Ultimate Guide To Stakeholder Management
When asked to name the key players in a business or industry, we often hear the word “stakeholders”, and how integral they are in the grand scheme of things. However, we rarely look past the word and learn more about them, or the concept behind them. They are most often identified as business owners, partners, stockholders, investors, customers, or collaborators. But there is a more apt term for them, and for how businesses should manage their relationship with them.
In this guide we 1) clarify the stakeholder concept and 2) provide an introduction to stakeholder management.
THE STAKEHOLDER CONCEPT
Gaining an understanding of the stakeholder concept requires defining some of the key terms used.
Stakeholders are the individuals, groups or entities that have their own sets of interests, expectations and demands from a business, and even shares in a business undertaking. If something within a business changes, they are the ones directly or indirectly affected. The interests, demands or shares refer to the stakes owned by the stakeholders. Stake can be further categorized into interest, right, or ownership.
Identifying the Business Stakeholders
In any business environment, there are two general categories for stakeholders:
Primary stakeholders are composed of stakeholders with direct involvement or stake in the organization. They are directly interested in, or are directly affected by, the progress of the business operations. In short, they will directly benefit from the success of the business (and suffer from its losses). Those who fall under this category are:
- Employees, or unions of employees, including team leaders
- Owners, shareholders and investors
- Management, including the executives and line managers
- Lenders, including banks
Secondary stakeholders are groups or individuals that have a special interest or a public stake in the business. They include:
- Consumers / customers, or the end users of the business’ products and/or services
- Partners, or other collaborators such as suppliers and distributors
- Government, or other regulatory bodies
- The general public or the community, including civic, environmental and social groups
The classification of primary and secondary stakeholders will be dependent on the business, its nature, and how it conducts its business. Some organizations may consider customers as their primary stakeholders, while others deem them to be secondary.
We can also classify business stakeholders depending on their roles in the business environment.
- Core stakeholders. These are the stakeholders who play a vital role in the survival of the business.
- Strategic stakeholders. Businesses continuously face threats and are presented with opportunities during the course of its life. These stakeholders play major roles in addressing these threats and identifying and taking advantage of the opportunities.
- Environmental stakeholders. All other stakeholders who do not fall under Core and Strategic classifications, but exist in the business environment of the organization, are lumped into this category.
The Stakeholder Views
The traditional view on stakeholder management is that the shareholders are the “only stakeholders who matter”. Therefore, the business should make profit in order for the shareholders to take their share in the profit of the business.
But that is no longer a conclusive view, as more stakeholders have been gaining recognition and established themselves to be just as important. In fact, customers are said by many business experts to be one of the most important and powerful stakeholders. This is in recognition of the fact that the long-term value of a business can be cultivated and nurtured if you start by keeping your customers satisfied.
The three views of stakeholders are:
- Strategic view. Management is primarily concerned with leading the company to earn profits, which will then be given back to the shareholders. There are many factors at play in management’s plans and actions in increasing the business’ revenue generation. In the strategic approach, the stakeholders are deemed one of those factors having great influence over the profit-generation aspect of the business.
- Multi-Fiduciary view. In this approach, management is considered to have a fiduciary responsibility to stakeholders of the business. Meaning, the business, through its managers, will take care of the money, assets, or the stakes of the stakeholders, who are leaving them in the former’s hands out of trust.
- Synthesis view. Management recognizes the role and importance of stakeholders, but they do not have a fiduciary responsibility to them. Rather, their responsibility to the stakeholders is more of an ethical one.
Stakeholder management is sometimes overlooked, with managers becoming largely unaware of what the company can achieve when it is effectively administered.
It builds robust and solid relationships between the business and its stakeholders. Stakeholders are likely to remain loyal to a business that they know is looking out for them. Trust is a vital ingredient for any relationship to work – and last – and stakeholder management is a great tool for building and fortifying that trust.
It improves the organization’s good reputation. Naturally, potential stakeholders will be drawn towards businesses with excellent stakeholder management.
It contributes to the overall growth and development of the business. By maintaining very good relationships with stakeholders, you are ensuring the business’ longevity. More groups of stakeholders would definitely want to work with your business, and help it succeed.
In stakeholder management, there are five core questions that must be answered.
- The identity of the stakeholders. Stakeholders are important because, without them, the business will not be able to operate. Businesses need the consent and support of the community and the public, as well as various regulatory agencies, in order to start operating and continue to do so. They also require the support of investors and lenders to get the financing they need. Employees are also required for the manpower and human resources of the company. Of course, the customers cannot be left out, because it is them who will pay for the business’ products and services. Basically, the entire existence of the business is reliant on stakeholders. You can start with identifying large and generic groups, and then sub-divide them into more specific groupings or units. For example, in the Employees group, you can further divide them according to age group, gender, or specialization within the business.
- The stakes of the stakeholders. What are their stakes? How powerful have they become because of these stakes? Are the stakes valid or legitimate? Identifying the stakes will also tell you a lot what these stakeholders want from the company. This will enable management to identify those that have greater stakes than others, so they can prioritize. All stakeholders are important, but there is also a need to identify those who are most important, and knowing what their stakes are is very useful. In the long run, the business will also be in a better position to balance stakeholder interests.
- The challenges and opportunities presented by the stakeholders. What are the opportunities that can potentially improve the relationships of the business and the stakeholders? On the other hand, what issues and challenges often crop up with respect to these relationships? This is also where you will identify the urgency or timing that will be needed for communicating with them, because communication is key towards maintaining a good relationship with stakeholders.
- The organization’s economic, ethical, legal, environmental and philanthropic responsibilities and accountabilities. What is expected of these stakeholders in the mentioned aspects?
