Stakeholder salience and collaboration decisions in microfinance organizations: Evidence from developing Islamic country's context

• Author: Shahzad Khurram,Anjeela Khurram,Mumtaz Ali Memon
• Date: 01 November 2019
• Published date: 01 November 2019
• DOI: http://doi.org/10.1002/jsc.2300

RESEARCH ARTICLE

Stakeholder salience and collaboration decisions in

microfinance organizations: Evidence from

developing Islamic country's context

Shahzad Khurram

1

| Anjeela Khurram

2

| Mumtaz Ali Memon

1

1

Air University, Islamabad, Pakistan

2

University of Paris Sud, Saclay, France

Correspondence

Shahzad Khurram, Air University School of

Management, Air University, Islamabad,

Pakistan.

Email: khurramjah2002@yahoo.co.uk

Abstract

Studies mutually disagree on which stakeholders matter to the managers. Based on a

finer differentiation of salience attributes—power, legitimacy, urgency, and

proximity—this study finds that stakeholders that possess four attributes' types—that

is, structural legitimacy, utilitarian power, organized proximity, and criticality—are

considered salient by managers of microfinance organizations. Collaboration with

salient stakeholders is considered indispensable by microfinance managers.

1|INTRODUCTION

Stakeholder salience framework (Mitchell, Agle, & Wood, 1997), a

remarkable contribution in the stream of stakeholder literature, has

been cited more than 12000 times as of April 2019. Mitchell and

associates (1997) proposed that stakeholder salience is determined by

the extent of the presence of cumulative number of salience

attributes—that is, legitimacy, urgency and power—as perceived by

managers.

Severe differences exist among scholars over the significance of

salience attributes. One group emphasizes, for example, the pragmatic

legitimacy, whereas another group advocates that moral legitimacy is

more relevant to stakeholder salience (Eesley & Lenox, 2006; Neville,

Bell, & Whitewell, 2011). Similarly, one group holds criticality as a key

determinant of urgency, while another group suggests otherwise

(Agle, Mitchell, & Sonnenfeld, 1999; Gifford, 2010). Among power

types, Harvey and Schaefer (2001) urge the decisive impact of coer-

cive power, while Parent and Deephouse (2007) support the impor-

tance of utilitarian power to determine the stakeholder salience.

These differences stand unresolved because the subsequent empirical

research

1

has taken the salience attributes as such with no effort to

transcend beyond the epistemological boundaries as defined by

Mitchell et al. (1997).

These unresolved differences have risky managerial implications.

Organizations are surrounded by number of entities and after all,

microfinance (MF) managers have to decide which of these entities

are worth attending. Any imprecise assessment of these entities based

on too generic criterion may be incurable. Marred with differences

over the presence of attributes' types, stakeholder salience framework

and subsequent work do not clearly offer any precise and concrete

criterion (except Parent & Deephouse, 2007) to help MF managers

identifying important stakeholders. This research fills this critical gap.

Perceiving the situation, Parent and Deephouse (2007) differenti-

ate power into three types—that is, coercive, utilitarian, and norma-

tive. They hold utilitarian power has the highest influence on

stakeholder salience. Building on previous work, we integrate differ-

ent types of salience attributes like urgency (criticality and time sensi-

tivity; Mitchell et al., 1997), legitimacy (cognitive, pragmatic, and

moral; Suchman, 1995) and proximity (geographical and organized;

Torre & Rallet, 2005) in this article. Bringing these finely grained

types of attributes (TOAs) into salience framework help us better

answer a fundamental question: How microfinance managers determine

the salience of stakeholders? and to what extent salience translates into

collaboration decision? To answer these questions, we employ multiple

case study design (Eisenhardt, 1989; Yin, 2003), which facilitates the

deeper and within the context examination of TOAs-salience relation-

ship, thus suits our research objectives.

Moreover, our article contributes to extant research in several

other ways. To answer the aforementioned questions, we provide a

Abbreviations: AKRS, Agha Khan Rural Support Program; NRSP, National Rural Support

Program; DAMEN, Development Action for Mobilization and Emancipation; RCDS, Rural

Community Development Society; MF, Microfinance; MFIs, Microfinance Institutions; MFB,

Micro Finance Bank; GM, General Manager; CEO, Chief Executive Officer; NGOs, Non-

Government Organizations; SECP, Securities and Exchange Commission Pakistan; TOAs,

Types of Attributes; PMN, Pakistan Microfinance Network; SBP, State Bank of Pakistan.

JEL classification codes: G21, G34, N25.

DOI: 10.1002/jsc.2300

Strategic Change. 2019;28:479–497. wileyonlinelibrary.com/journal/jsc © 2019 John Wiley & Sons, Ltd. 479

detailed review of stakeholder salience literature, which offers an

updated benchmark on attributes' relationships and prioritization. Our

core contribution, therefore, lies in identifying the scholarly dissen-

tions over (a) definitions, and (b) inclusions of various attributes in

stakeholder salience theory. Moreover, our work reconfigures the the-

oretical lens and examines proximity and network centrality power as

determinants of salience. This helps us better understand phenome-

non of salience from managerial perspective.

Besides, this study conducts a thorough stakeholder analysis in an

enormously progressing sector—that is, microfinance (hereafter MF).

