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What Effects Do Stakeholders Have on Your Business?

Company stakeholders include employees, customers, suppliers, investors, regulators and community members. Employees depend on the company for their livelihoods and customers buy products. Suppliers sell to the company; regulators ensure compliance; investors are a source of funds; and community members usually have certain expectations of conduct. These stakeholders have an effect on the company's strategy formulation, level of collaboration, disclosure policies and the regulatory environment.

  1. Strategy Formulation

    • Management usually has two main objectives: to consider the interests of all stakeholders and to generate value for investors. These two objectives may sometimes come in conflict because some actions, such as layoffs, may serve the interests of investors, but not those of the affected employees. Mindy S. Lubber, president of advocacy group Ceres, provides examples of companies that are able to balance these two objectives in a July 2008 "Harvard Business Review" blog post. She cites the case of a Texas-based utility that agreed to scale back its plans for more coal-fired plants, thus satisfying environmental groups and other stakeholders, while saving costs over the long term and positioning the company for a clean-energy future.

    Collaboration

    • Stakeholders have an effect on the level of collaboration within and between companies. Responding to competitive pressures requires collaboration with internal and external stakeholders. Greensboro, N.C.-based Center for Creative Leadership senior faculty member Chris Ernst wrote in a Jan. 2011 "Harvard Business Review" blog post that successful innovation demands "intense interaction" between a company and its stakeholders. Designers may have to collaborate with developers and service representatives in different time zones to design products that satisfy customer needs, and suppliers must integrate into the manufacturing process to ensure wholesalers and retailers have the finished products on time.

    Disclosure Policy

    • Stakeholders influence a company's disclosure policy. Public companies must disclose material information simultaneously to investors and market participants. In an April 2010 interview with Harvard Business School Working Knowledge senior editor Martha Lagace, Harvard Business School professor Robert G. Eccles and a colleague suggested that companies should report financial and non-financial results in one easy-to-understand document. This "One Report" could include the financial data that investors need, as well as the company's performance in social, environmental, community and governance areas that other stakeholders may use.

    Regulatory Environment

    • Stakeholder actions can change a company's regulatory environment. Strict emission control regulations have affected the automobile manufacturing industry. Financial regulations following the 2008 financial crisis have had an impact on how brokerages do business. Dealing with regulations usually means collaborating with industry peers, concerned citizen groups and elected public officials to manage the impact on financial performance.

    Stakeholder Management

    • Companies often have public relations and investor relations departments to manage stakeholder relationships. Consultant and author Jack Springman suggested in a July 2011 "Harvard Business Review" article that companies identify its stakeholder groups and create value propositions for each group. For example, stock price appreciation could be a value proposition for investors, exceptional customer service for customers and involvement in community projects for employees and other external stakeholders.

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