What is... Stakeholder Management?

by Ian Worthington on 14th January 2010

There are many different stakeholders whose requirements must be managed as part of a business improvement programme. This article identifies the different kinds of stakeholder, highlights various methods of engagement, and gives examples of best practice.

The concept ‘stakeholder’ is a variant of ‘stockholder’, which relates to ‘investors in’ or ‘owners in’ a firm or business. Stakeholders can be defined as ‘individuals and groups who are affected by the activities of an organisation. The most important stakeholders can be seen as those with most to lose from the organisation’s actions, but this does not always reflect their relative power.’. (Hannagan, T (2002), ‘Management: Concepts and Practices’ P142.) Their goals and objectives vary immensely, but all must be considered.

In the past it had been the common conception that businesses fundamentally rely upon, and in turn effect their economic capital, which is represented in the form of stockholders. The rise to prominence of stakeholders (through studies and reports) has allowed firms to realise that there are people and infrastructure beyond the company which are necessary to it and who must have their interests protected. An organisation’s stakeholders are all parties who can reasonably be understood to be affected by its decisions. They can be deemed to represent the businesses’ social and environmental capital as well as economic. Stakeholders can be of very different and varied guises and also harbour conflicting interests. In the main they can be categorised into three major groups: Internal, Connected and External Stakeholders.

Internal stakeholders include managers and employees and are those that are situated within the company and affect the ‘day-to-day’ running of the organisation. Connected stakeholders cover groups such as shareholders, suppliers and customers, and are parties which invest or have dealings with the firm. The third group, External stakeholders, are those not directly linked to the organisation but who can be influenced or influence activities of the firm through various means. External stakeholders include the Government, neighbours, pressure groups, local councils and the surrounding community.

As well as stakeholders, organisations and the people involved with them are expected to adhere to written and unwritten ethical boundaries. The degree to which these are adhered depends upon as varied a mixture as government enforced action to simply the moral fibre of a manager or employee. On occasions only the ‘eye of the beholder’ can truly acknowledge whether the moral considerations were taken on board when making a decision.

This makes gauging an organisations ethical stance very difficult as the image they portray to the public may not match the internal reality. ‘The ethical environment refers to justice, respect for the law and a moral code. The conduct of an organisation, its management and employees will be measured against ethical standards by the customers, suppliers and other members of the public with whom they deal’ ( HNC / HND BTEC (2002) ‘BUSINESS COURSE BOOK: Organisations, Competition and Environment’ P267).

During the course of this study, the effect of stakeholders and ethical / moral issues on organisations will be investigated at depth using various theories and research

Stakeholders are found in all organisations, businesses or firms – from a local grocer store to huge multinational companies such as Coca-Cola, McDonalds and Microsoft. The number of stakeholders per business will vary as will their importance and influence. The type of organisation or product / service it supplies will also determine its stakeholders. A Public Limited Corporation may have far more stakeholders than a family owned business due to its vast numbers of shareholders. As too might a Nuclear Power Station such as Sellafield which may have many more stakeholders from the environment groups (Greenpeace / ‘Save the World’ etc) / government / local residents / trade unions than a more ‘low risk’ facility or industry. However, as recent events such as the ‘Foot and Mouth Epidemic’ / BSE, and recent reports into colourings in packaged foods, it is impossible to predict when an organisation will gain new stakeholders – either of the wanted or unwanted kind.