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The changing role of stakeholders

The changing role of stakeholders

How the traditional roles performed by corporate stakeholders are shifting alongside the prevailing capitalist theory.

The traditional role of stakeholders

The business textbook definition of a corporate stakeholder is any individual or organisation with a vested interest in the performance of a company. These stakeholders and their various roles fall into very distinct categories, making their perspectives and priorities easy to identify. A straightforward, top-down model that allows businesses to take appropriate action to keep all types of stakeholders on side. 

Internal stakeholders have roles directly impacting the management of the business:

  • Board of directors: Responsible for the direction of the organisation
  • Management team: Enacting board-level decisions and balancing stakeholder demands
  • Employees: Team members harnessing their talent for the company’s gain
  • Investors: Driving share price and corporate value, and business performance in the pursuit of returns and through voting rights.

External stakeholders have a more remote influence on the company:

  • Customers: Impacting the bottom line through purchasing decisions
  • Suppliers: Ensuring business continues uninterrupted, influences product quality and delivery
  • Creditors: Controlling cash flow
  • Regulators: Defining and enforcing legislated behaviours
  • Local communities: Allowing operations to continue unhindered, supplying customers and employees
  • NGOs: Influencing public opinion and impacting reputation.

As well as being defined as internal and external, stakeholders are traditionally viewed as being of either primary or secondary importance to the business. Which category they fall into depends on the degree of impact they have. Primary stakeholders are those whose behaviours have the greatest ramifications for the organisation – often its shareholders, customers and employees. Secondary stakeholders can only affect the organisation in an indirect or minor way, by influencing its primary stakeholders.

This traditional view of the role of stakeholders holds the company separate from them, walled off within its battlements, choosing when and how it will interact with the stakeholders without the walls.

This command-and-control formula is defined by the corporation’s own interests, rather than as a response to its stakeholders’ requirements. 

The shifting role of stakeholders 

These formulaic stakeholder roles can continue to be assigned as long as a shareholder-centric model persists. But that traditional paradigm is currently being called into question, reshaped by stakeholder capitalism and the ESG (environmental, social and governance) agenda.

With a change in perspective on what capitalism means, so we are seeing a change in the accepted roles of both primary and secondary stakeholders. 

With its focus on shared value creation for all, stakeholder capitalism redresses the balance between stakeholder groups, creating a more equitable model with different levels of priority. In the context of stakeholder capitalism, the role all stakeholders are playing is increasingly direct and far more impactful. They are holding companies to account, and steering, and in some respects driving, corporate decisions, actions and behaviours.

In an ever more interconnected, hyper-transparent world, digitisation and social media have given secondary stakeholders a platform from which to wield greater influence over their primary counterparts.

Their opinions count for more, their actions and reactions are publicly broadcast, and their expectation is that the corporations will listen when they speak. 

As a result, there is a more open, constant dialogue between the corporations and their stakeholders than ever before. The castle walls have been breached, and stakeholders are becoming the arbiters of corporate behaviour.

The future role of stakeholders

The shift to a stakeholder capitalism model is still a work in progress, and is by no means complete – or even certain. There has also been pushback against it by those who feel a shareholder-centric perspective offers a greater guarantee of financial performance and a better bottom line. There is, of course, always a possibility that the business world will revert to the investor-led principles of short-term gain and maximising shareholder value (MSV).

Nonetheless, this looks unlikely. The growing importance of ESG means that companies have to look to their governance, which in turn requires them to consider all of their stakeholders’ perspectives. The increasing pressures on companies to do well on ESG issues is likely to result in the principles of stakeholder capitalism being both codified in regulation and embedded in corporate reputation.