1. Introduction

Modern organisations operate in an environment that is shaped not only by markets and competition but also by social expectations, ethical standards, and environmental responsibilities. Strategic management has therefore expanded beyond a narrow focus on profit maximisation to include the interests of a wide range of stakeholder groups and the organisation’s responsibility towards society. Two concepts that reflect this development are stakeholder theory and corporate social responsibility (CSR).

Stakeholders are individuals or groups that can affect or are affected by the achievement of an organisation’s objectives (Freeman, 1984). Corporate social responsibility refers to the obligation of organisations to consider the social and environmental consequences of their actions in addition to their economic performance (Carroll, 1991). Together, these concepts redefine the purpose of organisations and influence how strategies are formulated and implemented.

Traditionally, business strategy focused primarily on shareholders and financial returns. However, globalisation, climate change, social inequality, and corporate scandals have increased public scrutiny of business behaviour. Companies are now expected to demonstrate ethical conduct, transparency, and sustainability (Porter and Kramer, 2011). As a result, stakeholder management and CSR have become central components of strategic decision-making rather than optional add-ons.

This article explores the role of stakeholders and CSR within strategic management. It examines the theoretical foundations of stakeholder theory, the evolution of CSR, and their integration into organisational strategy. It also discusses the strategic value of CSR, its application in practice, and its relevance for startups and small and medium-sized enterprises (SMEs). While recognising limitations and criticisms, the article argues that stakeholder orientation and CSR are essential for long-term organisational success in contemporary business environments.

2. Stakeholder Theory: Concept and Development

2.1 Definition of Stakeholders

The concept of stakeholders was formally introduced by Freeman (1984), who defined stakeholders as “any group or individual who can affect or is affected by the achievement of an organisation’s objectives.” This definition broadened the traditional view of business responsibility beyond shareholders to include employees, customers, suppliers, governments, communities, and environmental groups.

Stakeholder theory challenges the shareholder primacy model, which assumes that the main purpose of a business is to maximise shareholder wealth (Friedman, 1970). Instead, it argues that organisations depend on relationships with multiple groups and must manage these relationships strategically to survive and grow.

Stakeholders can be classified into different categories:

  • Internal stakeholders: employees, managers, and owners.

  • External stakeholders: customers, suppliers, competitors, regulators, communities, and society at large.

  • Primary stakeholders: those essential for organisational survival (customers, employees, investors).

  • Secondary stakeholders: those who influence or are influenced by the organisation but are not essential for survival (media, NGOs, pressure groups) (Clarkson, 1995).

This classification helps organisations prioritise stakeholder interests and allocate resources effectively.

2.2 Normative, Instrumental and Descriptive Perspectives

Stakeholder theory can be understood from three main perspectives (Donaldson and Preston, 1995):

  1. Normative perspective
    This view argues that organisations have a moral obligation to consider stakeholder interests because it is ethically right to do so. Businesses are seen as social institutions with responsibilities beyond profit generation.

  2. Instrumental perspective
    This perspective suggests that managing stakeholders well leads to better financial performance, reputation, and long-term sustainability. Stakeholder engagement is therefore a means to achieve organisational objectives.

  3. Descriptive perspective
    This approach describes how organisations actually behave in practice by observing relationships with stakeholders and how decisions are made.

Together, these perspectives show that stakeholder theory is both a moral framework and a strategic tool.

3. Corporate Social Responsibility (CSR)

3.1 Definition of CSR

Corporate social responsibility refers to the responsibility of organisations to act ethically and contribute to economic development while improving the quality of life of employees, communities, and society as a whole (World Business Council for Sustainable Development, 1999).

Carroll (1991) proposed a widely accepted model of CSR based on four layers:

  1. Economic responsibility – to be profitable.

  2. Legal responsibility – to obey the law.

  3. Ethical responsibility – to do what is right and fair.

  4. Philanthropic responsibility – to contribute to society.

This pyramid shows that profitability remains important, but it is not the only responsibility of business.

CSR has evolved from charitable donations to a more integrated strategic concept that includes environmental sustainability, human rights, diversity, and corporate governance (Crane et al., 2014).

