In this short video, Professor Thomas M. Jones, Boeing Endowed Professor of Business Administration at the University of Washington, discusses one of the main challenges for stakeholder theory: convincing people that better stakeholder relationships can improve economic performance as well as support ethical business behaviour.
Jones argues that stakeholder theory is fundamentally about relationships. The value of the theory is not only in identifying different stakeholder groups, but in improving the quality of the relationships between the organisation and its stakeholders.
Video interview with Professor Jones on the challenges for stakeholder theory
What is the main challenge for stakeholder theory?
The main challenge for stakeholder theory is persuading managers, investors and organisations that strong stakeholder relationships can create real economic value. Many people understand the moral argument for treating stakeholders well, but they may be less convinced by the business argument.
Professor Jones suggests that stakeholder theory needs to make a more compelling case that good relationships with employees, customers, suppliers, communities and other stakeholders can improve the financial performance of a firm. In other words, the challenge is to show that a company can be both ethical and economically successful.
Stakeholder theory is about relationships
Stakeholder theory is sometimes misunderstood as a simple list of groups that a business should consider. However, Jones emphasises that stakeholder theory is really about relationships. The important issue is not just who the stakeholders are, but how the organisation works with them.
For example, a company may have relationships with:
- suppliers who provide goods, services or expertise;
- customers who buy and use its products or services;
- employees who deliver the work and represent the organisation;
- shareholders or investors who provide financial support;
- local communities affected by the organisation's decisions;
- regulators, partners and other organisations that influence how the company operates.
The quality of these relationships can affect trust, reputation, innovation, risk, cooperation and long-term performance.
The economic challenge for stakeholder theory
One of the criticisms of stakeholder theory is that it can appear to be mainly ethical or moral. Critics may ask whether paying attention to stakeholders distracts managers from the economic purpose of the firm.
Jones's response is that better stakeholder relationships can also produce economic benefits. For example, trusted suppliers may be more willing to support a company during difficult periods. Employees who feel respected may be more committed and productive. Customers who trust a company may be more loyal. Communities that view a company positively may be more supportive of its activities.
This does not mean every stakeholder demand should be accepted. It means that organisations should understand how stakeholder relationships affect long-term value creation.
The moral challenge for stakeholder theory
Stakeholder theory also has a moral challenge. It asks organisations to consider the effect of their decisions on people and groups beyond shareholders alone. This can be difficult because different stakeholders may have competing interests.
For example, a decision that benefits shareholders in the short term may create problems for employees, customers or communities. A decision that benefits customers may increase pressure on suppliers or staff. A stakeholder approach requires managers to recognise these tensions and make more balanced decisions.
The moral challenge is not simply to be nice to everyone. It is to take stakeholder interests seriously and to manage relationships in a fair, responsible and transparent way.
Why the hub and spoke model matters
In the transcript, Jones refers to the hub and spoke model of stakeholder theory. In this model, the organisation sits at the centre, with different stakeholder groups connected to it like spokes on a wheel.
This model is useful because it shows that the organisation is not isolated. Its success depends on the strength of the connections between the firm and its stakeholders. The relationship between the organisation and each stakeholder group can create value, reduce risk or generate conflict.
However, a limitation of the simple hub and spoke model is that stakeholders also have relationships with each other. Employees talk to customers. Suppliers affect product quality. Communities influence reputation. Regulators affect operating freedom. A more mature stakeholder approach looks at the whole network of relationships, not just the direct relationship between the company and each stakeholder.
What project managers can learn from this challenge
The same challenge appears in project management. Project managers often know that stakeholder engagement is important, but they still need to prove its value in practical terms. Senior managers may ask why time should be spent on stakeholder analysis, consultation, communication and engagement.
The answer is that good stakeholder relationships can reduce project risk and improve delivery. Projects are more likely to succeed when stakeholders understand the purpose of the work, feel listened to, raise issues early and support the final outcome.
For project managers, stakeholder theory is useful because it encourages them to look beyond the project sponsor. Important stakeholders may include end users, operational teams, finance, suppliers, support teams, compliance teams, senior managers and people affected by the change.
Practical ways to address the challenges of stakeholder theory
Organisations and project teams can address the challenges of stakeholder theory by making the benefits of stakeholder relationships more visible. This means moving from vague statements about engagement to practical evidence of value.
Useful actions include:
- mapping key stakeholders and understanding their interests;
- recording stakeholder issues, risks and concerns;
- tracking how stakeholder feedback affects decisions;
- measuring customer, employee or supplier satisfaction where appropriate;
- identifying risks that were avoided because stakeholders were consulted early;
- communicating clearly when stakeholder feedback has changed the project or business decision;
- showing how stronger relationships support long-term performance.
Questions raised by the video
Professor Jones's comments raise several useful questions for managers, students and project teams:
- How do stakeholder relationships create economic value?
- Can a company make money and act responsibly at the same time?
- Which stakeholder relationships matter most to long-term success?
- How can the benefits of stakeholder management be measured?
- What happens when stakeholder interests conflict?
- How can managers balance shareholder expectations with wider stakeholder responsibilities?
Summary
The key challenge for stakeholder theory is showing that it is not only morally attractive, but also economically practical. Professor Jones argues that stakeholder theory is about improving relationships between firms and stakeholders. Those relationships can create both economic and moral benefits.
For businesses and projects, the lesson is clear: stakeholder relationships should not be treated as a soft extra. They are part of how organisations create value, manage risk and build long-term success.
Video transcript - Challenges for stakeholder theory
Transcript lightly edited for readability.
"I think the biggest challenge with respect to stakeholder theory is getting people to understand that economic value can be enhanced by making these relationships work better.
Stakeholder theory, as I said in answer to probably more than one earlier question, is about relationships.
The hub and spoke model of stakeholder theory is about the lines between the core of the company and the stakeholders. These relationships are where economic and moral improvements can be made.
I think that the biggest challenge with respect to stakeholder theory is convincing people that those economic benefits do in fact exist.
It has to do with making a more compelling case for the economic benefits of good firm-stakeholder relationships.
That's the way to go: that you can make money and be good, maybe make more money than you would otherwise."
References and further reading
- Corporate Ethics YouTube channel.
- Business Roundtable Institute for Corporate Ethics: Thomas M. Jones, www.corporate-ethics.org/thomas-m-jones/.