The Nature of Nature As A Stakeholder

The Stakeholder Theory of the Firm: A Methodology to Generate Value Matrix Weights
Author(s): Jamshid C. Hosseini and Steven N. Brenner

Source: Business Ethics Quarterly, Vol. 2, No. 2, The Empirical Quest for Normative
Meaning: Empirical Methodologies for the Study of Business Ethics (Apr., 1992), pp. 99-119
Published by: Cambridge University Press
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THE STAKEHOLDER THEORY OF THE FIRM:
A METHODOLOGY TO GENERATE
VALUE MATRIX WEIGHTS
Jamshid C. Hosseini and Steven N. Brenner
Abstract: Various authors advocate consideration of stakeholder value

concerns in organizational decision making. Brenner and Cochran
(1990, 1991) propose a stakeholder theory of the firm which contains
several propositions and a stakeholder value matrix. In order to begin
any stakeholder model validation, an approach is needed to measure
stakeholder value and influence weights. We propose a multicriteria
decision modeling approach, utilizing the analytic hierarchy process, to
estimate stakeholder value matrix weights. This approach is illus-
trated using a simplified example and suggestions are made regarding
the process needed to begin to validate the stakeholder theory of the
firm.
Introduction
STAKEHOLDER concepts (e.g.,

organizational literature have Freeman
been studied increasingly
(1984) in(1983))
and Mitroff both the
and
business ethics literature (e.g., Carroll (1989), a textbook which describes
the interplay between business ethics and stakeholder theory, and Goodpas?
ter (1991)). In a recent issue of Business Ethics Quarterly, Goodpaster
questions whether stakeholder analysis can provide a process by which
ethical values are introduced into managerial decisions. Before one can
tackle this intriguing issue, there are some even more basic questions about
the stakeholder concept which must be addressed. Does the stakeholder
model itself provide a useful organizational construct around which a theory
may be built? How can we learn about the values of organizational stake?
holders and how are such values used to influence organizational behavior?
So, while Goodpaster is critical of what may be learned by using previously
proposed approaches to identify and make use of stakeholder interests, we
examine in greater detail what data can and should be obtained, how to
analyze these data, and what theoretically significant information can be
derived therefrom.
Recently, Brenner and Cochran (1990, 1991) have proposed a theory of
the firm based on stakeholder concepts as an alternative to the traditional
neoclassical economic theory which is primarily concerned with share?
holder utility maximization. Their proposed framework includes a compre-
hensive value matrix based on a more complete stakeholder map than that
?1992. Business Ethics Quarterly, Volume 2, Issue 2. ISSN 1052-150X. 0099-0119.
100 BUSINESS ETHICS QUARTERLY
used by advocates of the neoclassical theory. This value matrix, which is

reproduced in Table 1, contains a list of stakeholders (Sj), their relative
influence weights (Rj), their value concerns (Vj), and the weights (Wg)
which stakeholder i places on value item j.
Table 1. Stakeholder Value and Influence Matrix.
Other Stakeholders (Rm) Wm>1 Wm,2 W?
Where: Vj = stakeholder value concerns (j= 1 >2,...,n)
Vi = dividend value
V2 = stock price value
V3 = worker safety value
V4 = job security value
V5 = product safety value
V6 = product quality value
V7...Vm = other stakeholder values
Wy = value weight of the ith stakeholder for the jth value concern
Ri = relative influence ofthe ith stakeholder (i=l,2,...,m)
Ri = relative influence of investor owners

R2 = relative influence of employee owners
R3 = relative influence of customer owners
R4 ?= relative influence of suppliers
R5 - relative influence of employees
R6 = relative influence of communities
Rm = relative influence of other stakeholders
THE STAKEHOLDER THEORY OF THE FIRM 101
In their primarily conceptual and theoretical development, Brenner and

Cochran do not discuss the methodological aspects of constructing the value
matrix; in particular, little attention is given to the important activity of
estimating stakeholder weights (Wy). The stakeholder theory is in fact a
multidimensional problem requiring multiattribute or multiobjective tech-
niques for generating weights.
In this paper, we propose a methodology for estimating the weights in the
value matrix for the stakeholder theory of the firm. This relatively recent
technique employs a multiattribute decision model developed by Thomas
Saaty (1980) and studied extensively in the management science and deci?
sion modeling literature. This approach, called the analytic hierarchy pro?
cess (AHP), is a hierarchical decision making tool which enables estimation
of the weights of the attributes and the priority of decision alternatives in a
multiattribute decision environment. Additionally, we propose a simple pro?
cedure to begin validating the stakeholder theory using the AHP framework.
A separate study aimed at actual validation of the theory is under way by the
authors and is being conducted using the procedure proposed here.
In the following sections, we first briefly introduce the stakeholder theory
of the firm and list its four basic propositions as suggested by Brenner and
Cochran (1990, 1991). Then, we review the basic principles of the AHP to
provide an intuitive feel for the approach and citations for more in-depth
study of its framework. Next, we discuss the usefulness of this tool in
estimating the weights of the stakeholder value matrix using a simple illus-
trative example. We conclude by proposing a set of hypotheses which can
be tested as a first step to begin validation of the stakeholder theory of the
firm, discuss the way in which our proposed analytic framework enables
testing these preliminary hypotheses, and provide suggestions for future
research in this area.
The Stakeholder Theory ofthe Firm
The stakeholder theory of the firm proposed by Brenner and Cochran

