A firm that manages for stakeholders allocates more resources to satisfy the needs and demands of its legitimate stakeholders than would be necessary to simply retain their willful participation in the firm's productive activities. We explain why this sort of behavior unlocks additional potential for value creation, as well as the conditions that either facilitate or disrupt the value‐creation process. Firms that manage for stakeholders develop trusting relationships with them based on principles of distributional, procedural, and interactional justice. Under these conditions, stakeholders are more likely to share nuanced information regarding their utility functions, thereby increasing the ability of the firm to allocate its resources to areas that will best satisfy them (thus increasing demand for business transactions with the firm). In addition, this information can spur innovation, as well as allow the firm to deal better with changes in the environment. Competitive advantages stemming from a managing‐for‐stakeholders approach are argued to be sustainable because they are associated with path dependence and causal ambiguity. These explanations provide a strong rationale for including stakeholder theory in the discussion of firm competitiveness and performance. Copyright © 2009 John Wiley & Sons, Ltd.

The assumption that economic actors behave in a boundedly self‐interested manner promises fruitful new insights for strategic management. A growing literature spanning multiple disciplines indicates most actors' selfish utility maximizing behaviors are bounded by norms of fairness. Rather than being purely self‐interested, people behave reciprocally by rewarding others whose actions they deem fair and willingly incurring costs to punish those they deem unfair. Economists show that employers who are perceived as distributionally fair by their employees generate comparatively more value due to the positively reciprocal behavior of those employees. The organizational justice literature distinguishes two additional types of fairness assessed by employees. Drawing from both these bodies of work, we employ stakeholder theory to propose how perceptions of fairness result in reciprocity (1) extending to all stakeholders of the firm and (2) affecting firm performance. Copyright © 2008 John Wiley & Sons, Ltd.

Agency theory draws attention to certain behaviors of CEOs and boards that, in aggregate, create losses for society. An empirical literature characterized by contentious findings, however, suggests the current form of agency theory is not supporting a clear understanding of these behaviors and their costs. This paper proposes a change to one assumption with potentially profound implications. Expanding on the assumption of narrow self-interest underlying agency theory, we apply an empirically well-established refinement that self-interest is bounded by norms of reciprocity and fairness. The resulting logic is that perceptions of fairness mediate the relationships derived from standard agency theory through positively and negatively reciprocal behaviors. This mediating variable provides a parsimonious new way to help explain extreme results found in the prior studies. Rather than aiming to limit CEOs' self-serving behaviors, boards that apply these arguments improve social welfare by initiating positive reciprocity and avoiding unnecessary, welfare-reducing "revenge" behaviors.

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Scholars and managers continue to seek a better explanation for the behaviours displayed by various stakeholders. An enhanced understanding of the drivers of these behaviours ought to improve an organization's ability to appropriately manage relationships with stakeholders, thereby improving firm performance. This paper provides a detailed look at the concept of a relationship, from the perspective of the stakeholder, by focusing on the perceived psychological bonds that drive a stakeholder to decide whether to continue a relationship with the firm and, if the relationship does continue, how much pro‐relationship behaviour to exert. Our analysis works out how the strength of the perceived psychological bond is measured and establishes the conditions under which bonds will be broken. We also develop conditions that either promote or quash stakeholders’ pro‐relationship behaviour.