Types of stakeholders and their role in the company
IIn the modern business world, ‘authenticity’ is arguably the primary factor in creating a positive public image. A company’s objectives, character and ability to generate profits determine its overall authenticity and, in turn, its ability to grow both internally (increasing staff numbers) and externally (attracting investors or support from other companies/organisations).
These people or groups who become involved with the company are known as stakeholders. It is vital that companies build healthy and balanced relationships with them as ultimately, the company’s reputation is determined by how well they meet their stakeholders’ demands.
Types of stakeholders
Stakeholders can be broken down into two groups:
Internal (primary) stakeholders
A company’s employees, managers and board of investors make up a business’s internal stakeholders. Employees of the company are vested in the company’s performance to provide their salary and retain their job. Depending on the nature of the business, employees may also have a health and safety interest such as in the construction or mining industries. The managers and board of investors are interested in maximising the profit the business makes and achieving a return on their investment.
External (secondary) stakeholders
External stakeholders want the company to perform well for a multitude of reasons. Customers want to receive the best possible product or service and may want to see a positive contribution to society. Investors are focused on a strong performance to maximise their return, whilst suppliers want to see increased demand for their product or service. The Government, meanwhile, wants the company to follow laws, employ more people and uphold the good financial practice.
Which stakeholders are most important?
Despite best intentions, it is unrealistic for a company to satisfy the demands of all parties equally. In fact, it will regularly face scenarios in which it has to prioritise one stakeholder to the detriment of another.
Should investors wish to cut costs, the company may have to reduce the wages of its employees or let some go altogether. Similarly, they may have to end a relationship with a trusted supplier in favour of a more competitive price to maintain profitability.
To ensure optimum stakeholder satisfaction, companies must identify which are the primary and most impactful stakeholders, i.e., the ones that the company will be investing reasonable resources to engage with. This is known as stakeholder prioritisation and should be based on three stakeholder features: power (how much weight they carry in the company’s operations), legitimacy (how they affect the company’s perception to the wider community) and urgency (how quickly they demand action from the company).
Naturally, different companies will have different business objectives, depending on their industry and size. Multi-National trading on the public market will likely look to prioritise their investors first. Given its size and reputation, it wants to maximise profitability for its current investors in the hope of attracting new ones and increasing share price.
A newly-opened independent restaurant, however, will be less concerned with attracting large-scale investment; focusing instead on establishing good relationships with local suppliers and building a solid community customer base.
How can companies prioritise their stakeholders?
In addition to a company-wide stakeholder profile, each project within the company will have its own project stakeholders; whose demands must be satisfied by the assigned employees and managers to ensure its success.
As a general rule, stakeholder priority can be segmented into three rings. The first and most important ring comprises of employees, customers, and investors, without whom the business will not succeed. Second to them are suppliers, community groups, and media influencers. Despite their importance, their relevance is determined by the performance of the company’s employees, customers, and investors. Finally, the regulatory bodies; persistent failure to comply is problematic but their demands are by and large consistent and clear to follow.
In the ever-changing business world, however, there cannot be a definitive ranking of stakeholder importance to a company. Instead, its decision-makers must embed constant stakeholder management into their day to day decisions. This is the only way to ensure maximum company-wide flexibility to meet constantly changing stakeholder demands.
Securing and maintaining stakeholder trust and satisfaction is a never-ending process. To ensure the continued trust and support of its stakeholders, companies must remember the three elements on which they will be judged: behaviour, communication, and performance. How do you behave with your stakeholders? How do you communicate with them? And finally, do you achieve your intended objectives?
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