Stakeholders
- Johann Heymann
- Nov 4, 2016
- 5 min read
The Importance of Stakeholders to the Organisation
Stakeholder relationships are becoming a critical component of organisational sustainability. It is imperative that the management of these relationships is effectively factored into the organisation’s strategy and operations. The organisation’s reputation can directly be derived from how stakeholders perceive the organisation, its actions, impact and integrity. The King IV Report on Corporate Governance in states that “There are greater expectations from stakeholders than ever before”. (King, 2016).
Stakeholder Definitions
“Corporations have stakeholders, that is, groups and individuals who benefit from or are harmed by, and whose rights are violated or respected by, corporate actions” (Freeman, 1994)
“[Stakeholders are] … people or small groups with the power to respond to, negotiate with, and change the strategic future of the organization.” (Eden and Ackermann 1998)
Stakeholders and Governance
Understanding stakeholders’ expectations will greatly assist the executive to develop better strategy. Stakeholder relationships should be a recurring item in the governing body’s agenda so that the board can be apprised of the current state of the relationships between the organisation and it’s stakeholders.” (King, 2016)
Stakeholder Relationships
“In order to know and understand the legitimate and reasonable needs, interests and expectations of the organisation’s major stakeholders, management needs an ongoing relationship with those stakeholders. Some organisations have appointed a corporate stakeholder relationship officer whose sole task is to communicate with stakeholders and inform management of their legitimate and reasonable needs, interests and expectations. This officer will also inform stakeholders what the organisation expects of them.” (King IV, 2016)
An integrated report should provide insight into the nature and quality of the
organization’s relationships with its key stakeholders, including how and to what extent the organization understands, takes into account and responds to their legitimate needs.” (IIRC,2013)
Stakeholder Value Approach
“[The Stakeholder Value Approach is a] management philosophy that regards maximization of the interests of its all stakeholders (customers, employees, shareholders, and the community) as its highest objective. Its objective is to maximize this value by following policies that (1) minimize cost and waste while improving the quality of its products, (2) enhance the skills and satisfaction of its employees, and (3) contribute to the development of the community from which it draws its resources and sustenance.”
“People engaged in value creation and trade are responsible precisely to ‘those groups and individuals who can affect or be affected by their actions’ – that is, stakeholders.” Freeman et al, 2010. “Stakeholder Theory – The State of the Art”, Cambridge University
“The ability of an organization to create value for itself enables financial returns to the providers of financial capital. This is interrelated with the value the organization creates for stakeholders and society at large through a wide range of activities, interactions and relationships.” (IIRC, 2013)
Stakeholders and Stakeholder Groups
In the case of the Assess System, stakeholders are considered to be individuals and stakeholder groups as categorised groups of individuals:
Primary Stakeholder Groups - usually consist of internal stakeholders, are those that engage in economic transactions with the business. (For example stockholders, customers, suppliers, creditors, and employees)
Secondary Stakeholder Groups - usually consist of external stakeholders, are those who - although they do not engage in direct economic exchange with the business - are affected by or can affect its actions. (For example the general public, communities, activist groups, business support groups, and the media)
Stakeholder Salience
Identifying the most important, i.e. most salient, stakeholders of the organisation is a key task of the organisation’s management. Mitchel et al describes a methodology which considers the stakeholders’ power, legitimacy and the levels of urgency that may be at hand (Mitchel et al, 1997).
In an article in March 06, 2014, Kenny proposes five key questions that should be asked in identifying the most salient stakeholders (Kenny, 2014):
Does the stakeholder have a fundamental impact on your organization’s performance? (Required response: yes.)
Can you clearly identify what you want from the stakeholder? (Required response: yes.)
Can you clearly identify what you want from the stakeholder? (Required response: yes.)
Can you exist without or easily replace the stakeholder? (Required response: no.)
Can you exist without or easily replace the stakeholder? (Required response: no.)
Assessment of Stakeholder Perceptions
Stakeholder’s perceptions, opinions and beliefs regarding business concepts such as leadership, strategy, people management, integrity and ethics may vary significantly across organisation units and amongst stakeholder groups. Assessments using business frameworks that contain the issues referred to as foundation, appropriately applied, should provide organisations with valuable insight into Strengths, Weaknesses, Opportunities and Threats. These insights can be used to develop improvement plans, interventions and even transformation roadmaps.
Bibliography
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Carrol, A.B. and Näsi, J. 1997. “Understanding Stakeholder Thinking: Themes from a Finnish Conference (Clarkson, M.B.E. ed. 1998)”, Business Ethics – A European Review (Vol. 6, #1, January 1997) 46-51
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