(1990, 1991) attempts to describe and predict how managers balance
choices given the nature and composition of their organization's stakehold?
ers. The theory builds on the work of other students of stakeholder concepts,
including Mitroff (1983), all of whom maintain that the neoclassical theory
of the firm posits a narrow view of organizational behavior as compared
with a more general stakeholder view. Both Freeman (1984) and Carroll
(1989) indicate that organizations benefit from understanding the needs and
concerns of a broad set of stakeholders.
Stakeholder theory draws from a number of prior works, and while a
complete discussion of its roots is beyond the scope of this paper, it is
important to mention its relationship to interest group theory (especially, the
work of James Madison (see Fairfield (1981)), Arthur Bentley (1908),
David Truman (1951), and Mancur Olson (1971)). Truman (1951:33) de?
fines an "interest group" as "...any group that, on the basis of one or more
shared attitudes, makes certain claims upon other groups in the society for
the establishment, maintenance, or enhancement of forms of behavior that
are implied by the shared attitudes.** While the concept of an interest group
is focused on intergroup relations, stakeholder theory borrows the idea of
shared attitudes and values while concentrating on the claims stakeholders
make in the context of an organization or its related processes.
Brenner and Cochran's stakeholder theory of the firm consists of four
propositions and a stakeholder value matrix. The four propositions position
the stakeholder theory of the firm within a broader realm of organizational
dynamics, while the stakeholder value matrix provides a mechanism by
which relevant information may be organized and presented. The four prop?
ositions are:
Proposition 1
Firms and/or organizations must fulfill some set of their various
stakeholders* needs in order to continue to exist.
Proposition 2
One way for firms and/or organizations to understand the relevant needs of
their stakeholders is to examine the values and interests of their
organization's stakeholders.
Proposition 3
Managing firms and/or organizations involves structuring and implement-
ing choice processes among various stakeholders.
Proposition 4
The identification of an organization's stakeholders, their various values
and interests, the relative importance of each value for each stakeholder, the
relative influence of each stakeholder's value position, and the nature of the
value trade-off processes used provide information useful for understand?
ing the behavior of and within the firm and/or organization.
These four propositions provide an overview of Brenner and Cochran's

(1990, 1991) stakeholder theory of the firm and give some clues to the
usefulness of the information which might be made available by creating a
stakeholder value matrix. For example, certain patterns of stakeholder
weights may be associated with a particular decision making approach or the
relative influence of one stakeholder group coupled with that stakeholder's
value weights could be related to overall corporate performance.
The stakeholder value matrix is a simple way to organize information
about stakeholder concerns. By listing stakeholders as rows, and value con?
cerns as columns, it is possible to represent stakeholder value weights as the
matrix cells (see Table 1). This information can be used in conjunction with
information about the relative influence of a stakeholder group to help
understand an organization's actions. The information so developed may be
used for both descriptive and normative purposes. The stakeholder value
matrix information can help describe a particular organization's stakeholder
values, the weights assigned to each value by stakeholders, the relative
influence of stakeholders in the organization's decision process, and, poten-

tially, the nature of the value tradeoff process used in the organization.
Eventually, by comparing value matrix information with organizational per?
formance information, a normative model can be constructed.
This model can subsequently be used in formulating strategic and policy
decisions which would enable incorporation of a broad set of stakeholder
value concerns. Currently, many corporations consider their clientele to be
more than just their customers. For example, the Cadillac Division of Gen?
eral Motors (GM) partitions its clientele to internal and external customers.
The internal customers are the managerial, service, professional, and oper?
ations staff while the external customers are the consumers, government,
shareholders, interest groups, etc. A normative model which evolves from
the assessment of stakeholder value concerns and their respective weights
would enable an entity such as the Cadillac Division of GM to refine its
definition of various clients and incorporate their needs and wishes in its
decision making.
By generating and analyzing data on the value weights within and among
stakeholder groups, it is possible to validate the general stakeholder concept
and begin to better understand how stakeholder values impact organiza?
tional decisions. The stakeholder theory allows a much broader set of values
to be traded off within organizations as shown in Table 2 (see Brenner and
Cochran (1990, 1991)).
Table 2. Comparison of Neoclassical and Stakeholder Theories of the Firm
Neoclassical Stakeholder
Economic values Multiple values
Rational decision process Multiple choice processes
Self interest choice dimension One or more choice dimensions
The Analytic Hierarchy Process (AHP)

