies on strong sustainability take the issue even further and suggest that concerns related to the natural environment should be considered as an elementary part of all studies related to management and organisations (Heikkinen et al. 2018; Heikkurinen 2017). Relating to the idea of strong sustainability, this chapter discusses how the studies on stakeholder value creation contribute to sustainability when considered an important issue affecting organisations and society today.
The remainder of the chapter is organised as follows. In the next section, we will explain the collection and analysis of studies on stakeholder value creation. Then, based on an inductive categorisation, we will present the findings of our review in four categories according to their orientation toward stakeholders (i.e., focal firm or stakeholder orientation) and value (i.e., economic or multiple value perspective). In each of these categories, we identify several narratives of stakeholders, value creation, and sustainability. The chapter is concluded by discussing the stakeholder value creation narratives and their relation to sustainability.
2 Collection and Analysis of Studies on Stakeholder Value Creation
To examine the distinctive narratives of stakeholder value creation, we reviewed articles published in leading management journals from 1985 to 2015 and found 210 related scholarly articles for our review. We followed the advice given by Short (2009) and focused our search on eleven high-quality management journals including both top journals, such as Academy of Management Review and Academy of Management Journal, and specialty journals, such as Business & Society and Journal of Business Ethics. The journal choice was made with an objective to allow discussion with the mainstream management theories instead of concentrating on more conditioned journals, where the importance of sustainability issues would be more acknowledged (ibid.). In essence, we are participating in efforts to incorporate sustainability into conventional business thinking and language.
The research process was iterative in nature. It started by searching for and identifying relevant articles in the chosen journals. Altogether, three search rounds were conducted: in November–December of 2015, February–March of 2016, and September–November of 2016. Each search round was followed by a close reading and analysis of the articles, as well as the development and refinement of the inductive categorisation and distinctive narratives and documenting the findings. The analysis was finalised in 2018 after crosschecking and fine-tuning the findings, resulting in the final version of the article.
Summary of the stakeholder value creation articles in this review
Academy of Management Review
Academy of Management Journal
Strategic Management Journal
Journal of Management
Administrative Science Quarterly
Journal of Management Studies
Journal of Business Ethics
Business & Society
Business Ethics Quarterly
Organization & Environment
Content classification system for coding and analysis
Name of the authors
Title of the article
Name of the journal
Explicitly stated research questions
Theories used within the study
Empirical methods and setting
Empirical method, data collection, and description of data source
Explicitly stated key findings in the article
View on stakeholders
Focal firm orientation or stakeholder orientation
View on value
A single value perspective or a multiple value perspective
View on sustainability
Explicit or implicit reference and view on sustainability
Finally, we paid attention to the different views of sustainability in each of these categories. In general, we noted the clear (i.e., the article mentioned sustainability or sustainable development explicitly) and embedded sustainability references (i.e., the article did not use sustainability or sustainable development as a concept directly but used the social or environmental dimension implicitly) in the articles. In the next section, we will explain the results of our analysis in more detail and depict the four categories and their different narratives of stakeholders, value creation, and sustainability in each category.
3 Narratives of Stakeholder Value Creation
Our examination indicates that interest in sustainability issues and theory development within stakeholder value creation studies has increased recently. The fourth category, stakeholder orientation with a multiple value perspective, consisted of articles that widely acknowledge the responsibilities of businesses in society, the importance of stakeholder cooperation, and collaboration for versatile value creation and value beyond economic measures. Therefore, the fourth category shows the most potential to address the question of how stakeholder value creation relates to sustainability. We will now present the different narratives of stakeholder value creation within in each category in more detail. A more detailed description of the literature related to each category and narrative is presented in the Appendix.
3.1 Focal Firm Orientation and the Economic Value Perspective
The first category represents an instrumental view of stakeholder value creation, placing the focal firm and business performance in the centre of the study. Although over half of the articles referred to sustainability issues implicitly or explicitly—mainly in the form of common social performance measures, such as KLD or sustainability ratings—sustainability issues and measurements were treated as subordinate to traditional strategic issues and performance measures. Studies in this category criticise the stakeholder approach to value creation and capture for its lack of guidance for managers in situations in which trade-offs need to be made between stakeholders. Instead, some argued that the single objective function, with the primacy of the firm’s long-term value maximisation, should always guide managerial decision-making (e.g., Jensen 2002). In a similar fashion, Sundaram and Inkpen (2004a) defended shareholder value maximisation as the primary corporate objective function, arguing that it is the only objective that will profit all stakeholders in the end. Hence, this category instrumentally investigates whether and how sustainability or stakeholder issues should be dealt with and follows the prevailing economic paradigm. Furthermore, scholars emphasised that stakeholder theory has not provided enough empirical evidence for its stakeholder value maximisation claim (Sundaram and Inkpen 2004b). The three stakeholder value creation narratives within this category were (1) the narrative of stakeholder identification, (2) the narrative of stakeholder management influencing firm performance, and (3) the narrative of value creation and capture. In the following paragraphs, we will explain them in more detail.
3.1.1 The Narrative of Stakeholder Identification
Studies using this narrative show interest in the identification of stakeholders and analysing how and why companies respond to pressures from different stakeholders. Firm-stakeholder relationships were examined from the managerial or organisational perspective, as well as through understanding the accrued effects of the networks in which firms participate. Factors affecting salience and decisions regarding different stakeholder issues were linked to, for example, stakeholder status (Perrault 2017), directors’ personal values and roles (Adams et al. 2011), and the organisational life cycle (Jawahar and McLaughlin 2001). Rowley (1997), however, built on social network analysis and stated that firms resist stakeholder demands based on the simultaneous effects of the stakeholder network density and the firm’s centrality within this network.
