Stakeholder Friction

37 Pages Posted: 23 Nov 2020

See all articles by Kirsten Martin

Kirsten Martin

University of Notre Dame

Robert A. Phillips

York University - Schulich School of Business

Date Written: October 4, 2020

Abstract

A mainstay of stakeholder management is the belief that firms create value when they invest more time, money, and attention to stakeholders than is necessary for the immediate transaction. This tendency to repeat interactions with the same set of stakeholders fosters what we call stakeholder friction. Stakeholder friction is a term for the collection of social, legal, and economic forces leading firms to prioritize and reinvest in current stakeholders. For many stakeholder scholars, such friction is close to universally beneficial, but the associated costs – to both the firm and legitimate stakeholders – have been underspecified. Failure to account for the effects of stakeholder friction can cause managers to under-allocate attention and value to some legitimate stakeholders and to over-allocate attention and value to current stakeholders. We examine the concept of stakeholder friction and elaborate on three exemplar sources of friction prominent in the stakeholder literature. This is followed by an analysis of investments in stakeholder relationships and a consideration of the implications of stakeholder friction on the ability of firms to prioritize stakeholders. The tendency to reinvest in current stakeholders has, in addition to the oft-discussed benefits, a predictable downside.

Suggested Citation

Martin, Kirsten and Phillips, Robert A., Stakeholder Friction (October 4, 2020). Available at SSRN: https://ssrn.com/abstract=3704947 or http://dx.doi.org/10.2139/ssrn.3704947

Kirsten Martin (Contact Author)

University of Notre Dame ( email )

South Bend, IN 46530
United States

Robert A. Phillips

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

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