In its basic format, the analytic hierarchy process is a multiattribute deci?
sion making tool which provides a ranking of alternatives (i.e., the prefer?
ence weights) as well as the importance weights of the attributes and
sub-attributes. In this section, after a brief review of this technique, we
demonstrate how the weight generating scheme in the AHP can be used to
estimate the weights in the stakeholder value matrix.
The analytic hierarchy process involves three basic elements: (1) describ-
ing a complex multiattribute problem as a hierarchy; (2) estimating the

relative weights for importance (or preference, influence, likelihood, etc.)
of various criteria (or sub-criteria, decision makers, alternatives, states of
nature, etc.) on each level of the hierarchy; and (3) integrating the relative
weights to develop an evaluation of the hierarchy with respect to the overall
objectives of the problem.
Hierarchies are basic to the human way of breaking down reality into
levels or categories. Newell, Shaw, and Simon (1958) develop their Logic
Theorist model as a hierarchy based on the observation that human problem
solving behavior is a hierarchical process. Whyte (1969) considers hierar?
chies to be the most powerful means of classification for ordering informa?
tion in the human brain.
Conceptually, a multiattribute problem consists of various levels representing
the focus (objective), the criteria (and sub-criteria), and the decision alternatives.
A graphical representation of a simple hierarchy is presented in Figure 1.
Level 1 Overall Objective
Level 2 Criterion 1 Criterion 3
Level 3 Alternative 1 Alternative 2 Iternative 3
Figure 1. A simple hierarchical decision model.
For each level of the hierarchy, AHP requires the decision maker (or respon-
dent) to provide the relative importance of each criterion with respect to the
level immediately preceding the current level. This step involves, for in?
stance, the assessment of the influence of each individual or group relevant
to the problem, the importance of each criterion with respect to each indi?
vidual or group, the preference for each decision alternative with respect to
each criterion, and so on.
AHP differs from most other analytic methods in that it uses ratios in
comparative judgments. Specifically, AHP uses pairwise comparisons to
estimate the relative importance ofthe elements of a given level with respect
to each element in the preceding level of the hierarchy. For example, at Level
2 in Figure 1, the decision maker is asked to state the relative importance of

Criterion 1 to Criterion 2 with respect to achieving the overall objective
(e.g., improved long term results, more responsive corporate decisions,
etc). When the relative influence and importance ratings are elicited via
pairwise comparisons, AHP provides a framework and a methodology for
integrating these ratings into overall influence weights for the relevant par?
ties and importance weights for their value concerns.
The mathematical development of the AHP and the way in which various
priorities are calculated are beyond the scope of this paper. Readers inter?
ested in the mathematical and axiomatic foundations of the AHP are referred
to Saaty (1980, 1986a, 1991). For a more technical discussion of this ap?
proach to value oriented weight estimation refer to Hosseini and Armacost
(1990). The AHP literature is also rich with extensive discussions of issues
related to measurement (Saaty (1986b, 1989); Harker (1987)), weight and
rank generation (Belton and Gear (1983); Saaty and Vargas (1984); Winkler
(1990); Dyer (1990a, 1990b); Saaty (1990); Harker and Vargas (1990)), and
industrial and government level applications (see, e.g., Wind and Saaty
(1980); Zahedi (1986); Saaty (1988); and Golden, Wasil & Harker (1989)).
In the ensuing section, the suitability of the AHP framework in determining
the stakeholder value weights is illustrated, using a simple hypothetical
stakeholder value matrix.
Generating the Value Matrix Weights via AHP

Let us return to the stakeholder value matrix in Table 1. In order to sim-
plify this matrix for illustrative purposes, assume the relevant stakeholders
include only the investors, the employees and the community, and the relevant
values include dividends, job security, and product safety (see Table 3). De?
spite the fact that the matrix in Table 3 is highly simplistic, it provides a good
basis for illustrating our proposed approach for generating the weights.
Table 3. A Simplified Stakeholder Value Matrix.
Stakeholders (Sj) Influence (R{) Value Concerns (Vj)

Dividends Job Security Product Safety
Developing the Decision Hierarchy

The first step in estimating the stakeholder value weights using the AHP
framework is to develop a hierarchy which represents the stakeholders and
their criteria (and, if applicable, the decision alternatives). The general ob?
jective of the problem (i.e., the focus) is at the top level of the hierarchy.
Therefore, the top level of the hierarchy can be described as: "The firm's
(decision-making) behavior based on the stakeholder theory ofthe firm," as
shown in Figure 2. (For the moment, the reader should ignore the numerical
values in Figure 2 and concentrate on the structure of the AHP hierarchy.)
The second level of the hierarchy includes a list of the stakeholders (e.g.,
investors, employees, and community). The third level contains a collective
list of value concerns of the stakeholders (e.g., dividends, job security, and
product safety). The hierarchy may also include a level representing the
alternatives in a specific decision making situation. For example, the deci?
sion of how to dispose of surplus cash may include payment of dividends,
business expansion, and R&D research as alternatives. This level is not
depicted in Figure 2.
Level 1:
Overall Objective The Firm's (Decision Making) Behavior
Based on the Stakeholder Theory
Level 2:
Stakeholder Influence
Influence Weights
Level 3:
Value Concerns Dividends Job Security Product Safety
For Investors 0.625 0.238 0.137