3.1.2 The Narrative of Stakeholder Management Influencing Firm Performance
The studies using this narrative are interested in the relationship between stakeholder management and firm performance. They showed contradictory results concerning whether attending stakeholder concerns can be beneficial for a firm and what should come first in the managerial agenda. To start with, Berman et al. (1999) argued that firms address stakeholder concerns when they expect positive effects on financial performance. The studies that showed evidence of positive effects examined impacts on shareholder value (Hillman and Keim 2001), financial performance (Choi and Wang 2009), and long-term shareholder value (Garcia-Castro et al. 2011). Furthermore, Ogden and Watson (1999) examined whether a firm is able to improve the interests of shareholders and stakeholders simultaneously and showed that it is possible to align the interests of different stakeholders, at least to some extent, without compromising shareholder returns, although Garcia-Castro and Francoeur (2016) found that additional investments in stakeholders do not necessarily benefit firms linearly and can also become costly. Additionally, Wang et al. (2008) depicted the relationship between corporate philanthropy and financial performance in the form of an inverse U-shape, showing positive effects on financial performance in the beginning but negative effects after a certain point.
Innovations and temporal aspects were also taken into consideration within the studies trying to show the link between stakeholder management and competitive advantage. For example, the interconnections between innovations, stakeholder relationships, and competitive advantage were examined, underlining the importance of cultural and industry contexts when choosing the most efficient stakeholder management approach to create a competitive advantage through innovations (Harting et al. 2006). It was also argued that achieving a competitive advantage depends on a firm’s ability to adapt and transform its stakeholder management practices over time (Verbeke and Tung 2013).
Finally, the studies regarding CEOs, stakeholder management, and business performance revealed, for instance, how it might be disadvantageous for a CEO to pursue stakeholder-related initiatives, as they can have negative effects on CEO compensation, even if there are financial improvements (Coombs and Gilley 2005). A newly appointed CEO may sacrifice long-term stakeholder value, such as pension funds, research and development (R&D) investments, and capital equipment investments, while attempting to create short-term profits in their self-interest (Harrison and Fiet 1999). It also seemed that the economic performance of a firm has a moderating effect on the CEO’s stakeholder concerns (Dooley and Lerner 1994).
3.1.3 The Narrative of Dynamics in Value Creation
The dynamics of value creation were of interest in quite a few studies. For example, Bridoux and Stoelhorst (2014) showed that the heterogeneity of stakeholders allows firms to create sustained market value with both fairness and an arms-length approach to stakeholder management. Additionally, the roles of different stakeholders and environments in economic value creation were focused on, for example, through exploring the strategies to manage consumer benefited experiences (Priem 2007), examining the firm’s political environment (Oliver and Holzinger 2008), and analysing the secondary stakeholders in the socially complex cases of product diversification (Su and Tsang 2015). Some of the studies approached value creation through the examination of who finally captures the value. As an example, Blyler and Coff (2003) suggested that, in the context of dynamic capability, internal stakeholders with social capital may capture the economic rents for their personal gain before they appear in traditional performance measures. To improve the management of stakeholder claims and value capture, Crane et al. (2015) argued that stakeholder accounting and financialising stakeholder claims could be helpful.
3.2 Stakeholder Orientation and the Economic Value Perspective
The second category, along with focusing on economic or business value, drew attention to the importance of stakeholder relationships and cooperation for business success and value creation. This view is also instrumental in nature; for example, the studies on instrumental stakeholder theory are situated within this category. These studies examined concepts such as trust in cooperation networks, the consequences of blurring organisational boundaries, and value creation and capture logics in multiple stakeholder settings. As the economic value creation function of firms was emphasised in this category, only a few articles either implicitly or explicitly referred to sustainability. Three stakeholder value creation narratives within this category were (1) trust in cooperation networks, (2) blurring organisational boundaries, and (3) value creation and capture logics. In the following paragraphs, we will explain them in more detail.
3.2.1 The Narrative of Trust in Cooperation Networks
An overriding issue that many of the articles in this category discussed was trust. In effect, several articles based on instrumental stakeholder theory emphasised the role of trust and cooperation in creating organisational wealth and a competitive advantage (e.g., Jones 1995; Preston and Donaldson 1999). The influence of trust in stakeholder relationships was elaborated on even further by Wicks et al. (1999), who stated that the optimal level of trust in stakeholder relationships positively affects firm performance. Furthermore, Pirson and Malhotra (2011) contended that different organisational stakeholders appreciate different dimensions of trustworthiness. The studies on strategic partnerships (Ireland et al. 2002), innovation networks (Dhanaraj and Parkhe 2006), and interorganisational relationships (e.g., Barringer and Harrison 2000; Connelly et al. 2015) highlighted the fact that productive and cost-efficient cooperation and value creation require building trust into these relationships.
3.2.2 The Narrative of Blurring Organisational Boundaries
Another major narrative concerns the consequences of blurring organisational boundaries and roles of different actors in multi-stakeholder networks. Due to the blurring of organisational boundaries, understanding the role of different stakeholders in value creation was regarded as important. As an example, Korschun (2015) investigated the important role of employees and concluded that a strong identification with the company leads to adversarial stakeholder relationships, while a collectivistic organisational identity and seeing stakeholders as organisational members supports a cooperative approach. Kochan and Rubinstein (2000) emphasised the importance of employees, too, by giving employees a prominent place in value creation and improving the organisational performance of American organisations. The cognitive side of value creation and construction of a competitive advantage were also focused on, as using and exchanging resources within firm-constituent interactions would require ‘communication about and interpretations of those exchanges’ (Rindova and Fombrun 1999). Other contexts in which different stakeholder groups were examined included, for example, leaders and stakeholder management in radix organisations (Schneider 2002), external stakeholder engagement in creating sustainable shareholder value (Henisz et al. 2014), and cooperation between isolated firms and stakeholders with the help of government support institutions in the case of product upgrading in emerging markets (McDermott et al. 2009).