3.2 CSR and Sustainability

CSR is closely linked to sustainability and the concept of the “triple bottom line,” which measures organisational performance in three dimensions: economic, social, and environmental (Elkington, 1997).

Sustainability requires organisations to meet present needs without compromising the ability of future generations to meet their own needs (Brundtland Commission, 1987). This perspective has influenced modern strategy by encouraging long-term thinking rather than short-term profit maximisation.

Many organisations now publish sustainability reports and align their strategies with global frameworks such as the United Nations Sustainable Development Goals (UN, 2015).

4. Stakeholders and CSR in Strategic Management

4.1 Integration into Strategy

Stakeholders and CSR are no longer separate from core strategy. They shape how organisations define their mission, vision, and objectives (Johnson et al., 2017). Strategic decisions such as market entry, product development, and supply chain management increasingly consider social and environmental impacts.

Porter and Kramer (2011) introduced the concept of Creating Shared Value (CSV), which argues that organisations can achieve competitive advantage by addressing social problems through business models. For example, investing in sustainable supply chains can reduce costs while improving community welfare.

This approach reframes CSR as an opportunity for innovation rather than a cost or constraint.

4.2 Competitive Advantage and Reputation

CSR contributes to competitive advantage by enhancing organisational reputation and trust. Consumers are more likely to support companies that demonstrate ethical behaviour and environmental responsibility (Kotler and Lee, 2005). Employees are also more motivated to work for organisations that align with their values (Turker, 2009).

From a resource-based view, reputation and organisational culture are intangible assets that are difficult for competitors to imitate (Barney, 1991). Stakeholder engagement strengthens these assets and supports long-term success.

5. Stakeholder Mapping and Analysis

Organisations use stakeholder analysis tools to identify and prioritise stakeholder groups. One common method is the power-interest matrix, which categorises stakeholders based on their influence and level of interest (Mendelow, 1991).

Stakeholders can be grouped as:

  • High power, high interest: manage closely.

  • High power, low interest: keep satisfied.

  • Low power, high interest: keep informed.

  • Low power, low interest: monitor.

This structured approach allows organisations to develop targeted engagement strategies and manage potential conflicts between stakeholder interests.

6. CSR in Practice: Key Areas

CSR strategies typically focus on several practical areas:

6.1 Environmental Responsibility

Includes reducing carbon emissions, waste management, renewable energy use, and sustainable sourcing (Crane et al., 2014).

6.2 Social Responsibility

Involves fair labour practices, health and safety, diversity and inclusion, and community development.

6.3 Ethical Responsibility

Relates to transparency, anti-corruption policies, and responsible marketing.

6.4 Economic Responsibility

Ensures long-term financial stability while contributing positively to society.

These dimensions demonstrate that CSR is not limited to philanthropy but integrated into business operations.

7. Stakeholders and CSR in Startups and SMEs

For startups and SMEs, stakeholder management and CSR may appear secondary to survival and growth. However, they are increasingly important for building legitimacy, attracting investors, and gaining customer trust (Spence, 2016).

Startups often embed social and environmental missions into their business models from the beginning. Social enterprises, for example, explicitly combine profit and social impact. CSR in SMEs is usually informal and driven by owner values rather than formal policies.

Lean Startup theory suggests that stakeholder feedback and learning are essential for innovation and adaptation (Ries, 2011). This aligns closely with stakeholder theory’s emphasis on dialogue and engagement.

8. Challenges and Tensions (preview – continued in Part 2)

Despite their benefits, stakeholder management and CSR involve tensions between profitability and social goals, between different stakeholder demands, and between short-term performance and long-term sustainability. Critics argue that CSR may be used as a marketing tool rather than a genuine commitment (Banerjee, 2008).

These issues will be explored in depth in Part 2, together with:

  • Criticisms and limitations

  • CSR measurement and reporting

  • Strategic implementation models

  • Case examples

  • Strategic implications

  • Conclusion

  • Executive Summary

  • Full OBU Harvard References list

8. Challenges and Tensions in Stakeholder Management and CSR

Despite their growing importance, stakeholder management and CSR present several challenges for organisations. One major tension lies between economic objectives and social or environmental goals. Businesses must remain profitable while responding to stakeholder demands that may increase costs, such as paying fair wages, investing in environmentally friendly technologies, or ensuring ethical supply chains (Crane et al., 2014).

