Stakeholders in Business

Abstract

Businesses influence many individuals and groups through their interactions, decisions, and practices. Stakeholders can impact businesses, and similarly, businesses impact stakeholders. Organizations have a responsibility to conduct themselves according to general self-defined guidelines, they self-impose on themselves, but they also have a responsibility to come to an acceptable arrangement with those who are affected by their business. This paper will explore some common varieties of stakeholders, with key factors to consider, and examples. In addition, an examination of basic corporate governance development and performance will aid in additional understanding of the dynamic between businesses and stakeholders in reference to ethics.

Keywords: Stakeholders, business, management, corporate governance.

Business, Stakeholders, and Responsibilities

A business, and its workings, can be incredibly complex and intertwined with a variety of stakeholders. Business entities that exist across the world have in impact on, not only their internal and direct stakeholders but also the business’ community. Businesses are encouraged to be mindful of their influence on stakeholders. Stakeholders should have some influence on the way the business conducts itself but in some cases the interests of the stakeholders and shareholders conflict (Tricker, 2015). Corporate governance, or balancing the needs of a corporation’s stakeholders, is essential to management and responsibility (Mongoven, 2003).

Typical Stakeholders

Stakeholders can affect a business or be affected by a business. Stakeholders include but are not limited to creditors, directors, employees, government agencies, owners, suppliers, unions, and the business’ community (Business Dictionary, 2019). The term stakeholder is a broad term that can be further specified to particular groups, such as employees. For the purpose of this paper stakeholders will be divided into those who function internally within the organization, and those who function externally.

Internal Stakeholders

Within a company, shareholders, managers, and directors are all impacted by how the organization is conducted. Shareholders own a portion of the company while directors protect the company’s assets for the shareholders, and managers utilize those assets. (Treatch, 2019). Employees and their unions would also fall under internal stakeholders.

Assessing responsibility to internal stakeholders. A business cannot function properly without the support of many of its internal stakeholders. Employees, which encompass managers and directors, help run the organization and have an interest in seeing it succeed. Similarly, the organization should have a responsibility to those stakeholders as well. Stakeholders also play a role in ethical business behavior and can influence decisions and practices in business (van Maanen, 2018). Businesses and their stakeholders should maintain a symbiotic relationship where both benefit and contribute to the needs of the other. This type of relationship will not be universal, but rather ideal. The inevitability of conflicts between a business and those impacted by the business cannot be overlooked. Reaching agreements with stakeholders can be challenging with any group of stakeholders, internal and external alike. Since some internal stakeholder find themselves in a position to make decisions about the company their considerations must be carefully considered.

Communication. As with any meaningful relationship, communication between stakeholders and the decision makers is vital. Bustin (2014) describes an example regarding the corporate giant Mariott International where veteran senior vice president states that the company performs “a lot of stakeholder assessment and communication to get feedback” (p. 239). Feedback from internal stakeholders allows leaders assess a great deal either through survey, interviews or other less common communications. Upper management at WageWorks, Inc. sends out surveys periodically using Survey Monkey, about every two months, inquiring about everything from satisfaction with management to team performance (Erickson, 2019). Communications and surveys are most advantageous when they are specific to an issue to be investigated and the group that will be addressed. Adequate communication, and feedback from stakeholders also contribute to transparency. Businesses have a responsibility to manage risk associated with negative communications from stakeholders. Another facet of communication entails monitoring feedback, commonly done through social media, and ensuring their reputation in the market is as favorable as possible. There may be the need damage control, if there has been a problem with a product/service.

Transparency. Motivations. decisions, and actions must be understood by those making the decisions. Disclosure should be accurate and timely especially relating to finances, performance, ownership, and governance (Treatch, 2019). Transparency, according to Pozen (2018) emphasizes the capacity to check administrative abuse, enhance choice, and minimize regulation. There is a delicate balance to transparency, enough information must be given that stakeholders get the impression that they understand the inner mechanisms of the business, but businesses must take care with such things as trade secrets which could compromise the business if made public. Klie (2019) discusses how in the digital age, consumers are able to research products and services long before they reach out to sales reps. This type of transparency is somewhat indirect. The information that stakeholders attain could be from sources like reviews instead of directly from the company itself. However, it the reviews correspond strongly with the company’s message, consumers are likely to feel even more secure that they are investing in adequate products and/or services.