3.2.3 The Narrative of Value Creation and Capture Logics
Again, value creation and capture logics emerged as an important narrative. Garcia-Castro and Aguilera (2015) presented a conceptual framework of incremental value creation and appropriation, which expands the concept of value and value capture to consider all stakeholders of the firm. The scholars argued that value creation and appropriation should be viewed dynamically, as multiple stakeholders participate in value creation processes with their resources and capabilities, meriting their proportion of the economic rents created (ibid.). Priem et al. (2013) emphasised the role of consumers and stated that it is necessary to pay attention to value creation opportunities for consumers and corresponding business models and ecosystems.
However, some of the studies showed how value creation in stakeholder relationships may harm the value capture of a firm or an individual stakeholder group. For instance, Coff (2010) examined how different stakeholders participating in capability development may use their bargaining power for rent appropriation in different stages of the capability life cycle, causing direct effects on firm performance. Kivleniece and Quelin (2012) examined value creation and capture in public-private collaboration and stated that private actors’ involvement might be jeopardised if public partner opportunism or external stakeholder activism restrained private actors’ value capture. The empirical results of Poulain-Rehm and Lepers’ (2013) study did not support the hypothesis that employee share ownership plans and employees’ growing role in company decision-making would enhance value creation and capture for either shareholders or stakeholders. Finally, Bridoux et al. (2011) emphasised that a firm should adapt its motivational system to the heterogeneous motives of different employees to enhance collective value creation and interfirm performance.
3.3 Focal Firm Orientation and the Multiple Value Perspective
The third category approaches value creation mainly from the focal firm perspective but recognises the social or environmental responsibilities of companies in addition to economic value creation. Most of the studies in this category recognised the need to expand the view of stakeholder value creation further and challenged the current paradigm to develop more sustainable business practices. In effect, most of the articles in this category had either explicit or implicit sustainability references. However, the conceptions of sustainability-related values were not coherent, as some of the studies solely examined environmental value, while others more broadly discussed social or stakeholder value considerations but without further specifying value conception. The common themes emerged around five narratives: (1) challenging the traditional corporate social responsibility (CSR) approach, (2) stakeholder identification and salience, (3) stakeholder management practices, (4) an expanded view of value creation, (5) environmental and sustainability management. In the following paragraphs, we will explain these five narratives in more detail.
3.3.1 The Narrative of Challenging the Traditional CSR Approach
The first narrative in this category criticises the traditional CSR and corporate social performance (CSP) approaches by aiming to understand responsible business practices through stakeholder theory (e.g., Clarkson 1995; Jamali 2008; Rowley and Berman 2000; Sachs and Maurer 2009; Smith and Rönnegard 2016). Sachs and Maurer (2009), for instance, argued that CSR research should move toward dynamic corporate stakeholder responsibility and should not artificially distinguish between economic and social responsibilities. Smith and Rönnegard (2016) even implied that stakeholder theory could be set as a paradigm for business and business responsibilities in the future. To challenge the traditional view of CSR, O’Riordan and Fairbrass (2014) provided a practical model for organisational decision-makers to conceive their firms as inherently linked with society and to address collective value creation for all stakeholders within the value chain. Furthermore, Margolis and Walsh (2003) encouraged researchers to set aside persistent attempts to explain the relationship between a firm’s social and economic performance and concentrate instead on the question of when firm activities could be beneficial to society. In addition, Kroeger and Weber (2014) introduced a conceptual framework to measure the benefits of social value creation.
Other CSR- and CSP-related studies concentrated on the effects of good CSP on accessing finance (Cheng et al. 2014), the stakeholder landscape and its impacts on the breadth of corporate social performance (Brower and Mahajan 2013), and differences in firms’ CSR responses to institutional pressures (Crilly et al. 2012). Moreover, some scholars studied firms’ identity orientation toward stakeholders in explaining CSP activity (Bingham et al. 2011), the effects of the sociocognitive factors of the top management team and organisational decision-making structures on corporate social performance (Wong et al. 2011), and the impacts of changes in CSP on financial performance (Ruf et al. 2001). Additionally, some articles scrutinised stakeholder reactions and stakeholder relationships. Crilly et al. (2016) examined stakeholder evaluations and reactions to the social responsibility activities of multinational corporations, while Madsen and Rodgers (2015) investigated stakeholder attention to firm CSR activities and its effects on corporate financial performance, and Bendheim et al. (1998) concentrated on the best practices in firm-stakeholder relationships.
3.3.2 The Narrative of Stakeholder Identification and Salience
Identifying relevant stakeholders is a special narrative within the stakeholder literature. Probably the best-known model of stakeholder identification and salience was presented by Mitchell et al. (1997), who defined three relationship attributes (i.e., power, legitimacy, and urgency) as relevant in defining stakeholder salience through managerial perception. To support this theory, Agle et al. (1999) found evidence for the attribute-salience relationships, while Bundy et al. (2013) examined how organisational identity and strategic frames guide managerial interpretations of issue salience. Whereas the studies mainly focused on manager-led processes of stakeholder identification, Tashman and Raelin (2013) suggested that stakeholder salience should move beyond managerial perceptions, as they might ignore important stakeholders due to market frictions. Other studies examined stakeholder identification based on the social identity of stakeholders (Crane and Ruebottom 2011), stakeholder salience in family business settings (Mitchell et al. 2011), stakeholder legitimacy (Phillips 2003), and the role of stakeholder culture in stakeholder-related decisions (Jones et al. 2007). Moreover, scholars have investigated firms’ responses to conflicting institutional demands (Pache and Santos 2010) and secondary stakeholder action (Eesley and Lenox 2006), instrumental and normative perspectives on understanding why firms respond to stakeholders (Welcomer et al. 2003), and stakeholder orientations of boards of directors (Wang and Dewhirst 1992).
