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The principal goal of every profit-making organization is to enhance the shareholders’ value i.e., increase the wealth of the owners. This goal may suffer significantly, if the company is unable to increase the value of the business. The company may not be able to create value for the business if the operating environment is turbulent and hostile.
Therefore, to achieve a beneficial outcome, companies must engage effectively with the relevant stakeholders. This is premised on the fact that companies do not exist in isolation and that the company’s success is dependent on the contributions of other stakeholders. As a result, companies should not focus only on making superior profit to maximize owners’ wealth but should also consider the divergent interest of other claimants to the company’s limited scarce resources.
Stakeholders may be described as any individual or party that has a competing interest and relationship with a company. They are a party, including the shareholders, bondholders, government, employees, etc. who potentially have a claim on the company’s cash flows. Basically, there are internal and external stakeholders with differing interests that can directly or indirectly affect the activities of an organization.
Internal Stakeholders:
These are the people involved in the day to day running of the business and develop the corporate governance process of the organization. These internal stakeholders include the:
External Stakeholders:
This stakeholder group exert some influence on the activities of the company but are not directly involved in the governance process. They support the activities of the company with the expectation that the company will deliver the desired result through regular payments of dividend, and interest, quality products, additional orders, tax revenue, jobs opportunity, and operate responsibly by preserving the environment. These group of stakeholders include:
The interest and influence that these individuals or groups possess vary significantly. However, each of the stakeholder groups must be taken into consideration during governance process and adequately rewarded for their supports and contributions towards attainment of the corporate objectives. This is because if they withdraw their contributions or services to the company, it can threaten the going concern of the business.
Stakeholders engagement involves the process of communicating and building understanding and rapport between companies and their stakeholders. Building quality relationships will enable a company to strategize, gain insights to know the divergent interest of the claimants, and determine how to better engage them to achieve a beneficial outcome.
In corporate governance, there is a stakeholder theory that focuses on the impact of corporate actions on all the relevant claimants of the company’s cash flows. The company managers, including officers and directors should be intentional about converging the opposing interests of all the stakeholders during policy development and governance process. This will help to reduce the conflicts between the company and its stakeholders.
Though, certain stakeholders may be confrontational, and seldomly demonstrate a challenging disposition by constantly criticizing every decision or action taken by the company’s management irrespective of its merit. In such situations, it is essential that the management show responsibility to foster effective communication to align opposing tendencies.
Stakeholders’ engagement is essential for several reasons, including:
Understanding the Stakeholder Needs:
Companies will gain insights into the needs, concerns, and expectations of the stakeholders by constantly engaging with them on the issues that matter to the parties. As a result, company will be able to deploy strategies that is consistent with or meet the stakeholder expectations.
Managing Expectations:
Engaging with the stakeholders will help to manage, foster, and align their expectations. Thus, allowing company to prevent or mitigate potential conflicts and misunderstandings.
Managing Risk:
Engaging stakeholders regularly can help a company to identify and manage potential risks that can impair its reputation. Managing and proactively addressing the concerns of the stakeholders can help the company to avoid any catastrophic outcome.
Communicating Effectively:
Consistent and open communication have the tendency to build trust and credibility between the company and its divergent claimants. Trust is an essential ingredient to achieve a lasting business and professional relationships.
Good Reputation:
Maintaining cordial relationships with the relevant stakeholders can enhance a company’s reputation. This is because a company with good reputation has the tendency to attract and retain best talents, investors, customers, and promote brand recognition.
Collaboration and Innovation:
Collaborating with the employees, partners, customers (clients), and lenders, including providing conducive working environment can enable a company to develop creative and innovative ideas to solve business problems. Some stakeholders are experts in their respective field, therefore collaborating with them can enhance the company’s market competitiveness.
Maintaining Going Concern:
Consistently engaging and communicating with the stakeholders can enhance mutual business relationships. This ensures that the business enjoys the right supports and the going concern is sustained for the foreseeable future. If the stakeholders withdraw their contributions, it can curtail the operations of the business.
Ethical Consideration:
Engaging with the relevant stakeholders, including the employees, customers, community, etc. on ethical practices demonstrate a commitment to sustainability, or corporate social responsibility. In today’s social conscious landscape, it is imperative for businesses to consider the consequential effect of their social, economic, and environmental actions on the various stakeholders.
Legal and Regulatory Consideration:
Regularly working with the applicable regulatory authorities within the industries will enable the company to mitigate compliance risk and meet legal and regulatory requirements promptly.
In summary, stakeholders engagement is designed strategically to foster understanding, respect, trust, collaboration, compliance, innovation, and sustainability. While it may involve some levels of intricacy because of its broader approach, its effective integration can contribute positively towards achieving a desired results for an organization.
Engaging with stakeholders constantly will mitigate potential risks and conflicts, including uncertainty, misalignment, and resistance to organizational change. However, a stakeholder mapping is essential to identify, understand, engage, and communicate with the groups that possess significant influence and interest in the company.
At Adda, we pride ourselves with highly experienced and committed professionals willing and ready to collaborate with businesses to create value
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