When in decline and attempting a turnaround, stakeholders play a valuable role in a company’s recovery (Trahms et al., 2013). Stakeholder theory provides a theoretical base to assess how the relationship between a company and its pivotal stakeholders can strategically improve the company’s performance (Freeman, Harrison, Wicks, Parmar, & De Colle, 2010). To explore the identification and influence of stakeholders in business rescue, stakeholder theory is used as the guiding lens.

At the outset, it is valuable to recap the key definitions of stakeholders as they have evolved with stakeholder theory (Mitchell, Agle, & Wood, 1997). The classical theory by Freeman (1984) outlines stakeholders as any group that can have an influence on or can be influenced by the organisation’s objectives. Clarkson (1995) further defines stakeholders as a group that can have a claim, ownership, rights and interest in an organisation and its operations. In later years, the classical definition by Freeman remains the most broadly acknowledged definition of a stakeholder (Fassin, 2009).

Donaldson and Preston (1995) identify three fundamental approaches in classification and identification of stakeholders. The first approach is instrumental stakeholder theory, based on the economic model of stakeholder identification. The second, seen as the most fundamental, is the normative view which adopts the ethical view argument of cooperation and community. The third, based on how stakeholders are actually managed in practice, is the descriptive stakeholder theory. Mitchell et al. (1997) presented a model that categorises stakeholders through their control of power, legitimacy and urgency. The model by Mitchell et al. (1997) is criticised for overlooking the distinct levels of the characteristics and the challenge of separating power and legitimacy in practice (Pajunen, 2006).

Friedman and Miles (2002) addressed some of the limitations of earlier models by assigning stakeholders into four categories based on stakeholders’ compatibility or incompatibility and whether the relationship between the company and the stakeholders is necessary or contingent. This model attempts to address the question of why some stakeholders have more influence and legitimacy over organisations.

Pajunen (2006) created a model referred to as the ‘model for stakeholder influence identification’ which demonstrated that stakeholders’ identification and influence during corporate survival is in the form of direct resource dependence and network position-based types of power. The model classified stakeholders into three categories: governing stakeholders, potential stakeholders, and minor stakeholders with no influence. The study carried out by Pajunen revealed that shareholders usually have resource dependence power based on the resources, knowledge of the firm and the ability to provide finance during the organisation’s decline. Additionally, network-based influence emanates from an intermediary stakeholder with the ability to link other stakeholders and become the focal point regulating information and resources (Pajunen, 2006). The model by Pajunen provides a theoretically robust method to define and identify stakeholders that are influential during the organisation’s decline.

Mainardes, Alves and Raposo (2012) carried out a study with the aim to overcome the limitations of the earlier stakeholder models, namely the classification model by Mitchell et al. (1997). The model identified six stakeholder classes which were dependent, passive, partner, controller, regulator and non-stakeholders. Miles (2017) looked at producing a thorough, all-inclusive stakeholder theory after the review of 593 various stakeholder theory definitions. The classification model suggested four superordinate terms relating to stakeholder classification and identification, namely influencers, claimants, recipients and collaborators.

Given the different classifications of stakeholders provided by Mitchell et al. (1997), Pajunen (2006) and Friedman and Miles (2002), Miles (2017) argues that the multidimensional classification is more comprehensive and pragmatic in consolidating, clarifying and ordering the concepts of stakeholder classification and identification.

In conclusion, it is noted that different stakeholders yield power, resources, network positions and compatibility which may be influential when the company is in business rescue. Stakeholder identification and classification is therefore relevant in tackling organisation decline. Additionally, early involvement and identification of stakeholders is beneficial to success in the turnaround process (Decker, 2016). Benefits are sought by managing all key stakeholders proactively during the decline of the organisation rather than focusing on one stakeholder to the detriment of the others (James, 2016). In relevance to the study, stakeholder identification, influence and classification seeks to address the first and second questions of the study.

The themes shown in Table 2 relate to BRPs’ understanding of stakeholders in business rescue.

Rosslyn-Smith and Pretorius (2015) acknowledge affected parties as stakeholders but notably recognise all other stakeholders as stakeholders through section 7(k) of the Companies Act, which requires business rescue to balance the rights and interests of all relevant stakeholders. As noted by Fassin (2009) the classical stakeholder theory by Freeman (1984) remains the widely used definition. The definition incorporates the broad view of stakeholder management as indicated by the views of the participants. The findings indicate that the first instinct of the participants was to describe stakeholders as affected parties; however, through further probing, reference was made to the broad view and parties were influenced by the outcome of the business rescue.

The findings demonstrate that the affected parties are seen as the primary stakeholders. It could be argued that the BRP’s primary focus is the affected parties and that, as noted from section 144 to 146 of the Companies Act, the affected parties have rights and powers that are protected by legislation. This view supports the work by Rosslyn-Smith and Pretorius (2015).