3.3.3 The Narrative of Stakeholder Management Practices
In this narrative, attention is drawn to the stakeholder management practices of focal firms. Managerial cognition and its effects on stakeholder management was identified as a research gap in the stakeholder literature (Laplume et al. 2008) and was examined by various scholars (e.g., Crilly and Sloan 2012). Moreover, De Luque et al. (2008) showed how managers’ stakeholder and economic values relate to subordinates’ perceptions of leadership and firm performance. Minoja (2012) called for an ambidextrous approach for stakeholder management to ensure stakeholder cooperation and long-term firm performance, while Kaufman (2002) argued that stakeholder management approaches should include a double fiduciary duty consisting of loyalty to corporate stakeholders, as well as loyalty to fair bargaining and freedom. Organisational factors such as organisational architecture (Crilly and Sloan 2013) and enterprise strategy (Crilly 2013) were also identified as influencing stakeholder management practices. Wheeler et al. (2002) highlighted the difficulties an organisation might face when developing more stakeholder-responsive orientations related to environmental and social issues throughout the organisation. Meanwhile, Winn (2001) examined what a multiple stakeholder decision-making model would look like. Some articles paid attention to stakeholder activism, for example, through the study of CEO ideology and its effects on social activism (Briscoe et al. 2014), as well as through the examination of differences in firms’ responses to activism (Waldron et al. 2013).
3.3.4 The Narrative of an Expanded View on Value Creation
An expanded view of value creation was the fourth main narrative within this category. In this narrative, the traditional view of economic value creation is challenged, for instance, by arguing that value creation and capture, and what is of value are contingent and subjective, and these arguments should be considered in the research related to value creation and capture (Lepak et al. 2007). Haksever et al. (2004) showed how firms and their managers may, through their decisions, create or even destroy value for their stakeholders in different dimensions. The long-term success of the firms was sought by creating happiness and well-being for all stakeholders instead of following the objective function of shareholder wealth maximisation (e.g., Dierksmeier and Pirson 2009; Jones and Felps 2013a, b). Although the traditional view of the firm was challenged to a great extent, and business was suggested to be defined with regard to its ability to create common good (Shankman 1999), a strategic approach to social value creation was considered superior regarding social outcomes than a purely altruistic approach (Husted and de Jesus Salazar 2006).
Research on social entrepreneurship and social enterprises also took an extended view on value creation, by combining social problems with economic value creation. The studies investigated, for example, entrepreneurs’ motivation to engage in social entrepreneurship (Fauchart and Gruber 2011; Miller et al. 2012). It was even argued that the role of entrepreneurship in society should be defined as naturally considering blended value creation, including financial, social, and environmental aspects (Zahra and Wright 2015). McMullen and Warnick (2015) regarded the blended value creation objective at its best as an ideal model, which should not be normative or a legal obligation for all new entrepreneurial ventures. In effect, the tensions between social missions and business objectives were recognised, and stakeholder theory was seen as a possible solution to manage them (Smith et al. 2013).
3.3.5 The Narrative of Environmental and Sustainability Management
Over the years, stakeholder theorists have been arguing whether the natural environment should have a stakeholder status. Although nature has been ascribed a stakeholder status (Starik 1995) or even given primacy in the stakeholder identification and salience processes based on its relationship attribute of proximity (Driscoll and Starik 2004), it has been argued that the environment does not need a stakeholder status as environmental issues are considered through other legitimate stakeholders. (e.g., Phillips and Reichart 2000). In either case, stakeholder value creation studies have been widely interested in expanding the value creation to also include environmental issues.
Many scholars have shown interest in what drives companies toward environmentally friendly practices and how environmental friendliness is reflected in stakeholder relationships. Companies were regarded as changing their behaviour mostly due to external pressures from their operating environment. For example, Fineman and Clarke (1996) identified campaigners and regulators as external stakeholders that manage to evoke pro-environmental responses within companies. As managers were accused of perceiving corporate environmentalism and their firm’s relationship with the environment through an economic rationale that focuses on how environmental initiatives benefit the firm financially, regulatory forces and stakeholder activity were presented as central in advancing environmentally friendly activities (Banerjee 2001). Regarding climate change, the temporal orientations of managers were argued to be future-oriented but rely heavily on public policy development (Sarasini and Jacob 2014). It was even argued that companies would enter partnerships to address environmental problems (e.g., with the government) based on a threat or an opportunity and being dependent on a firm’s resources and positioning (Lin 2014).
Generally, environmental management was examined from three different perspectives. Some of the studies investigated the influences of external stakeholders on environmental management practices, for instance, by studying the effect of shareholder activists’ status and reputation on firm responsiveness to environmental issues (Perrault and Clark 2015), or more generally, stakeholder impacts on choosing environmental response patterns (Murillo-Luna et al. 2008). Meanwhile, other scholars focused on examining the internal factors affecting firm responses to environmental management. These studies shed light on a number of issues, such as entrepreneurs’ disengagement with pro-environmental values (Shepherd et al. 2013), the effects a firm’s size has on its stakeholder responsiveness and the adoption of proactive environmental strategies (Darnall et al. 2010), the determinants of multinationals’ global environmental policies (Christmann 2004), stakeholder management and proactive environmental strategies (Buysse and Verbeke 2003), the ecological responsiveness model (Bansal and Roth 2000), the influence of supervisory support and environmental policies on employees’ eco-initiatives (Ramus and Steger 2000), and the role of corporations in achieving ecological sustainability (Shrivastava 1995a, b). Finally, some studies examined environmental management and value creation from an institutional viewpoint by focusing on a number of topics, such as the role of national context in explaining how green innovation can enhance firm-level financial performance (Aguilera-Caracuel and Ortiz-de-Mandojana 2013), the legal environment and its effect on a firm’s self-regulation (Short and Toffel 2010), the effects of public and private politics on corporate climate change strategies (Reid and Toffel 2009), and community and regulatory stakeholder pressures and the environmental performance of companies (Kassinis and Vafeas 2006).
