Managing Stakeholders

A stakeholder is a person or entity with an interest or concern in the fortunes of a business or organisation. They may have the power to have an impact on the organisation or they may be affected by it – positively or negatively.

Stakeholders can be internal (within the organisation) or external (outside the organisation) Different stakeholders may have different interests and expectations.

Directors have a legal duty under s.172 of the Companies Act 2006 to consider the interests of stakeholders and the consequences that the company’s decisions may have on them.

So, who are these stakeholders and how can we manage them?

The most obvious stakeholders within a company are its shareholders. As owners of the business, they will be concerned that the firm is making a profit and will expect the directors to run the business in a way that promotes its success. Profit helps the business survive and grow and can also provide financial reward for its owners.

Another key group of internal stakeholders are an organisation’s employees. Employees may be interested in job security, good working conditions and wages, job satisfaction and career progression. Reckless decisions taken by directors, risk not only the investment of the shareholders but also the livelihoods of the people who work for the business.

Externally, stakeholders include the business’s customers and consumers. Customers should be treated fairly. They expect a reasonably priced product or service delivered at the appropriate standard or quality. They may further expect to have ease of access to this product or service. In the regulated environment there are also clear guidelines concerning the fair treatment of customers.

Consideration should also be given to the relationship the business has with its suppliers and its creditors. Beyond this, firms also need to consider the impact that they have on the environment, the community in which they operate, and wider society.

It can be a challenge to achieve this, as the interests of the various stakeholders can sometimes be opposed. For example, in the pursuit of higher profits, the needs of certain stakeholders (i.e. the owners) may conflict with those of other stakeholders, such as the employees, if the way to achieve those profits is to cut jobs or keep wages low.

Directors need to be able to prove that they have taken stakeholder interests into consideration when making decisions. Businesses may need to decide which of its stakeholders are likely to benefit and which are likely to lose out. They need to consider these conflicts and respond accordingly.

Stakeholders have various levels of power, influence and interest. Primary stakeholders are those with the most influence. These include the shareholders or owners of a business. Customers, particularly big clients, are very influential too. Businesses do not want to lose their customers to competitors. Naturally, high power and high interest stakeholders are likely to assert the greatest level of influence and businesses will often try to satisfy these interests. People who are likely to be affected by the decisions of a business may also be considered primary stakeholders in some circumstances.

Secondary stakeholders, on the other hand, are the groups who are interested in the fortunes of the organisation but are not influential in shaping its destiny, perhaps due to a lack of power. Alternatively, they may be only moderately affected by the decisions made by a business and therefore only marginally interested in its activities e.g. the local community in which the business is based.

Stakeholders, especially primary stakeholders, need to be kept informed about progress and issues regarding the business, project or organisation in which they are interested.

This may take the form of:

• Accounts
• Regular reports

Stakeholders, for instance, are likely to be interested in knowing if the organisation is meeting its key performance indicators.

When engaging or communicating with stakeholders, it is useful to categorise them into four areas. This will help you choose how often to communicate and in what manner.

Clearly, the most important stakeholders to engage with regularly are those with high power and high interest. Those with low power and low interest may not require much engagement

It is important not to generalise or be too superficial when considering the interests of stakeholders. Their motivations and agendas will, of course, vary. It can be challenging but an effective Board will be mindful of its stakeholders and make decisions accordingly.