Stakeholders

A Stakeholder View

A stakeholder in an organisation is . . . “any group or individual who can affect or is affected by the achievement of the organisation’s objectives”.

Typical corporate stakeholders include customers, shareholders, suppliers, employees, host communities or countries (where the company has operations) and various other parties. To this list might be added other individuals and groups that may affect the company’s success, even though they may not be usually affected by the company’sactivities, such as regulatory agencies and the media.

The stakeholder concept is useful in ethical analysis because it provides a framework for weighing obligations and gauging the impact of decisions on all relevant groups, not just the firm and its managers.

Are all stakeholders equally important?

It may be helpful to distinguish between the primary, indirect and secondary stakeholders.

Primary stakeholders have a formal, official or contractual relationship with the firm so include owners, suppliers, employees and customers of the organisation.

Indirect stakeholders have an ongoing or abiding interest in the firm but no direct transactional contact such as citizens who may be affected by pollution.

All others are classified as Secondary stakeholders who would encompass public interest groups, the media, consumer advocates and local community organisations that have occasional interest in the various corporate activities.

For example, the amount of paper and plastic packaging generated by fast-food chains may be a concern of local environmental groups, while the media may be more interested in the firm’s treatment of its minority employees.

Although primary stakeholders have a direct relationship with the firm, circumstances would suggest they should not always receive the greatest weight by a manager determining which particular strategic option to choose.

For instance, an action that may be in the best interest of shareholders and customers – perhaps building a distribution centre on recreational parkland – may be villainised by the media (a stakeholder group) to the local community (another stakeholder group), generating overall public opinion (a third stakeholder) against the project.

Organisations that subscribe to the stakeholder concept largely try to see that its primary stakeholders attain their objectives while at the same time keeping other stakeholders satisfied.

One management expert characterises the goal of stakeholder analysis as creating the classic “win-win” situation for all stakeholders.

In other words, the task of management is to seek solutions that will ideally achieve the goals of all stakeholders. Failing that, management must at least select options that generally optimise net stakeholder benefits.

Increasingly, more and more organisations are accepting the stakeholder concept. They are beginning to develop procedures for linking stakeholder concerns to the strategies they conceive. In order to implement a stakeholder management approach, organisations need to do several things, including the following:

• Identify the company’s stakeholders
• Determine which ones are primary, indirect and secondary as well as exactly what stakes each group holds in the organisation
• Establish what responsibilities (economic, ethical, legal or philanthropic) the organisation has to each stakeholder group
• Identify any conflicts between stakeholder criteria
• Decide how the organisation can best respond strategically to the opportunities and threats inherent in stakeholder claims, especially where conflicts are likely to require creative compromises

Again, the rights and interests of various stakeholders are important, as they are the objects (some may say moral subjects) to which the different ethical theories or frameworks are applied.

Since a large part of ethics is deciding what is properly owed to whom, identifying stakeholders and their claims is analogous to establishing the interests in a legal case.

Consider the example of a public relations firm asked to represent a foreign country seeking economic development as a client. Suppose the country has acceptable diplomatic relations with your country but is also accused of violating human rights.

The stakeholders include the employees of the public relations agency, your government, the client country’s government, the shareholders of the public relations firm, other customers, the media as well as the citizenry of both your country and the nation being considered as a client.

Each group might very well view the ethical stakes involved in this controversy from a different perspective:

• the employees of your PR firm are concerned with their right to earn a living;
• your government may be preoccupied with maintaining cordial relations with the developing country;
• shareholders are motivated by the prospect of a client signing a lucrative, long-term contract; whilst
• the media may be energised by the news value associated with the apparent hypocrisy of helping a government most local citizens find abhorrent – which may also complicate the firm’s ability to service its less controversial clients.

Meanwhile, the prospective client nation’s citizens may be torn between

• the value of anticipated improvements in their economy and
• dismay that such improvements may imply foreign approval of their country’s human rights record.

The complexity of stakeholder analysis is apparent from this example.