Complex networks of stakeholders and corporate political strategy

Abstract

This article makes a theoretical contribution by applying two concepts from complex network theory to stakeholder management and corporate political strategy: systemic shocks and small-world networks. Shocks may be random or intentionally caused by a firm. The nature of a shock determines the urgency of the situation faced by a firm and the legitimacy of managerial decisions. A small-world network is a set of dense clusters loosely connected with one another. This study characterizes the structure of the stakeholders’ network in which the firm is embedded. A firm may be highly or loosely embedded in a given cluster. Embeddedness relates both to the firm’s resource dependence and its quest for legitimacy. Combining the nature of the shock and the degree of embeddedness offers a conceptual framework to explore corporate political strategy aimed at managing stakeholders. When a firm that is loosely embedded in a cluster of stakeholders faces a random shock, it chooses a reactive corporate political strategy. A firm that is highly embedded in a cluster and facing a random shock favours an accommodative corporate political strategy. A firm loosely embedded in a cluster in which it intentionally causes a shock chooses a proactive corporate political strategy. A firm highly embedded in a cluster in which it intentionally provokes a shock adopts a defensive corporate political strategy. Four examples of industrial downsizing understood as systemic shocks illustrate this conceptual framework.