Studies focusing on sustainability management followed similar kinds of patterns and research interests as environmentally oriented studies. For example, Sharma and Henriques (2005) argued that the resources of a firm’s social, ecological, and economic stakeholders influence the adoption of sustainability practices. Hahn et al. (2014) were interested in how the cognitive frames of managers affect managerial sensemaking in sustainability issues, and Zollo et al. (2013) stated that sustainability research should direct attention toward companies’ internal learning and change processes instead of concentrating on external stakeholders. Furthermore, Gallo and Christensen (2011) highlighted that firm size, ownership, and industry are related to behaviours firms adopt regarding sustainability, and a longitudinal study of corporate sustainable development conducted by Bansal (2005) showed how both institutional and resource-based factors have influenced the adoption of firms’ sustainability activities.
Stakeholder theory and management practices were also criticised regarding sustainability. Gladwin et al. (1995) stated that attempting to adapt to sustainability while relying on the current anthropocentric worldview, which is the basis for most management theories, including stakeholder theory, is insufficient. Instead, a shift is needed to sustain centrism, which considers both environmental and social sustainability as important. According to Clifton and Amran (2011), the stakeholder approach fails in advancing sustainability both in terms of its normative principles and in management practices. Banerjee (2000) also expressed a critical viewpoint on sustainability-related issues and posited that current stakeholder theories and management practices follow Western economic rationality, which leads to neglecting marginalised stakeholders and their needs.
3.4 Stakeholder Orientation and the Multiple Value Perspective
This category consists of traditional stakeholder studies, which are built around the narrative of cooperative and trusting relationships between firms and their stakeholders (e.g., Donaldson and Preston 1995; Freeman 1984; Jones and Wicks 1999) with a broad view of value (e.g., Harrison et al. 2010; Harrison and Wicks 2013). However, our analysis revealed that the original design of stakeholder theory does not address broader sustainability issues, although some scholars argue that the theory could potentially be expanded due to its normative core, its consideration of those who affect and are affected by business, and its pluralistic nature. In effect, stakeholder theory’s applicability in sustainability management was advanced just recently (Hörisch et al. 2014). The sustainability-oriented approach is prominent in ecologically oriented studies, studies related to multi-stakeholder settings that address ‘wicked’ socioeconomic problems, and in more recent research streams, such as the development of sustainable business models.
Our analysis reveals that few articles explicitly discuss value considerations regarding sustainability. Although the researchers recognised the importance of stakeholder welfare and value creation beyond economic measures, the main focus was on those stakeholders who contribute to the value creation processes of organisations. This category consists of three narratives: (1) grounds for responsible business behaviour, (2) defining value, and (3) the principles and mechanisms of how value is created. In the following paragraphs, we will explain these three narratives in more detail.
3.4.1 The Narrative of Grounds for Responsible Business Behaviour
This narrative focuses on the intertwined connections between business and ethics and the role of business in society. While scholars argue for the grounds of responsible business from different perspectives, the primary focus is on determining why firms should engage in responsible business practices. For instance, Phillips (1997) relied on the principle of fairness, whereas Burton and Dunn (1996) built upon the principles of caring derived from feminist ethics. Various stakeholder theorists asserted that it is not meaningful to discuss business and ethics separately and that value creation and trade call for moral decision-making influenced by personal values (e.g., Freeman 2000; Harris and Freeman 2008; Purnell and Freeman 2012; Wicks 1996). Donaldson (1999) suggested that there are both ethical and economic reasons to address multiple stakeholder interests. Moreover, Harrison and Freeman (1999) argued that economic and social issues should be viewed jointly rather than separately, and Argandoña (1998) asserted that responsible business behaviour could rely on the objective of creating common good for all stakeholders.
Due to the environmental, social, and ethical challenges businesses face today, scholars also contend that it is necessary to expand management theory and business strategies to achieve more responsible business practices (Hahn et al. 2010; Strand and Freeman 2015). Gibson (2012) advocated promoting sustainability through stakeholder management and collaboration and perceived sustainability as the guiding principle in business. Indeed, scholars have noticed the growing interest in understanding sustainability and social responsibility within business contexts. Shrivastava (1995a, b) defined the main goals of ecocentric management as sustainability, quality of life, and stakeholder welfare. Additionally, Marcus et al. (2010) argued that, because of systemic limits and the existential dependency of business and society on nature, it is necessary to consider the natural environment in business-society relationships. However, only a few articles use sustainability objectives as justification for responsible behaviour. It is even argued that stakeholder theory connects to organisational ethics without intending to answer all moral questions, including those related to sustainability (Phillips et al. 2003). Nevertheless, stakeholder theory emphasises that business and ethics are inseparable, and many researchers have acknowledged the need for expanding the theory to include sustainability issues (e.g., Agle et al. 2008; Freeman 1994).
3.4.2 The Narrative of Defining Value
This narrative is devoted to defining what ‘value’ means within stakeholder value creation. Griesinger (1990) proposed a subjective viewpoint, arguing that individuals’ motivations for participating in cooperative exchange within organisational relationships are for reasons other than economic interests, such as interpersonal resources and the expectation of personal betterment. The subjective nature of value was also supported by Ramirez (1999), who stated that value cannot be defined by a single metric. Furthermore, Harrison and Wicks (2013) defined value as the utility that stakeholders seek from a company, concluding that stakeholders’ perceived utility consists of four factors, but these factors do not directly consider social or environmental concerns. Garriga (2014) viewed stakeholder utility and welfare through the lens of stakeholder capability and brought at least environmental concerns to direct attention through the capability of being green.