For Employees 0.075 0.742 0.183
For Community 0.071 0.178 0.751
Overall Weights=Rj*Wy for each stakeholder S{:
Figure 2. A Simple Stakeholder Theory Hierarchy.
Notice that we are primarily interested in estimating the weights for the
third level of the hierarchy (i.e., the value concerns level) for each of the
components of the second level (i.e., the stakeholders influence level). Ul?
timately, we would be able to combine the weights for each value concern
across all stakeholders and develop an estimate of overall importance
weights for each value concern. For example, the overall value weights for
dividends, job security, and product safety for the firm under study could be
estimated. This requires a methodology to collect and measure the needed
data.
Data Collection and Measurement
Data collection for weight estimations may be done in a variety of ways.

In any case, at least five issues need to be addressed. First, "who" would
select the influence weights for each stakeholder (or stakeholder group)?
The stakeholders themselves, top managers, or the board of directors may
provide the data needed for the computation of the relative influence
weights. We believe that weight estimations should be done using the mem?
bers of each stakeholder group.
The second issue to be considered is "what data collection method" to
use. This may be done through a sample-based (personal interview, tele-
phone, or mail) survey approach. For example, individual stakeholders
may be asked to report their own influence ratings of stakeholder groups
or the importance rating of their own personal value concerns. Another
approach may be to pose questions regarding the ratings in a group envi?
ronment consisting of a representative set of each group's stakeholders.
This approach would then seek to build consensus among the partici?
pants.
The third issue with respect to data collection is "what type of instru?
ment and measurement scale" to use. For example, a stakeholder may be
asked to assign influence weights totaling 100 (or 1.00) to a list of stake?
holder groups. To assure validity, it is important to be able to measure the
consistency of the weights obtained from the data. The AHP's weight gen-
eration scheme affords such a consistency measure.
Data collection within the framework of the AHP is based on a ratio scale
and on pairwise comparisons of elements on each level of the hierarchy with
respect to its immediately preceding level. Saaty (1980:54, 1988:78) devel?
oped a nine point ratio scale (see Table 4), which has been used in many
applications of the AHP.
Table 4. Saaty *s Ratio Scale and Its Description.
Extreme importance The evidence favoring one

element over another is
of the highest possible
order of affirmation
2,4,6,8 Intermediate values between When compromise is needed

the two adjacent judgments between two judgments
Reciprocals When activity i compared to j is assigned one

of the above numbers, then activity j compared
to i is assigned its reciprocal.
Rationals Ratios arising from forcing consistency of

judgements.
Source: Saaty (1988:78).
For example, in Table 4, a comparison described as being of "essential or

strong importance" means that one stakeholder is perceived to be five times
as influential as the other one in the pairwise comparison.
These pairwise comparisons are conducted among the elements at the given
hierarchy level two-at-a-time. By definition, comparison of an element with
itself results in a relative importance and/or influence value of one. Addition-
ally, the values of reciprocal comparisons are the reciprocals of the impor-
tance/influence values. For example, if the relative influence of "stakeholder
A" to "stakeholder B" is 3 (i.e., weakly more influential), then the relative
influence of "stakeholder B" to "stakeholder A" is 1/3. These relative influence
values form a matrix called the "reciprocal" matrix in which the lower-half
triangle is the reciprocal of the upper-half triangle. Since the diagonal

values are equal to one, only n(n-l)/2 comparisons are required if the level
includes n elements. For a level of a hierarchy with six elements, for
example, 15 pairwise comparisons are needed to complete the six-by-six
matrix with 36 values.
The ratings obtained from these pairwise comparisons are then used to
compute the influence and importance weights. Saaty (1980) proposed a
procedure based on a well known methodology in linear algebra, called the
principal eigenvector method, to derive these weights and a simple weight-
ing algorithm to compute the overall weights. The popular software package
"Expert Choice" (Decision Support Software, Inc. (1983)) may be utilized
to compute these weights according to Saaty's algorithm.
When making pairwise comparisons, individuals are not always consis?
tent. For example, if an individual prefers an element "a" to another element
"b" by a factor of 2 and "b" to "c" by a factor of 3, he or she should prefer
"a" to "c" by a factor of 6. The extent to which individuals depart from this
notion of consistency is measured through an "inconsistency ratio" which is
also computed by the Expert Choice software. Saaty recommends an incon?
sistency ratio of less than or equal to 0.10 as acceptable and suggests that,
if this is violated, the most inconsistent judgments (as determined by the
Expert Choice software) be reconsidered with respect to their accuracy.
The fourth issue with respect to data collection relates to aggregation of
judgments across a sample or group of stakeholders. In the case where the
judgments of individual stakeholders within each category are obtained,
these judgments need to be combined in order to provide a set of value
weights for each stakeholder group. In the AHP environment, this is done
by computing the appropriate mean for each cell of the pairwise comparison
matrix across all individuals in each stakeholder group.1
Finally, the important issue of validity, reliability, and consistency of
the data collection and measurement effort must be addressed carefully
at each step of the process. Not unlike other survey oriented approaches,
reality can be distorted through several types of error. The populations of
stakeholders may be mis-specified. Non-representative samples from the
stakeholder populations may be selected. Defective instruments may be
developed which fail to measure the perceptions and beliefs of the re-
spondents, contain misleading questions, or suffer from social desirabil?
ity effects. In any case, it should not be forgotten that self-explicated
responses are not easy to translate into the true picture of reality. Individ?
uals tend to be inconsistent in their judgment, to misperceive issues, or to
respond in ways that cause them to appear normal, please the investigator,
or avoid stigma. The issues of response and non-response bias have been
discussed extensively in the survey research literature. One area where
there is consensus is that any survey research conducted on human beings
must be developed with extreme care.
Assessment and estimation of stakeholder value concern weights using
the AHP is facilitated by using the Expert Choice software package. This
package enables the computation of the overall weights for stakeholder

