Stakeholder analysis is now standard practice among most organizations, no matter what type of work a company or non-profit is undertaking. This principle can be traced back management theories from the 1930s, and as noted in this article by Henry J. Lindborg, E.D. and CEO of the National Institute for Quality Improvement, it continues to gain momentum in today’s business world.
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.
“What do corporations owe those who aren’t investors?”
Lindborg traces the origins of modern stakeholder management thinking back to the 1930s to a debate on the responsibilities of corporations. Although shareholders came first in law 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.
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.
“Maintaining relationships with customers, suppliers, employees, financiers and communities encourages leaders to spark conversations about how their companies create value and manage the needs of all stakeholders.”
This new priority of stakeholder engagement developed alongside the quality movement, which is based on the concept 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?” 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, there is a need to remind quality professionals of the “profound knowledge embedded in stakeholder management”. He believes it could spark passion for service and the impetus for organizational change.