Abstract

Stakeholder theory focuses on how more value is created if stakeholder relationships are governed by ethical principles such as integrity, respect, fairness, generosity and inclusiveness. However, it has not adequately addressed strategies that stakeholders perceive as harmful to their interests and how this perception can even lead some stakeholders to view the firm’s strategies as unethical. To fill the void, this paper directly addresses strategies that stakeholders perceive as harmful to their interests, or what we refer to as harmful stakeholder strategies. Specifically, it identifies factors associated with stakeholder perceptions of harm that are likely to cause them to consider a strategy unethical, examines the negative implications for firms that pursue such strategies in terms of likely stakeholder responses and damage to stakeholder relationships, and provides theory to help explain how firms are likely to respond to stakeholder claims that a strategy is unethical, based on factors such as the strategic importance of the claim to the firm, how long the strategy has been in use, the costs of remediation, the risk of stakeholder mobilization or new regulation, and whether firms can reasonably rationalize their actions. Assessing harm allows a firm to make a more accurate estimate of the costs of a strategy and can assist managers in allocating resources intended to reduce or remediate harm.