Instrumental stakeholder theory proposes a positive relationship between fairness toward stakeholders and firm performance. Yet, some firms are successful with an arms‐length approach to stakeholder management, based on bargaining power rather than fairness. We address this puzzle by relaxing the assumption that all stakeholders care about fairness. Empirical evidence from behavioral economics and social psychology suggests that firms face a population of potential stakeholders that consists not only of so‐called ‘reciprocators,’ who do care about fairness, but also of self‐regarding stakeholders, who do not. We propose that a fairness approach is more effective in attracting, retaining, and motivating reciprocal stakeholders to create value, while an arms‐length approach is more effective in motivating self‐regarding stakeholders and in attracting and retaining self‐regarding stakeholders with high bargaining power. Copyright © 2013 John Wiley & Sons, Ltd.