The special issue on stakeholder accounting in Journal of Management Studies published in 2015 further advanced stakeholder value considerations. In this issue, Hall et al. (2015) examined the use of social return on investment as an accounting methodology that allows managers to manage and communicate about the social value created for different stakeholders. Including different stakeholders in organisational decision-making was also considered important (ibid.). Mitchell et al. (2015) introduced a theory of value-creation stakeholder accounting, emphasising the role of stakeholder partnerships in value creation processes, as well as in sharing risks. Furthermore, Brown and Dillard (2015) presented dialogic accountings and related technologies as solutions to go beyond economically and managerially focused accounting practices to offer stakeholders all necessary information concerning organisational impacts related to environmental, political, cultural, economic, and financial value. Finally, it was posited that public accounting professionals should engage in the development of more responsible accounting practices that consider the variety of different stakeholders and provide them with information regarding their risk management needs (Harrison and Van der Laan Smith 2015).
3.4.3 The Narrative of Principles and Mechanisms of How Value Is Created
The most recent narrative of stakeholder value creation addresses the question of how value is created in cooperative relationships. Researchers have studied innovation in multi-stakeholder settings (Rühli et al. 2017), value creation in issue-based stakeholder networks (Schneider and Sachs 2015), collaboration among non-profit stakeholders (Butterfield et al. 2004), interdependencies of public and private interests (Mahoney et al. 2009), cross-sector partnerships (Dentoni et al. 2016; Koschmann et al. 2012), and value creation in public-private ventures (York et al. 2013). Moreover, scholars have studied the sensemaking of ethical complexity in a multi-stakeholder setting (Reinecke and Ansari 2015a); multi-stakeholder learning dialogues (Payne and Calton 2004); value creation at the intersection of markets and developments (Reinecke and Ansari 2015b); cooperation between nation-states, NGOs, and multinationals (Ansari et al. 2013); and multi-stakeholder partnerships in addressing climate change and sustainable development (Pinkse and Kolk 2012).
Recently, many scholars have focused on stakeholder value creation in multi-stakeholder settings that target wicked socioeconomic issues. For example, Rühli et al. (2017) found that the design of social interaction processes, such as participative stakeholder innovation in healthcare, is crucial for mutual value creation. Similarly, Schneider and Sachs (2015) proposed that the process of inductive identity salience supports cooperation and value creation within an issue-based stakeholder network. Additionally, Dentoni et al. (2016) argued that the dynamic capabilities of sensing, interacting with, learning from, and changing based on stakeholders are beneficial in cross-sector partnerships, as they may help to solve wicked sustainability issues.
Traditionally, researchers have linked successful stakeholder value creation to creating and maintaining mutually trusting and cooperative stakeholder relationships (e.g., Jones and Wicks 1999). Instead of concentrating on trade-offs, value creation involves stakeholders being able to jointly satisfy their needs (Freeman 2010). This line of thinking relies strongly on the principles of stakeholder capitalism, such as stakeholder cooperation, stakeholder engagement, and continuous creation (Freeman et al. 2007), as well as freedom and voluntary action (Freeman and Phillips 2002; Freeman et al. 2004). Harrison et al. (2010) emphasised that managing stakeholder utility functions and allocating more value to legitimate stakeholders than necessary are essential to enhance value creation opportunities. Moreover, Tantalo and Priem (2016) posited that, by concentrating on stakeholder synergy and stakeholders’ multi-attribute utility functions, novel and innovative value creation possibilities can be identified, and versatile value can be created for several stakeholders simultaneously. More recently, Mitchell et al. (2016) suggested the reconceptualisation of companies as multi-objective corporations in which managers can consider better social welfare when making decisions.
Various studies on stakeholder value creation emphasised the importance of justice and trust in stakeholder relationships (e.g., Bosse et al. 2009; Harrison et al. 2010; Myllykangas et al. 2011). Bosse et al. (2009) asserted that firms whose stakeholders perceive them as fair create more value based on reciprocal relationships and cooperation. Additionally, Myllykangas et al. (2011) found that trust, along with the potential of stakeholders to learn, the history of the relationships, the objectives of the stakeholders, and the amount of interaction and information sharing in the relationships, influence the dynamics of stakeholder relations and value creation. Researchers have also acknowledged the use of language in shaping stakeholder relationships and their dynamics (Lehtimaki and Kujala 2015; Prasad and Elmes 2005). Brickson (2005, 2007), in contrast, argued that one’s orientation toward social value creation and stakeholder relations varies according to one’s organisational identity orientation, resulting in an individualistic identity orientation with a motivational basis in organisational self-interest, a relational identity orientation with a motivational basis in another’s benefits or a collectivistic identity orientation with a motivational basis in the welfare of a greater collective. The role of firms’ internal change agents in enhancing social value creation (Sonenshein 2016) and the importance of incorporating responsibility and the creation of shared value to a firm’s everyday operations (Szmigin and Rutherford 2013) have also been emphasised.
Studies connecting value creation directly to sustainability drew attention, for example, to multilevel and multi-systemic organisational relationships (Starik and Rands 1995), the importance of firms addressing the complex nature of climate change through interconnections and collaboration (Slawinski and Bansal 2015), the necessity of stakeholder relations management to tackle economic, social, and environmental stakeholder claims (Steurer et al. 2005), and responsible leadership understood as a relational and moral phenomenon in which leaders create mutually beneficial relationships with their stakeholders, enabling the creation of social capital that contributes to both business and the common good (Maak 2007). Furthermore, Hörisch et al. (2014) argued that companies need to concentrate on developing sustainability as a common value for their stakeholders.