To adequately answer the research question, it is important to understand who the key stakeholders are that BRPs consider in the process of ensuring that the business rescue process is successful. Although stakeholders vary from case to case, the BRPs provided a list of stakeholders they considered to feature prominently in the business rescue proceedings they had been a part of.

From a literature perspective, Donaldson and Preston (1995) identified three approaches to identifying stakeholders: the instrumental, normative and descriptive view. There is limited evidence that the BRPs use the normative view and the descriptive view. The instrumental view, which considers the economic and financial views in the determination process of identifying stakeholders according to Donaldson and Preston (1995), and the resource-based view, which focuses on stakeholders who contribute with resources as argued by Pajunen (2006), are more pronounced in the findings.

All the respondents included creditors, employees (unions) and shareholders as stakeholders, which aligns to the affected party definition in the Act. Observations from Figure 1 indicate customers and government or regulators are seen to also rank highly as stakeholders. This demonstrates that stakeholders extend beyond affected parties. Customers unexpectedly have the same number of respondents as affected parties. From literature, Freeman (1984) noted general stakeholders to include customers. While in studies regarding turnarounds or business rescue, James (2016) and Levenstein (2016) consider customers as key stakeholders. Business rescue literature does not appear to cover customers and their impact on a successful business rescue. Based on the findings a valid question is whether customers should also be considered affected parties.

This aspect of the findings intends to establish the approach by BRPs on prioritisation of stakeholders in the realm of business rescue. In line with stakeholder theory, once stakeholders are identified, it is important to prioritise them such that emphasis is placed on relevant stakeholders to ensure success.

The findings indicated that 62% of the respondents prioritise stakeholders, while 31% took a balanced approach without prioritisation and 7% focused on prioritising employment. Employment emerged from the discussions on prioritisation. The BRPs indicated that preserving jobs was one of their leading priorities.

The views of the participants and the literature are aligned in respect of prioritisation of stakeholders. Mainardes et al. (2012) and Miles (2017) prioritised according to influence and Henisz, Dorobantu and Nartey (2014) took the instrumental view in prioritisation; however, James (2016) advocates for the management of all stakeholders proactively but acknowledges that it is not always possible, thus one may need to prioritise. The views of the participants in favour of prioritisation are in line with the literature; however, it is also important to discuss the views of the participants that take the alternative view, the balanced approach.

Approximately a third of the participants took a balanced approach to managing stakeholders in business rescue. The approach taken by the respondents is in line with section 7(k) of the Companies Act which requires the business rescue to balance interests and rights of all stakeholders (the Companies Act, No. 71 of 2008). Within literature, the balanced approach is supported by Harrison, Bosse and Philips (2010) in the context of stakeholder theory by arguing that the broad stakeholder approach results in the organisation achieving a competitive advantage. From a business rescue perspective, Rosslyn-Smith and Pretorius (2015) and Conradie and Lamprecht (2015) recognise the balanced view in line with section 7(k) of the Act: the view of not prioritising aligned with Chapter 6 of the legislation. In summation, it can be suggested that BRPs prioritise stakeholders during the business rescue process and appear to take note of section 7(k) of the Act which requires them to take a balanced approach.

Employment emerged as a theme in discussing the prioritisation of stakeholders. The aspect of employment is linked to the objective of business rescue and is also one of the indicators of a successful business rescue as put forth by Pretorius (2015). Within the literature Levenstein (2016) and Conradie and Lamprecht (2018) are in consensus with Pretorius that a successful business rescue will result in the preservation of jobs. The findings reflect the views of the participants, which are aligned with literature, in that employment is a key aspect of business rescue. The BRPs focus on ensuring that they save jobs, whether through the prioritisation of stakeholders or by taking a balanced approach.

The BRPs were requested to rank stakeholders in terms of their influence in a successful business rescue process.

The results below indicate responses from 10 participants out of the 13 interviewed. Three participants were firmly against the ranking of stakeholders as they noted that their rankings differ from case to case depending on the nature of the rescue. The 10 that provided rankings provided them based on their general experience from the business rescues that they had undertaken. In their rankings, they took cognisance that variations may occur. The results of the ranking are presented in Figure 2. The rankings in Figure 2 are based on the top three stakeholders of each participant.

The discussion to follow reflects upon the stakeholder ranking in terms of influence but also seeks to understand why participants consider each stakeholder influential.

Creditors are ranked as the most influential stakeholder for their ability to vote and support the business operations. This aligns with Le Roux and Duncan (2013) and Pajunen (2006), confirming that suppliers provide resources that the organisation requires to support its operations. While in the literature the views may vary, the BRPs interviewed consider secured creditors influential but not as highly ranked as some other stakeholders.

