Considers different accounts of how stakeholder relationship management links to corporate strategy and to the performance of the organization

(Freeman et al., 2010; Cornelissen, 2011). Berman et al. (1999) propose two kinds of model, the normative model and the instrumental model, and show how they can be tested empirically. The normative model states that looking after the interests of stakeholders is the right thing to do, and that the strategic goals set by senior management will be determined by a need to protect and promote the interests of their stakeholders. So principles of stakeholder relationship management guide how the organization formulates its corporate strategy, and strategy in turn has some influence on financial performance. Figure 11.2 expresses the normative model using blocks for the key variables and arrows to show the hypothesized causal relationships among them.

The instrumental model (Figure 11.3) states that organizations should pay attention to their stakeholders because they will benefit financially; thus the model proposes that both stakeholder relationship management and corporate strategy influence corporate financial performance. Berman et al. propose two variants of the instrumental model: the direct effects model shown in Figure 11.3

(a) and the moderation model shown in Figure 11.3(b). The direct effects model differs from the normative model in that there is no path between corporate strategy and stakeholder relationship management, but there is a direct path from stakeholder relationships to financial performance. The moderation model is a more sophisticated version of the direct effects model, which proposes a different mechanism for the role of stakeholder relationship management, as modifying the link between strategy and performance. The logic behind this form of the model is that companies will find it easier to put their strategic goals into practice and benefit from them if they foster good relationships with their stakeholders.