Stakeholder analysis is now a standard practice among many organizations, no matter what type of action a company or non-profit is undertaking. This tenet can be traced back to the 1930s, notes Henry J. Lindborg, executive director and CEO of the National Institute for Quality Improvement in a recent article, and it continues to gather momentum in today’s business world. (1)
An approach that takes into account how stakeholders will be affected by a company’s direction can guide the organization in a responsible direction while also mitigating risk. This is especially useful given the complex and volatile nature of both internal corporate structures and external market forces.
Managers in revenue-driven companies and the non-profit sector practice stakeholder management, as do global entities like the World Bank and the United Nations.
When and how did this approach develop?
Lindborg traces the origins of modern stakeholder management thinking back to the 1930s to a debate on the responsibilities of corporations. Though legally shareholders came first for corporations, society began to wonder what, if any, responsibility the corporation had to the public at large. Environmental, health and safety concerns added to the debate, as did community relations.
Though the Stanford Research Institute introduced the definition of stakeholder in 1963, the concept was not linked with management strategy until the publication of R. Edward Freeman’s book Strategic Management: A Stakeholder Approach in 1984, said Lindborg.
Freeman noted in an interview with Lindborg that business decisions separated from ethics could lead to dire consequences, and he began to look at integrating ethics into organizational strategy. He said leaders are inspired to create value and consider the needs of all stakeholders when they endeavour to maintain relationships and have ongoing dialogue with everyone from suppliers to communities.
This view of stakeholder engagement developed alongside the quality movement, which is based on the idea that everyone involved in the creation and consumption of products or services is responsible for their quality. Freeman sees the two movements are complementary to one another.
He also espouses the view that risk and profit should be secondary to the process of stakeholder engagement and management. His key question is, “Is this worth doing?” (2)
In Freeman’s view, stakeholder management should continue to be integrated into other disciplines.
Lindborg notes that through his examination on the roots and principles behind stakeholder management, he hopes to remind quality professionals of the “profound knowledge embedded in stakeholder management” (3). He believes it could spark passion for service and the impetus for organizational change.
(1) Lindborg, Henry J. “Stake Your Ground: Unearthing the origins of stakeholder management”. Quality Progress. June 2013. < http://asq.org/quality-progress/2013/06/career-corner/stake-your-ground.html>.