value concerns and the stakeholder influence weights as well as the consis?
tency of their judgments in an aggregate (e.g., a group of stakeholders) or
disaggregate (e.g., an individual stakeholder) environment. These weights
may be used as estimates of the stakeholder value-weights.
Assessing the Relative Influence and Importance of

Stakeholder Value Concerns
In order to generate both the relative influence weights of various stake?

holders and the value weights of each stakeholder group, we propose a two
stage process. In the first stage, the individuals in the upper echelon of the
organization such as the upper management team or the board of directors
provide the data to estimate the relative influence of each stakeholder group.
Using the AHP framework, pairwise comparisons of influence of stake?
holder groups can be made by individual executives or in a consensus-build-
ing environment involving the group of executives. For example, the
individual or the group would consider the following question: "In order to
incorporate the stakeholders' values in the firm's decision making behavior
(i.e., the focus or objective), what is the relative influence of the investors
as compared to the employeesT It must be recognized that data on the
relative influence of stakeholder groups may not be available to respondents
or their perception may be incorrect. Investigators must try to minimize
such inaccuracies in their analyses.
The second phase involves eliciting a similar set of pairwise comparison
judgments from each stakeholder (or each group of stakeholders) regarding
the relative importance of each value concern on the third level of the
hierarchy in Figure 2. This can be done using a representative sample of
stakeholders in each category rather than by taking a census of all stakehold?
ers. Again, the judgments may be elicited individually or as a group in a
consensus-building environment.
Synthesis of the Hierarchy: Estimating the Stakeholder

Value-Matrix Weights
The procedures delineated thus far represent one approach to the estima-
tion of stakeholder influence weights and their importance weights for var?
ious value concerns. In other words, numerical values for Ri and Wy in Table
3, the simplified stakeholder value matrix, are estimated. In a more realistic
application, values for Table 1, the general stakeholder value matrix, may
be derived. This, in itself, is useful information. If we were reasonably
convinced that the weights were plausible, we would be able to determine
which value concerns are most valued, by which group of stakeholders, and
the relative influence of that group.
Ideally we would be able to go one step further in the weight generation
process by estimating a composite measure representing the influence
weights as well as the value concern weights. Several schemes are possi-
ble for this purpose. For example, a stakeholder group with an influence
weight above a certain level may be considered the dominant group, whose
interests represented by their value concern weights may be thought to
override those of other groups. The AHP, however, makes use of a multipli-
cative approach in which each stakeholder group's value concern weights
are multiplied by the group's influence weight. This approach, which does
not necessarily have to be followed, provides a set of composite weights for
each stakeholder group with respect to each value concern. Then, summing
these weights for each value concern across all stakeholder groups provides
overall importance weights for each value concern in this presumed linear-
multiplicative environment. At this early stage of estimating the stakeholder
theory of the firm's value matrix components, a linear-multiplicative ap?
proach seems to be a reasonable starting point. Eventually, more complex
estimation techniques may prove to be superior to this approach.
A Numerical Illustration
Implementation of the analytic hierarchy process in determining the value