Over 20 percent per year growth has been registered in the MF sec-

tor, during last few decades (International Finance Corporation, 2015).

This remarkable growth has been followed by equally fast institutional

change process (Khurram & Charreire Petit, 2017). Primarily, MF orga-

nizations were not-for-profit with development focus, which then

assumed both for-profit and not-for-profit foci and finally evolved

into purely commercial banks (Battilana & Dorado, 2010; Kent &

Dacin, 2013; Khurram & Charreire Petit, 2017). This drastic evolution

has brought an overall change in salience profile and configuration of

stakeholders—the past salient stakeholders (e.g., Donors) are no more

salient today (Khavul, Chavez, & Bruton, 2013). We have deliberately

chosen MF sector to conduct this particular type of research because

of the fact that MF managers have gone through an exercise of

selecting new stakeholders that they consider are salient and indis-

pensible for collaboration.

This article also offers a deeper understanding of TOAs-salience

relationship in a developing Islamic country's context; Pakistan. It

complements the existing empirical research mainly focusing on the

developed western context. A detailed qualitative treatment of Mitch-

ell et al.'s (1997) salience framework in Pakistani context unveils sev-

eral operational and strategic challenges faced by MF managers; quite

different from their western counterparts. Our study, therefore, offers

several lessons to managers of MF institutions, banks, financial regula-

tors, service providers of MFIs and their stakeholders. On sidelines,

our study also identifies key antecedents to attributes and their

types—a rare contribution in stakeholder salience tradition.

This paper is structured as follows. First, the literature review on

Mitchell et al.'s (1997) stakeholder salience framework attributes of

salience and TOAs is presented. Next, methodology and analysis of

the study is presented. Finally, in summary and conclusion, fundamen-

tal propositions, the limitations of our work, and avenues for future

research are presented. It is important to state that to better organize

the paper and vividly present the information, various salience attri-

butes and TOAs in literature review, analysis and results sections have

been given in catalogue form.

2|LITERATURE REVIEW

Stakeholder theory (Freeman, 1984) has been criticized for its failure

to respond to one important question—that is, which stakeholders are

attended by the managers? To answer it, Mitchell et al. (1997) pro-

posed stakeholder salience model. This framework suggests that

stakeholder's salience is directly related to a cumulative number of

salience attributes (Mitchell et al., 1997).

Past research supports Mitchell et al.'s (1997) stakeholder salience

framework. Notwithstanding the global acclamation and empirical

support, the model still faces serious challenges when it comes to

salience attributes.

2.1 |Attributes of salience

Power: Stakeholder salience framework (Mitchell et al., 1997) is based

on Etzioni's (1964) classification of organizational bases of power and

Pfeffer and Salancik's (1978) resource dependence and agency per-

spectives. It is suggested that a stakeholder carries the ability to use

coercive power—force, threat, litigation, utilitarian power—granting or

withholding of resources and/or normative power—symbolic influence

to impose its will on the firm (Etzioni, 1964). Subsequently, the theo-

retical bases of power attribute have been developed (Driscoll &

Starik, 2004; Neville & Menguc, 2006; Pajunen, 2006). Neville et al.

(2011) suggest viewing power in terms of social network theory.

Organizations with dense network get higher attention from different

stakeholders. In terms of relative centrality of a stakeholder in the net-

work, Rowley (1997) notes that with increased relative centrality,

stakeholders get more access and increased ability to grant or with-

hold access to others on the network. Organizations which are located

more centrally than other constituents on the networks where link-

ages are numerous and interactive possess network centrality power

(Driscoll & Starik, 2004). Such organizations are expected to control

network hubs. Despite its crucial significance in the stream of stake-

holder research, network centrality power has not been examined as a

determinant of salience (Table 1). Therefore, extending this work, we

differentiate power into four types—coercive, utilitarian, normative,

and network centrality—and expect that these four types of powers

affect the stakeholder salience.

Legitimacy: Legitimacy in salience framework is defined “a general-

ized perception or assumption that the actions of an entity are desirable,

proper or appropriate within some socially constructed system of norms,

values, beliefs, and definitions”(Suchman, 1995, p. 574).

In salience model, the role of legitimacy has been vague, multifac-

eted and problematic and must be reassessed (Driscoll & Starik, 2004;

Neville et al., 2011; Suchman, 1995). Suchman (1995) has classified

organizational legitimacy into three types; moral, pragmatic and cogni-

tive. Moral legitimacy is the outcome of favorable normative evalua-

tion of the firm, while self-interested or instrumental evaluation of the

firm results in pragmatic legitimacy. The diffusion of beliefs and

knowledge in such a way that they are taken-for-granted results in

cognitive legitimacy (Aldrich & Fiol, 1994).

Since the onset of salience framework (Mitchell et al., 1997), the

scholarly debate has been continued to affirm if legitimacy is a product

of social construction or instrumental criteria (Scott, 2001; Suchman,

1995). Some researchers underscore the significance of pragmatic

legitimacy (Driscoll & Starik, 2004; Neville et al., 2011), suggesting

that an organizational constituent making resource contributions to

the firm in the form of labor, money, and so on is awarded a

480 KHURRAM ET AL.