Stakeholder theory

Stakeholders and stakeholder theory

I’ve been working on identifying stakeholders for a long time, and the process has really helped me to understand who influences my services and who benefits from it.

In today’s dynamic environment, who our stakeholders are and their influence changes regularly, and so will my list of people to support, cajole and appease.

Who are stakeholders?

The first question (obviously) is: What is a stakeholder?

It doesn’t appear to be an easy question to answer and starts with debate over who has a legitimate claim to the business, its inputs and its outputs.

Below are a series of definitions offered up by a range of academics on the subject; ranging from very narrow at the start, to all-encompassing at the end.

Narrow definitions appear to argue that stakeholders are a small group that are directly affected by the performance of the business because they carry the risk, i.e. the shareholders and owners.

Broad definitions have a moreholistic view thatinclude: groups that are not vital to the organisation, but are affected by its actions, for example, small groups of customersor employees that are affected by decisions, but have little influence over them; to all-encompassing groups, which can conceivably include everyone on the planet (Freeman), or even anything, living or not! (Starik)

In this broader view,is competition a stakeholders? They can be influenced by and can influence a business, but you probably wouldn’t invite them to have a say on your strategy… So do you really need to take the views of stakeholders into account all the time? Or perhaps negative responses to stakeholders would also be acceptable…

Shareholders vs Stakeholders

A modern view is that concentrating only on shareholders is a risk to a business and risks alienating the customers and potential customers, causing reputational damage.

On the other end of the spectrum Eden and Ackerman (1998) argue:

‘Organisations can survive only if they attend to the interests of multiple parties, rather than simply those of shareholders’.

Eden and Ackerman (1998)

This takes into account that the environment in which organisations work as dynamic and therefore businesses need to maintain accountability with a wide range of stakeholders. Information concerning organisations and their activities can be viewed all over the world in moments. Organisations now have stakeholders they never realised they had before. Businesses have now become global whether they want to or not.

In order to have a competitive position, businesses need to be aware of the interests of the wider world if they are to manage reputational risk. Any organisation that does not spend time on establishing a general understanding of the demands and expectations of key stakeholders runs the risk of unexpected circumstances threatening to derail its strategy altogether.

Surely, by concentrating on delivering the best for shareholders, managers should focus on avoiding risk and protecting shareholder interest long-term? What about short-term shareholders? Is there a difference between long-term shareholders, institutional shareholders and short-term opportunist shareholders? According to Freidman and Miles (2006) short-term opportunist stakeholders are closely linked with the concept of maximising shareholder value associated with the ‘Anglo-Saxon’ model of business. Would this conflict with the needs of long-term shareholders that need to maintain long-term reputation?

Personal reflection

With a lack of clear definition, I find myself asking: ”what is the most useful to me?”

Maybe I need to take a step back and ask what is the purpose of my business… My opinion on this will have a profound impact on my view of who my service is run for and where the stakeholder emphasis should lie.

How do I know which shareholder groups are key? And does my view differ from someone in the private sector? And how will my view change if I set up my own business?