concern weights and stakeholder weights may seem to be a complex, overly
mathematical process. A simple numerical example of the process is given
below to provide guidance as to how to make use of the technique. Consider
the simple stakeholder value matrix in Table 3 and its corresponding AHP
hierarchy in Figure 2. As mentioned, the first phase of data collection in?
volves eliciting influence ratings by the upper management (or the board of
directors) of the firm. The data collection process begins by developing the
questionnaire(s) for eliciting pairwise comparisons of influence ratings. A
sample questionnaire for the first phase of our example is provided in the
Appendix (Part A). Notice that the respondents need to be introduced to the
concept of pairwise comparisons and Saaty's 1-9 scale in order to fully under?
stand the instruments and their own task. In the second phase, the questionnaire
would be developed to acquire pairwise comparison information from each
stakeholder group regarding the importance ratings of the value concerns.
As mentioned previously, data can be collected from individuals and sub-
sequently combined, or, alternatively, data collection can be done in a group
interaction consensus-building environment. Let us assume that the data
were collected in a consensus-building fashion and the pairwise compari?
sons in Table 5 have been obtained.
Table 5. Pairwise Comparison Matrix for Relative Influence of the Stakeholders
Investors Employees Community Influence Weights
Investors 1 2 3 0.527
Employees 1/2 1 3 0.333
Community 1/3 1/3 1 0.140
Inconsistency Ratio 0.046
According to the top row of Table 5, the investors group is judged to be

equally-to-weakly more influential than the employees group (a value of
2 from Table 4). Furthermore, both the investors and the employees
groups are judged to have weakly more influence than the community
(values equal to 3). These pairwise comparison data are then submitted
to the Expert Choice software to obtain the AHP generated influence
ratings (Rj) as well as the inconsistency ratio (IR), which are shown in
the last column of Table 5. Notice that the ^=.046 is substantially less
than the .10 cutoff value indicating acceptable consistency in the judg?
ments. According to Table 5, investors are judged to be the most influen?
tial group (Ri=0.527), followed by employees (R2=0.333), and the
community (R3=0.140).
Phase two of data collection requires eliciting the judgments of individual
stakeholders (or stakeholder groups) with respect to the importance of var?
ious stakeholder value concerns (Level 3 ofthe hierarchy). Part (b) ofthe
Appendix provides a sample questionnaire for this purpose. Again, let us
assume that we have obtained the judgments for each group in a consen?
sus-building environment and have tabulated the pairwise comparisons
in Tables 6(a) through 6(c). Notice that because they are presumed to be
produced from the judgments of different stakeholder groups (i.e., in?
vestors, employees, and the community), the three matrices are consider-
ably different from one another. For example, the investors group (Table
6(a)) considers the dividends value to be of "weak to essential impor?
tance" as compared to product safety, a value of 4, (see Table 4 for the
scale). In contrast, the community group (Table 6(c)) considers the product
safety value to be "of absolute importance" as compared to the dividends
value.
Again, these data are submitted to Expert Choice to obtain the value
concern weights for each stakeholder group as shown in the last column
of each sub-table (Table 6(a) through 6(c)). Notice that the inconsistency
ratios for all three matrices are well in the acceptable range (0.016,
0.038, 0.025 for investors, employees, and the community, respectively).
The differences between the judgments of various stakeholder groups
may be assessed by examining these importance weights.
Table 6. Pairwise Comparison Matrices for Value Concerns of the stakeholders
For convenience, the influence weights (Rj) and value concern weights
(Wij) are given in Table 7, in the general format of the stakeholder value
matrix. Examining Table 7 reveals that the investors group has the highest
concern for dividends (WM=0.625), followed by job security (Wi,2=0.238),
and product safety (Wi,3~0.137). The employees group shows the highest
concern for job security (W2,2=0.742), and the least concern for dividends
(W2,i=!0.075). The community values product safety the most (W3>3=0.751),
followed by job security for employees and dividends (W3,2-0.178 and
W3,i=0.071).
Table 7. Stakeholder Value Matrix Weights
Value Concerns (Vj)
Table 8 shows the results of synthesizing the second level of the hierarchy
in Figure 2 (stakeholder influence?Rj) and the third level (value con?
cerns?Wij) based on the AHP's linear-multiplicative approach. Because
investors are judged to be the most influential group (Ri=0.527) and their
highest value concern is for dividends (Wi.i =0.625), their composite value
matrix weight for dividends (=R,*Wi, 1=0.527*0.625=0.330) is the highest
weight in the matrix. The next highest value matrix weight is for the employ?
ees group with respect to job security (=0.247). This is followed by the
investors group's weight with respect to job security (=0.126), and the
community's weight for product safety (=0.105). The global importance
weight for each value concern is the sum of the composite value weights
across all stakeholder groups. These overall value weights are also in Table
8. Thus, this hypothetical group of stakeholders, as a whole, places more
value on job security and dividends (i.e., 0.398 and 0.364, respectively) than
product safety (i.e., 0.238). The overall consistency ofthe process is accept?
able based on Saaty's criterion (IR=0.040).
Table 8. Composite Stakeholder Value Matrix Weights
Conclusions and Suggestions for Future Research