As cooperation around sustainability often meets certain challenges and conflicts while also being beneficial for all parties, paying attention to firm-stakeholder relationships and analysing why and how these relationships change is regarded as important (Friedman and Miles 2002). The studies related to sustainable strategic management and sustainable business models present concrete approaches to sustainability, advancing management theory at both the strategic and operational levels of sustainability. Dyllick and Muff (2015) approached the strategic level of sustainable business by defining a truly sustainable business as a business that ‘shifts its perspective from seeking to minimise its negative impacts to understanding how it can create a significant positive impact in critical and relevant areas for society and the planet’. Collaborative strategies, including social and environmental value considerations, are regarded as central for sustainable value creation at the strategic level (e.g., Tencati and Zsolnai 2009; Stead and Stead 2000). Furthermore, Stead and Stead (2013) defined sustainable strategic management activities to consider different needs in the global markets and emphasised the role of business ecosystems in creating social, environmental, and economic value within undeveloped, developing, and developed markets.
Stubbs and Cocklin (2008) wrote the seminal article on sustainable business model conceptualisation, arguing that organisations need to move beyond neoclassical economic assumptions and strive for sustainability and collaboration with key stakeholders by developing their internal structural and cultural capabilities. More recently, Upward and Jones (2015) defined an ontology for strongly sustainable business models that provides guidelines for the development of an entire enterprise aligned with the social and natural sciences. Business model transformations were called for, requiring changes in a firm’s value proposition considering all stakeholders, as well as a firm’s value creation and capture logics (Abdelkafi and Täuscher 2016; Schaltegger et al. 2016) Finally, it is argued that distinct, random solutions to sustainability are not enough; rather, a fundamental shift is necessary for defining the purpose of a business and its value creation logic, which would hence redefine the business model for sustainability (Gauthier and Gilomen 2016). Purpose-driven urban entrepreneurship aiming to enhance the quality of life of citizens locally (e.g., Cohen and Muñoz 2015) and hybrid organisations drawing attention from profits and growth to social and environmental systems (e.g., Haigh and Hoffman 2014) are examples of truly sustainable and collaborative business models.
On a meta-level, researchers have argued that responsible value creation with and for stakeholders requires changes in the mindsets of organisational and academic actors (e.g., Buchholz and Rosenthal, 2005; Derry 2012). Researchers argue that, by questioning the dominating stakeholder models and changing the language and narratives we use to describe business and stakeholders, it is possible to expand the view of different stakeholders and their needs (Derry 2012; Jensen and Sandström 2013). For example, Hummels (1998) criticised the domination of manager-oriented perspectives, stating that the primary job of managers is to facilitate debates between stakeholders with different positions and interests to obtain satisfying and sustainable outcomes. Buchholz and Rosenthal (2005) proposed that to create nurturing and harmonious relationships with stakeholders, organisations should not see themselves as separate or isolated from their stakeholders. Similarly, Derry (2012) called for scholars to carefully consider research models and questions in the context of sustainability to challenge the traditional firm-centric and manager-oriented perspectives. Finally, Waddock (2011) suggested that the Earth should be the focal entity that all living beings and ecosystems are dependent on, and she perceived them as the stakeholders of the Earth. She concluded that to advance sustainability, the interdependencies between all stakeholders and the Earth should be given much more emphasis and thought in business (ibid.).
The presented categorisation and the related narratives on stakeholder value creation show that organisational scholars have paid a lot of attention to stakeholder relationships and collaboration and acknowledged the importance of these factors in creating economic, social, and environmental value. They have also examined multi-stakeholder settings and systems, especially within the sustainability-related studies. However, this study shows that, while researchers have approached stakeholder value creation from many different perspectives, there is no coherent conception of how sustainability issues should be defined and addressed when studying value creation in business contexts. Hence, the narratives of stakeholder value creation studies differ in both depth and breadth, especially in relation to sustainability. Therefore, we suggest that the presented narratives can offer scholars from different organisation research streams a possibility to become aware of the strengths and weaknesses of their own and others’ approaches and theories and gain insights from different research streams regarding stakeholder value creation and sustainability.
This chapter indicates, first of all, that scholars can examine and conceive stakeholder value creation through either a strong focal firm orientation or a more stakeholder-orientated approach. The focal firm orientation emphasises the central role of a firm in managing stakeholder relationships to either benefit the firm and its economic commitments or create value for various stakeholders and contribute to social and environmental well-being. Stakeholder orientation, in turn, draws attention to the importance of stakeholder cooperation and relationship dynamics within value creation for either mainly economic reasons or broader value creation purposes. In either case, most of the studies on stakeholder value creation still follow the current economic paradigm and anthropocentric worldview, which do not question the dominating position of traditional economic performance assumptions behind business success and human-centric starting points.
As the presented narratives have illustrated, there is great variance in understanding and defining stakeholder value creation, as well as value itself, in the previous literature. Stakeholder value creation studies vary between narrow and broad conceptualisations of who creates value, what kind of value is created, and with and for whom it is created. For example, researchers regard value creation differently depending on whether the value benefits stakeholders who contribute to firm value creation processes or stakeholders who otherwise affect or are affected by a firm’s operations. Financial measures can help define stakeholder value, but the definition of stakeholder value often considers nonfinancial values or even extends further to social, environmental, or sustainable value considerations.
Moreover, our analysis shows that there is no common conceptualisation of sustainability issues or social responsibilities of business within stakeholder value creation studies. The stakeholder approach, in its original form, did not address the complex sustainability issues but instead aimed to illustrate possibilities for effective, responsible management of companies beyond shareholder value maximisation. Hence, sustainability is not a matter of interest in many stakeholder studies. However, it is important to note that most stakeholder value creation studies refer to or incorporate sustainability or social responsibility to some extent. The continuously increasing interest in sustainability and the role of business in responding to sustainability challenges puts organisational scholars in a position where they need to embrace sustainability. Thus, scholars need to decide whether they want to participate in discussion and theory development regarding sustainable business.
