Sustainability Glossary: stakeholders4 min read
The word “stakeholder” has become increasingly widespread with the increase in interest in sustainability, ethical companies, corporate social responsibility, etc. In such contexts, it is very important to emphasize the positive or negative impact of certain activities on the various players who interact with an organization.
The most common definition is that of “bearer of interest”. The term comes from the economic sphere. It refers precisely to any person or group that has an interest in a particular company. These players can influence or be influenced by the company, deriving benefits or suffering negative effects.
A company interacts with customers, employees, suppliers, shareholders, creditors, public administration, labor unions, investors, peers, and competing companies. But also more generally, the territory in which it operates, the community, the institutions (municipalities, provinces, regions, governments, schools, universities, political parties), and society as a whole.
Many differentiate internal and external stakeholders, direct and indirect, strong and weak.
Shareholders vs Stakeholders
Stakeholder management is now standard practice in most organizations, regardless of the type of work a business or non-profit does. This principle can be traced back to the management theories of the 1930s and, in an article by Henry J. Lindborg, CEO of the National Institute for Quality Improvement.
Although shareholders ranked first in importance to corporations, organizations began to wonder what responsibility the company had to the general public. Concerns for the environment, health, and safety added to the debate, as did community relations.
Origin of the current meaning of Stakeholder
But there’s more beyond Lindborg’s 1930s definition.
Despite the word emerged for the first time in the 1700s as a way of describing someone who takes bets, the term stakeholder as we know it today was developed in 1963 at the Research Institute of Stanford University.
The first book on stakeholder theory is Edward Freeman’s “Strategic Management: A Stakeholder Approach”. It also gave the first definition of stakeholders as “subjects without whose support the company is unable to survive“.
Over time, the “ethical trend” prevails. In 1984, together with William M. Evan in “A Stakeholder Theory of the Modern Corporation: Kantian Capitalism”, Freeman defined stakeholders as all players that can influence or are influenced by the company. The company must also take into account those who have no direct power over processes and profits but suffer the consequences (such as a negative environmental impact).
The debate goes further, saying that not only must the company not bring down people’s current well-being, but it must increase general wealth. And also take into account the “passive” stakeholders who are unable to influence it. In a sense, the stakeholder is the subject whose achievement of personal objectives depends on the company.
Use of Stakeholder in the field of sustainability
It is probably Neil Jeffery in the year 2009 who kicked off the use of the term in the ESG field. In “Stakeholder Engagement: A Roadmap to meaningful engagement” he describes seven core values for the practices of gaining meaningful participation.
- Stakeholders should have a say in decisions about actions that could affect their lives or essential
environment for life
- Stakeholder participation includes the promise that the stakeholder’s contribution will influence the decision
- Stakeholder participation promotes sustainable decisions by recognizing and communicating the needs and interests of all participants, including decision-makers
- Stakeholder participation seeks out and facilitates the involvement of those potentially affected by or interested in a decision
- Stakeholder participation seeks input from participants in designing how they participate
- Stakeholder participation provides participants with the information they need to participate in a meaningful way
- Stakeholder participation communicates to participants how their input affected the decision
Then came the standards and leading practices. Two above all:
- Stakeholder engagement is a requirement of the Global Reporting Initiative (GRI). The GRI is a network-based organization with a sustainability reporting framework widely used around the world.
- The International Organization for Standardization (ISO) has proposed a framework for sustainability (ISO 26000 – Guide to social responsibility) which also requires the involvement of stakeholders.
When talking about sustainability, the need to involve all the players who come into contact with the company is even stronger. It’s crucial to listen to their requests and respond to their expectations.
Effective engagement on this specific issue can really guide choices and determine the success of the business strategy.
But in addition to environmental sustainability (E), social sustainability (S) also comes into play and, last but not least, governance best practices (G). Directly involving players excluded from decision-making processes (and often not fully aware of the ultimate goals of their work) means guaranteeing better relationships and working conditions.
Stakeholder Engagement represents a powerful tool for companies to face current challenges and create lasting value.
The involvement of stakeholders, on the one hand, strengthens trust along the entire value chain. On the other hand, it is certainly one of the factors to consider when defining a business strategy.
In fact, when active listening and stakeholder participation become part of a company’s strategy, understanding of mutual expectations and needs is facilitated. Also allowing the development of collaborative solutions for achieving the goals in terms of sustainable development.
Featured image by Georg Eiermann on Unsplash
Sources: Stakeholder Engagement: A Roadmap to Meaningful Engagement, Neil Jeffery, Cranfield University School of Management, July 2009