This paper provides a brief description of the stakeholder theory of the
firm as proposed by Brenner and Cochran (1990,1991) and offers a methodol?
ogy (the analytic hierarchy process) which may be used to generate the value
weights necessary to create the value matrix that is a significant component of
their stakeholder theory. AHP is a relatively simple approach whereby the
relative significance of various factors can be evaluated. Such an evalua?
tion may well lead to better understanding of how values influence deci?
sions within organizations. Use of the AHP technique to develop a set of
internally consistent stakeholder value concern and influence weights pro?
vides data on which further research may be built and hypotheses tested.
Patterns of value weights may well be useful for understanding stakeholder
behavior in organizations.
The simplified example presented in this paper describes the process used
to generate stakeholder value weights and relative influence weights for a
hypothetical organization. The extension of this process to actually establish
the validity of the stakeholder theory of the firm would begin with an exami?
nation of the stakeholder concept itself. Do the traditionally identified stake?
holders (e.g., investors, managers, employees, customers, suppliers, etc.) really
exhibit similar within-group values or are their values so diverse as to make
those traditional stakeholder categories meaningless? If there is little value
similarity, then are there other combinations of an organization's stakeholders
which do hold and express similar values? We must note here that a variety of
factors contribute to group cohesion and group dynamics (e.g., shared or di?
verse goals, institutional culture, organizational policies and strategies, etc),
but an extensive discussion of them is beyond the scope of this paper.
Several projects are underway to test the stakeholder theory within both
experimental and field sites using the AHP framework. The four hypotheses
shown below are one possible set which could be tested as part of the process
of validating stakeholder theory and/or a stakeholder theory of the firm. Once
the validity of the stakeholder concept is established, then work can begin on
making further use of the data generated by creating a stakeholder value matrix.
Hl: The value concern weights generated for each stakeholder group (Wy)
are statistically different from other stakeholder groups.
Each row ofthe stakeholder value matrix includes a particular stakeholder
group's value concern weights. These weights can be statistically tested
where the null hypothesis would posit that the weights for each value con?
cern are the same across all stakeholders. An extension of the traditional
analysis of variance (ANOVA), which takes into account that these weights
are proportions, may easily be used to test Hl.2
H2: Given a disaggregate set of value concern weights (W*y) for an indi?
vidual from a particular stakeholder group, these weights would be statisti?
cally similar to the group's aggregate weights.
This hypothesis may be tested by comparing two sets of weights: one estimated
for the stakeholder group, not including the individual whose value concern
weights are being compared with those of his or her peer stakeholder group.
An extension of the traditional t-test may be employed to conduct this test.
H3: Given a disaggregate set of value concern weights (W*y) for an indi?
vidual from a particular stakeholder group, these weights would be statisti?
cally different from the other groups* aggregate weights.
A series of t-tests may be employed to test the null hypothesis of no
difference between the value concern weights of the individual under con?
sideration and those of each of the other stakeholder groups. Rejecting the
null hypothesis would enable making statements regarding the dissimilarity
of the value concern weights of an individual from the aggregate weights of
"non-peer" stakeholder groups.
H4: Firms whose decision making strategies aim to satisfy a cross sec?
tion of stakeholders have a higher likelihood of survival than those who
do not.
Unlike the previous three hypotheses, H4 is extremely difficult to test.

This is because it would be conceivable to test Hl through H3 in a "labora-
tory" environment. For example, a group of students may be asked to play
the role of a particular stakeholder type and make judgments resulting in
aggregate or disaggregate influence and value concern weights. H4 can not
be conclusively tested in a laboratory environment, if one seeks to establish
the theory's external validity. To do so H4 must be tested empirically by
studying actual organizations. The history of decision making within these
organizations and the effect of their decisions on organizational perfor?
mance must be assessed. This presumes the existence of a universally agreed
upon measure of performance. It also assumes that it is conceivable to
characterize an organization's decision making style as incorporating stake?
holder concerns or not. These are some of the issues which make testing of
H4 problematic. However, were it possible to successfully test H4, it would
be a first step towards supporting or refuting Brenner and Cochran's (1990,
1991) four propositions which form the heart of their version of the stake?
holder theory of the firm.
If these propositions are confirmed, it would provide encouragement for
the development of normative propositions aimed at modifying the decision
making approaches by organizations to explicitly incorporate stakeholder value
concerns and their influence weights. We believe there would be benefit to
practitioners if it were possible to devise normative propositions about the
inclusion of stakeholder values in organizational decision processes. First and
foremost, such guidelines would give managers help in making their value
tradeoff decisions.
In conclusion, we have briefly described the stakeholder theory of the
firm, shown how the analytic hierarchy process may be used to develop data
on stakeholder value concerns and relative influence, and proposed four
hypotheses which are appropriate to test as the stakeholder theory ofthe firm
is examined. We encourage others to expand understanding of the role of
stakeholders and their values in the organizational decision making process.
Notes
According to Saaty (1980, 1986a, 1988), in order to preserve the reciprocal matrix
properties which provide the foundation of the AHP algorithm, the geometric mean is
computed rather than the arithmetic mean. The goemetric mean of n values (Vj, i=l,2...,n)
is computed as (II Vj) ?, where II means the product of values.
2There are at least two variations of ANOVA which are appropriate for testing the
differences among the weights. Based on one variation, an arcsin transformation of the
proportions (weights)? 2 arcsin (Wy) i ?is computed and the conventional ANOVA
routine is applied to the transformed values (Goldstein and Dillon (1978)). The second
approach developed by Marascuilo (1966) uses a Chi-square variation of Scheffe's Theorem.
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APPENDIX
Part A): Sample Questionnaire for Phase 1 (Influence Ratings of Stakeholders)
With respect to the overall objectives and activities ofthe firm, please estimate the relative influence
of the group on the left as compared with the group on the right.
?-More Influential-1-More Influential-?
Very Very
Extreme Strong Strong Moderate Equal Moderate Strong Strong Extreme
9753 1 3 579
Investors Employees
Investors Community
Employees Community
Part B): Sample Questionnaire for Phase 2 (Importance Ratings of Value Concerns)
Please estimate the relative importance of the value concern on the left as compared with the value
concern on the right.
?-More Important-1-More Important-?