If the variance between narratives within stakeholder value creation studies is taken into the context of sustainability (i.e., sustainability is considered as if it mattered) the following questions become crucial: What does “stakeholder value creation” mean in the context of sustainability? What does sustainable “value” mean, and whom does it benefit? How should we perceive and understand sustainability and sustainable value creation? Moreover, researchers should closely consider and explicate which value creation narrative and assumptions they relate and contribute to. As many sustainability-focused value creation studies highlight, the current Western, economic, and firm-centric paradigm serves sustainability-oriented value creation poorly. This problem creates a need to question current stakeholder value creation approaches and identify influences from, for example, studies concentrating on systemic approaches and sustainable business models. Such studies have managed to challenge the current economic paradigm by incorporating sustainability into the core of the business models and value creation, expanding the views of different actors in sustainable value creation, highlighting the importance of collective effort and collaboration, and accepting the complexities and contradictories inherent in sustainability to enhance their management.
Sustainability management may also require researchers to question and redefine the role and purpose of the firm and its dominating position within value creation research. This proposition creates a call for transformational thinking in both business practice and research. As this study shows, researchers do not define sustainability univocally within business studies. To develop management theories for true sustainability, which considers the complex social, environmental, and economic challenges touching both current and future generations locally and globally, we must see the variances in current definitions and strive for more common and shared definitions of the firm and its role in society.
Our study also has some managerial implications. First, the presented categorisation and narratives related to stakeholder value creation reveal the breadth of management theories and approaches that guide and influence business decision-makers in their strategic and operational-level business conduct. Stakeholder value creation studies highlight the possible unproductive effects of the shareholder maximisation objective and the firm-centric approach, and these studies show how to view business strategically from stakeholder perspectives, too. Moreover, most of the stakeholder value creation studies encourage managers to examine the moral value considerations inherent in business decisions and take a stand on what kind of role their business plays within stakeholder networks, in either a narrow or broad sense. Additionally, some studies provide managers with ideas on how to conceive value creation through stakeholder networks instead of traditional value chain thinking. Many studies also offer examples of how to promote and manage stakeholder cooperation within these networks.
Regarding sustainable business practices, our study shows how the realities and objectives of traditional business firms differ from the realities and objectives of those who promote, for example, environmental sustainability. Many studies offer insights and tools for managers to, first of all, examine their own behaviour inside their firms and participate more efficiently in discussions and activities to promote sustainability. At the strategic level, firms and their managers can choose how they want to participate in enhancing sustainability and organise firm operations accordingly. For example, research on sustainable business models has described how companies can transform their business models at both the strategic and operational levels. Furthermore, studies on the dynamics in multi-stakeholder settings give guidance on how to manage and promote cooperation between different actors within blurring organisational boundaries. In sum, firm managers can decide to participate in the long-term development of their business models to correspond with the objectives of sustainable development based on either moral or business reasons, or they may reap all the benefits now and let regulations and other external factors influence the future state of their business.
This study has at least the following limitations. First, as the objective was to conduct a research review, we have scrutinised a broad range of journal articles and showed example studies from the various narratives. This process has both advantages and disadvantages. It brings together a great deal of research around the selected theme, but it does not necessarily further deepen and advance the discussions. However, we have attempted to find the most topical issues from the vast amount of literature and elucidate directions for future research avenues accordingly. Moreover, we admit that there certainly are alternatives to our inductively developed categorisation and the narratives we have identified. Yet, our objective was not to make the categorisation normative or recommend its use in the future but to present the studies and their perspectives within this research theme for readers. Whether we have succeeded in achieving this objective remains up to the reader’s justification. Finally, the task of analysing sustainability views in each study turned out to be quite challenging, which confirmed the arguments presented in earlier studies that the definition and understanding of business sustainability are not unequivocal, and therefore, more research needs to be done in this important field.
The purpose of this study was to examine distinctive narratives of stakeholder value creation and discuss how they consider sustainability. Based on an extensive research review spanning over three decades of material, we contribute to the stakeholder value creation literature and advancement of social responsibility and sustainability in business by showing how stakeholder theory as a management theory provides us with different approaches to value creation, depending on their orientation towards stakeholders (i.e., focal firm vs. stakeholder orientation), and value (i.e., the economic perspective vs. the multiple value perspective). While the study reveals an increased interest in sustainability issues and their more coherent incorporation into stakeholder research in recent years, the study also extends our knowledge of the existing variance within this research stream and the different narratives a chosen approach generates about stakeholders, value creation, and sustainability. The different approaches used in the research naturally lead to affecting the development of conventional management theory and business practices in different ways. Hence, with our research, we implicitly or explicitly participate in developing business language, which either increases or decreases business involvement in tackling social responsibility and sustainability issues.
As sustainability is the most important aspect affecting our society and planet today, it requires stronger involvement from businesses and organisations and positive solutions instead of trade-offs or minimising strategies. Therefore, we renew the calls to challenge existing stakeholder research to involve sustainability more consistently and reframe the purpose towards addressing sustainability objectives in value creation. We suggest that, with respect to sustainability, future research should consider the dynamic, systemic, and multilevel nature of stakeholder relationships and collaboration. Moreover, a more versatile understanding of value and value creation, as well as a broader understanding of stakeholders and their needs, should be incorporated into future research. To conclude, the conceptualisation of sustainability, the normative core of sustainable business, and elaboration on the purpose and role of business regarding sustainability serve as important and interesting focus areas for future research.
The authors gratefully acknowledge the financial support from the Academy of Finland (Decision no. 298663).
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