Another challenge arises from conflicting stakeholder interests. For example, shareholders may seek short-term profits, while employees may prioritise job security and communities may demand environmental protection. These competing expectations make strategic decision-making complex (Freeman et al., 2010). Managers must therefore balance trade-offs and make choices that do not satisfy all stakeholders equally.

CSR also faces criticism for being symbolic rather than substantive. Banerjee (2008) argues that some organisations use CSR mainly as a marketing tool to improve public image rather than to change harmful business practices. This phenomenon is often referred to as “greenwashing,” where companies exaggerate their environmental or social contributions without meaningful impact.

Measurement presents another difficulty. Unlike financial performance, social and environmental outcomes are harder to quantify. This makes it challenging to evaluate whether CSR initiatives genuinely contribute to organisational and societal goals (Porter and Kramer, 2011). Without clear indicators, CSR risks becoming vague and disconnected from strategy.

9. CSR Measurement and Reporting

To address these challenges, organisations increasingly rely on formal CSR measurement and reporting systems. Sustainability reporting has become a key mechanism for communicating CSR performance to stakeholders. These reports typically include data on environmental impact, labour practices, community engagement, and governance structures (Crane et al., 2014).

International frameworks such as the Global Reporting Initiative (GRI) and the UN Global Compact provide guidelines for CSR disclosure. These standards aim to improve transparency and comparability across organisations (GRI, 2020). Many large firms now integrate CSR metrics into their annual reports alongside financial data.

The concept of Environmental, Social and Governance (ESG) criteria has also gained importance in investment decisions. Investors increasingly evaluate companies based on ESG performance as well as financial returns (Eccles et al., 2014). This development demonstrates that CSR is becoming economically relevant, not just ethically desirable.

However, reporting systems may still suffer from inconsistency and selective disclosure. Organisations often highlight positive outcomes while downplaying failures. This reinforces the need for independent auditing and regulation to ensure credibility and accountability (Gray, 2010).

10. Strategic Implementation of Stakeholder and CSR Approaches

For CSR and stakeholder management to be effective, they must be integrated into core business strategy rather than treated as separate programmes. Johnson et al. (2017) argue that strategy should incorporate social and environmental considerations at every stage of decision-making, from mission formulation to operational planning.

10.1 Embedding CSR into Vision and Mission

Organisations increasingly include CSR principles within their vision and mission statements. This signals commitment to ethical conduct and sustainability and shapes organisational culture. For example, companies such as Patagonia explicitly link business success with environmental protection.

Embedding CSR at this level ensures that it influences strategic choices rather than remaining a peripheral activity.

10.2 Stakeholder Engagement Processes

Effective stakeholder management requires continuous dialogue rather than one-way communication. Engagement methods include consultations, surveys, partnerships, and community forums (Freeman et al., 2010). These processes allow organisations to understand stakeholder expectations and reduce conflict.

Stakeholder engagement also supports innovation. By listening to customers and communities, organisations can identify unmet needs and develop new products or services that create shared value (Porter and Kramer, 2011).

10.3 Organisational Structures and Governance

CSR implementation often requires dedicated roles or departments, such as sustainability officers or ethics committees. Corporate governance frameworks play a key role in ensuring accountability and oversight (Tricker, 2019).

Codes of conduct, ethical guidelines, and training programmes reinforce CSR principles and align employee behaviour with strategic objectives. Without such structures, CSR remains symbolic rather than operational.

11. Case Illustrations (Generalised Examples)

Although specific company cases vary, several general patterns can be observed:

11.1 Environmental Sustainability Strategy

Many manufacturing firms adopt renewable energy and waste reduction initiatives to reduce environmental impact. These actions lower long-term costs and enhance reputation, illustrating how CSR can support competitive advantage (Porter and Kramer, 2011).

11.2 Social Enterprise Models

Social enterprises integrate profit and social purpose from the beginning. Their business models explicitly address social problems such as poverty, education, or healthcare. This demonstrates that CSR can be embedded into organisational identity rather than added later.