Banks do not easily advance PCF to businesses in distress; security or surety is usually required before they decide to offer PCF (Pretorius & Du Preez, 2013). It could be considered that although PCF is impactful, due to the challenges in obtaining PCF and other avenues that BRPs may pursue, PCF providers are ranked third after creditors and employees as the most influential stakeholders.

Employees occupy the second ranking in the listing of stakeholder influence according to the respondents. Employees are affected parties as defined by the Companies Act and thus have powers and rights protected by section 136 and section 144 of the Act. Levenstein (2016) views these powers as contributing to the influence that employees may have as they have to be consulted during the business rescue process. Additionally, their conditions of employment may not be altered unless agreed upon by mutual consent. Trahms et al. (2013), referring to their importance for a company in distress, note that the influence of employees and top management is evident.

The participants highlighted the importance of a ‘jockey’, meaning a person in the organisation that will provide management and leadership to support the BRP. The importance of management supports the view of Trahms et al. (2013) that top management is crucial and has an influence on a successful turnaround. Similar to employees, top management enjoy the rights and powers afforded by section 136 of the Companies Act which may lead to top management being influential (Joubert & Loubser, 2016). The legislation provides them with the ability to exert their influence.

The terms ‘government’ and ‘regulators’ were used interchangeably and featured in all the rankings of this study. Although not highly ranked, regulators were viewed by the participants as key stakeholders in business rescue and as influential in the business rescue process. The findings indicate that the SARS may be particularly impactful as, in terms of the Income Tax Act, the SARS is a preferent creditor in liquidation but not in business rescue (Levenstein, 2016). As a creditor, the SARS may have the swing vote and the business rescue plan’s acceptance may hinge on this vote. The appearance of the SARS as an influential stakeholder is supported by the legislation and the views of the participants.

Shareholders are also affected parties as defined by Chapter 6. From the ranking list, shareholders have been ranked fifth in terms of influence. It must be noted that shareholders may also be creditors but may have limited influence and BRPs do not focus on the shareholder when rescuing a company in distress.

This view mirrors the literature and legislation which limits the powers of the shareholder. Pajunen (2006) has an alternative view: shareholders have resource-based power derived from resources they hold and the knowledge they possess. This aspect has not been demonstrated clearly in our findings. Shareholder influence in business rescue may differ from that in a turnaround as Chapter 6, section 146 of the Companies Act plays an important role in the influence shareholders may exert in business rescue.

The BRPs were requested to draw upon their experience and give a general view on the factors that contribute to stakeholder influence. Table 3 illustrates the factors that the BRPs considered relevant to a stakeholder’s influence during business rescue. The table displays the source of the factors which may be resource, network based or legislative.

What is of interest in the findings is that security is ranked second. However, the respondents did not mention security to the same extent as the other factors that are ranked second such as suppliers, voting interest, PCF and the ability to support business continuity.

The top factor relates to the ability of the creditors to use the value of the outstanding amount to influence the voting process. This is essential to the adoption of the business rescue plan and is the first major step towards a successful business rescue.

The resource-based view dictates that stakeholders with resources essential to the organisation have a compelling lever to influence the organisation to recover from decline (Pajunen, 2006). The resource-based view amplifies the instrumental view which identifies stakeholders through their economic or financial impact (Donaldson & Preston, 1995). Table 3 indicates that most of the factors identified by BRPs are resource-based factors.

Participants made reference to the competence and ethics of the BRP as a determining factor of the success of the business rescue. The main themes identified from the interviews were BRP expertise, BRP ethics and the Diener case.

A BRP’s expertise refers to the BRP, as a professional, being suitably qualified and skilled to take on the dynamic business rescue process. The BRP should be competent enough to ensure that an equitable outcome is achieved as required by the Companies Act in terms of section 7(k). The findings indicate that 62% of the respondents referred to BRP expertise and knowledge compared to 38% who did not refer to BRP expertise during the interviews.

This theme relates to the ethics and values of the BRP in their conduct of the business rescue assignment. The expectation is that the BRP will act in the best interest of the stakeholders and act in an honest and trustworthy manner. The findings indicate that 77% of the respondents referred to BRP ethics compared to 23% who did not refer to BRP ethics during the interviews.

In discussing the competence, skills and ethics of the BRP, discussions led to the question on the fees paid to BRPs. The Diener case makes it risky for a practitioner to charge fees to take on a business rescue that should be in liquidation. The BRP’s fees and expenses are ranked preferably in business rescue but should they remain unpaid in a business rescue that goes to liquidation they will be treated as concurrent. The views of the participants were not unanimous. Some participants seemed to support the Diener judgement as a way to curb unethical BRPs. The neutral responses noted that as much as the judgement may curb unethical behaviour BRP fees still needed to be paid.