- The strategies and actions to be performed. By getting the previous questions answered, management can come up with an action plan geared towards managing the challenges and opportunities presented by the stakeholders and their stakes.
Principles of Stakeholder Management
Let us take a look at the “Clarkson Principles”, or the seven principles that managers should adhere to in their stakeholder management approaches.
Acknowledge and monitor. Managers should first identify the legitimate stakeholders and what their respective stakes are. Then they should acknowledge the fact that stakeholders are major players in the business and should therefore be factored into the decision-making process involving all aspects of the business, including its operations. Continuously monitoring the concerns of the stakeholders is already a form of acknowledgement.
Listen and communicate. The best way to find out the concerns of your stakeholders is to listen and communicate with them directly. The message must be conveyed clearly so it is also understood and will trigger the desired response. By maintaining open lines of communication, you will be kept up to speed on the concerns as well as contributions of the stakeholders. They are also bound to inform you of the risks that come with their stakes in the business, and this will, in turn, figure directly or indirectly into the management’s decision-making processes. Communication should also be done in an integrated manner. It is a fact that there are different ways to communicate, so you should do so depending on who you are communicating with. Employees, for instance, react better when communication is done on a face-to-face basis, as frequently as possible. Regulatory agencies that the business has reportorial responsibilities to will only be communicated to on predetermined times. Investors, on the other hand, are communicated to depending on standards or guidelines.
Adopt. Accept the fact that stakeholders are not the same. How you deal with one group may not give the same results when applied to other groups. An approach that works with employees, for example, does not necessarily mean it will work with the consumers, and vice versa. Therefore, there is a need for the business to assess the appropriate modes of behavior for each stakeholder group and adopt them accordingly.
Recognize interdependence. Stakeholders vary depending on their stakes. Some take more risks than others with their stake in your business. There are stakeholders who put more effort into the business than other stakeholders, even if they have the same ownership share. It is now up to the management to try to figure out a way to distribute the benefits and rewards in a fair manner, taking into consideration the interdependence of efforts, results, risks, rewards, and vulnerabilities.
Work and cooperate. Business comes with inherent risks, or risks that cannot be entirely avoided. It is just a matter of minimizing those risks and lessening the negative impact. Managers are expected to cooperate and work together with other groups and entities in order to minimize these risks.
Avoid questionable activities. All acts associated with the business will, in one way or another, affect the stakeholders. Illegal acts, crimes, and other activities that could bring harm to others or could result to business, property, and life and limb being put in danger must be avoided at all costs by management.
Acknowledge conflicts. Almost always, you can expect conflicts to arise with the managers. After all, they, too, are stakeholders of the business. They are bound to come across issues that will make them conflicted between their position as stakeholders and that of the other stakeholders of the business. The first thing they should do is to acknowledge that these conflicts do exist, and they may potentially arise in the course of running the business. By acknowledging it, they will be in a better position to put into place measures that will lessen the negative impact of these conflicts of interest. Perhaps they could set up better communication lines with the other stakeholders and other control and review protocols to maintain transparency and protect the interest and stakes of everyone concerned. They will be better able to compromise, since they are fully cognizant of how divergent some stakeholders’ (including them) priorities are.
Four phases of Stakeholder Management
The principles discussed can be compressed into four phases:
Phase 1: Stakeholder Mapping
This is basically the identification of stakeholders, in accordance with the strategy and overall goals of the organization. Categorize them either as primary or secondary stakeholders.
The most recommended basis of segmenting your stakeholders would be on their power, or the level of their ability to have an impact on your business or organization. Between your shareholders and employee union leaders, for example, the one that has more power would be your shareholders.
The identification of stakeholders should not be limited to the existing stakeholders. Managers who are looking far ahead are also going to identify the potential stakeholders.
Phase 2: Stakeholder Listening
The best way to gain insight into your stakeholders is by listening to what they have to say. They are bound to have questions of their own, which you must address. Aside from formal and informal modes of communications, this can also be done through environmental scanning, research and monitoring. Some businesses even undertake this stage by conducting surveys and interviews.
Managers are encouraged to ask questions. It is a fact that not all information is going to be handed to them readily. If they want to know something useful or relevant, there is nothing wrong with asking the questions outright. When listening to the stakeholders, they should also show empathy. Stakeholders prefer knowing that they are dealing with humans, instead of machines.
After collecting all relevant information on the issues and position of the stakeholders, analysis will follow.
Phase 3: Stakeholder Profiling
The information acquired from Stakeholder Listening will then be used to profile the stakeholders, and start identifying or coming up with strategies. Note that managers will have to make decisions and formulate strategies while always taking into account how these will impact the stakeholders and their stakes in the business.
It is the responsibility of management to develop a management strategy for its stakeholders. In addition, they are also tasked to develop the appropriate responses and actions that are needed to build support for their stakeholder management strategy.
Managers could come up with the following stakeholder profiles:
- High power, high interest
- High power, low interest
- Low power, high interest
- Low power, low interest
Phase 4: Stakeholder Engagement
Again, as mentioned earlier, a company cannot have a single communication program for all the stakeholders. Each stakeholder group has to have its own communication program or tool, since there are simply aspects of one program that will work for one but not for others. Stakeholder engagement is a two-way process, so it is something that takes place between the business and the stakeholders. It’s not just the business taking active part in the engagement activities.
Stakeholder engagement will also vary depending on the stakeholder. For example, in the four profiled groups, managers are likely to decide to keep closer tabs on the stakeholders with high power and high interest, providing them with periodic updates through logs and emails, and conducting regular status meetings with them. As for those with low power and low interest, they would probably just monitor them, and sending status reports from time to time.
Stakeholder management may fall largely on the shoulders of the management. However, it involves the organization as a whole. Therefore, develop and implement strategies using a coordinated organization-wide approach.
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