11.3 Technology Firms and Data Ethics

Digital companies increasingly face stakeholder concerns about data privacy and algorithmic bias. Ethical responsibility has therefore become a strategic issue rather than a technical one. Transparent data policies help build trust and legitimacy.

These examples show that CSR strategies differ across industries but share a common focus on stakeholder expectations and long-term value creation.

12. Strategic Implications

Stakeholder management and CSR influence all levels of strategy. At the corporate level, they shape organisational purpose and reputation. At the business level, they affect competitive positioning and customer relationships. At the functional level, they guide operational practices such as supply chain management and human resources policies.

CSR also interacts with other strategy tools. PESTEL analysis highlights environmental and legal pressures that drive CSR adoption. SWOT analysis identifies reputational strengths and ethical risks. Porter’s Five Forces is influenced by regulatory and social constraints that shape industry competition.

Thus, stakeholders and CSR provide a unifying perspective that connects ethical responsibility with strategic analysis and implementation.

13. Limitations and Critical Perspectives

While stakeholder theory and CSR have gained wide acceptance, they remain controversial. Friedman (1970) famously argued that the only social responsibility of business is to increase profits within the rules of the game. From this view, CSR distracts managers from their primary economic role.

Other critics argue that CSR lacks clear accountability and may undermine democratic processes by allowing corporations to define social priorities (Banerjee, 2008). There is also concern that CSR initiatives may be inaccessible to smaller firms due to cost and complexity.

Nevertheless, contemporary research increasingly suggests that ethical and social considerations are inseparable from long-term strategic success (Eccles et al., 2014).

14. Conclusion

Stakeholders and corporate social responsibility represent a fundamental shift in how organisations understand their role in society. Rather than focusing solely on shareholders and profits, modern strategic management recognises that long-term success depends on building trustful and sustainable relationships with multiple stakeholder groups.

This article has examined the theoretical foundations of stakeholder theory and CSR, their integration into strategic management, and their practical applications. It has shown that CSR is not merely a moral obligation but also a strategic resource that enhances reputation, legitimacy, and competitive advantage.

Although challenges exist, including measurement difficulties and potential misuse as a marketing tool, the strategic value of stakeholder engagement and CSR continues to grow. In an era of environmental crisis, social inequality, and technological disruption, organisations that ignore stakeholder expectations risk losing legitimacy and long-term viability.

Stakeholders and CSR therefore constitute essential components of contemporary strategy frameworks. They provide the ethical and social context within which analytical tools and competitive strategies must operate. As part of the broader Strategy Tools series, this topic prepares the ground for subsequent discussions of governance, external analysis, and strategic decision-making.

Executive Summary

Stakeholders and Corporate Social Responsibility (CSR) have become central elements of modern strategic management. Stakeholder theory expands the purpose of organisations beyond shareholders to include employees, customers, suppliers, communities, and society at large. CSR reflects the responsibility of organisations to consider social and environmental impacts alongside economic performance.

This article explores the theoretical foundations and practical significance of stakeholders and CSR within strategic management. It demonstrates that these concepts are not separate from strategy but shape how organisations define their mission, make decisions, and compete in contemporary markets. Through frameworks such as Carroll’s CSR pyramid and the triple bottom line, organisations integrate ethical, social, and environmental concerns into their operations.

The article highlights that effective stakeholder management enhances reputation, trust, and long-term sustainability. CSR can contribute to competitive advantage by fostering innovation, strengthening organisational culture, and improving relationships with key stakeholder groups. However, challenges remain, including conflicting stakeholder demands, difficulties in measuring social impact, and the risk of symbolic or superficial CSR practices.

For startups and SMEs, stakeholder engagement and CSR provide legitimacy and credibility in competitive markets, even though formal policies may be less developed than in large corporations. Strategic implementation requires embedding CSR into vision and mission statements, establishing governance structures, and maintaining continuous dialogue with stakeholders.

Overall, stakeholders and CSR redefine the role of organisations in society. They connect ethical responsibility with strategic performance and ensure that business success is aligned with social and environmental well-being. When integrated into strategy, they support sustainable competitive advantage and long-term organisational survival.

References (OBU Harvard Style)

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