Very Very
Extreme Strong Strong Moderate Equal Moderate Strong Strong Extreme
Dividends Employees
Dividends Community
Job Security Community
The above data collection form is one of the more popular formats used in AHP applications. Another
popular instrument conducts the data collection in the form of upper or lower triangle of each
comparison matrix.
?1992. Business Ethics Quarterly, Volume 2, Issue 2. ISSN 1052-150X. 0099-0119.

The Nature of Nature As A Stakeholder

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The Nature of Nature As A Stakeholder

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The Stakeholder Theory of the Firm: A Methodology to Generate Value Matrix Weights

Author(s): Jamshid C. Hosseini and Steven N. Brenner

Jamshid C. Hosseini and Steven N. Brenner

Abstract: Various authors advocate consideration of stakeholder value

STAKEHOLDER concepts (e.g.,

?1992. Business Ethics Quarterly, Volume 2, Issue 2. ISSN 1052-150X. 0099-0119.

used by advocates of the neoclassical theory. This value matrix, which is

Table 1. Stakeholder Value and Influence Matrix.

Other Stakeholders (Rm) Wm>1 Wm,2 W?

Where: Vj = stakeholder value concerns (j= 1 >2,...,n)

Ri = relative influence ofthe ith stakeholder (i=l,2,...,m)

Ri = relative influence of investor owners

In their primarily conceptual and theoretical development, Brenner and

The Stakeholder Theory ofthe Firm

The stakeholder theory of the firm proposed by Brenner and Cochran

These four propositions provide an overview of Brenner and Cochran's

influence of stakeholders in the organization's decision process, and, poten-

Table 2. Comparison of Neoclassical and Stakeholder Theories of the Firm

Economic values Multiple values

Rational decision process Multiple choice processes

Self interest choice dimension One or more choice dimensions

The Analytic Hierarchy Process (AHP)

ing a complex multiattribute problem as a hierarchy; (2) estimating the

Level 1 Overall Objective

Level 2 Criterion 1 Criterion 3

Level 3 Alternative 1 Alternative 2 Iternative 3

Figure 1. A simple hierarchical decision model.

2 in Figure 1, the decision maker is asked to state the relative importance of

Generating the Value Matrix Weights via AHP

Table 3. A Simplified Stakeholder Value Matrix.

Stakeholders (Sj) Influence (R{) Value Concerns (Vj)

Developing the Decision Hierarchy

For Investors 0.625 0.238 0.137

Overall Weights=Rj*Wy for each stakeholder S{:

Figure 2. A Simple Stakeholder Theory Hierarchy.

Data Collection and Measurement

Data collection for weight estimations may be done in a variety of ways.

Table 4. Saaty *s Ratio Scale and Its Description.

Extreme importance The evidence favoring one

2,4,6,8 Intermediate values between When compromise is needed

Reciprocals When activity i compared to j is assigned one

Rationals Ratios arising from forcing consistency of

Source: Saaty (1988:78).

For example, in Table 4, a comparison described as being of "essential or

triangle is the reciprocal of the upper-half triangle. Since the diagonal

package enables the computation of the overall weights for stakeholder

Assessing the Relative Influence and Importance of

In order to generate both the relative influence weights of various stake?

Synthesis of the Hierarchy: Estimating the Stakeholder

Implementation of the analytic hierarchy process in determining the value

Table 5. Pairwise Comparison Matrix for Relative Influence of the Stakeholders

Investors Employees Community Influence Weights

Employees 1/2 1 3 0.333

Community 1/3 1/3 1 0.140

Inconsistency Ratio 0.046

According to the top row of Table 5, the investors group is judged to be

Table 6. Pairwise Comparison Matrices for Value Concerns of the stakeholders

Table 7. Stakeholder Value Matrix Weights

Value Concerns (Vj)

Table 8. Composite Stakeholder Value Matrix Weights

Conclusions and Suggestions for Future Research

Unlike the previous three hypotheses, H4 is extremely difficult to test.

Belton, V, & Gear, T. 1983. "On a Short-Coming of Saaty's Method of Analytic