External Stakeholders

The group of stakeholders who are impacted by the business, but not directly a part of the organization, will be considered external stakeholders for the purpose of this paper. An external stakeholder, for example, would be the community the organization serves, is a part of, or impacts. External stakeholders play a vital role in demonstrating many of the important practices listed above, but from a slightly different perspective since they are not directly a part of the company.

Communication and Transparency. As with internal stakeholders, communication and transparency are an undeniable responsibility that business have to their stakeholders. While the internal stakeholders are likely to receive correspondence from the business, external communication can be slightly more challenging. Technology has lessened the burden of communication, as interested parties can follow major companies on social media such as Facebook and Twitter. Stakeholders can communicate with companies on their chosen platform and similarly businesses can communicate with stakeholders. A study conducted in 2015 shows that top-ranked companies were more active on social media (Dzyaloshinsky and Pilgun. 2015).

Conflict resolution. Boadi, He, Darko, and Abrokwah (2018) discuss the importance of Corporate Social Responsibility (CSR) and unlocking community stakeholders. The authors describe conflicts in mining fields based on a perception held by stakeholders concerning CSR. They also state that to solve the company-community conflicts, it was vital to minimize the misunderstand among community stakeholders’ by identifying their preferences of CSR projects. After a detailed study, they recommended that maximum consideration be given to projects that ensure the welfare of stakeholders.

Conflicts between a business and the its community will occur, but the way that a company resolves these issues communicates a great deal about the company to all those who learn of the interaction. Sadly, communities all over the world have suffered at the hands of corporations that enter with little regard for community members. Walmart of Mexico was investigated by the US Department of Justice for Forign Corrupt Practices (FCPA) (Rarick, Williams, Barczyk, & James (2018). Conducting business in foreign and/or developing countries brings additional challenges, like culture and language barriers, but conflict resolution remains an important part of responsibilities to stakeholders.

Corporate Governance

Tricker (2015) describes the evolution of corporate governance in his book Corporate Governance: Principles, Policies, and Practices. The concept of corporate governance is ancient; Caucer (c.1343-1400) an English philosopher wrote of the concept (Tricker, 2015). In modern times, however, the concept develops in the 1970s with the SEC requiring companies to create audit committees, standing committees comprised of outside directors. Jump ahead to 1992 and the first corporate governance codes which arrived with the Cadbury Report which called for independent non-executive directors, division of responsibilities between the chairmen of the board and chief executive, public compliance reporting, and more. The United States’ US Business Round table produced a Statement on Corporate Governance in 1997 and after the great recession bubble bursting even more regulations came into play. Some characteristics of governance stand out as pillars, focal points which demand the attention of decisions makers and those impacts by those decisions alike.

The Pillars of Corporate Governance

Protecting weak and/or dispersed shareholders against self-interested directors and managers provided the foundation on which corporate governance was built (Treatch, 2019). Accountability, fairness, transparency, and independence are four vital pillars of corporate governance (Treatch, 2019). Pillars are flexible and meant to be a guideline not a rigid code. Various researchers have proposed their specific pillars, but the goal remains to isolate areas of concentration for the betterment of the governance process.

Accountability. Accountability typically refers to answering to the board and to shareholders, however, all stakeholders should have some consideration. Bustin’s (2014) acronym of CULTURE (Character, unity, learning, tracking, urgency, reputation, evolving) further provide guidance in this facet of corporate governance. Stakeholders are accountable to providing adequate and accurate feedback and abiding by agreements made with businesses.

Fairness. Businesses must take care to protect the rights of shareholders, treat all shareholders equally, and provide disciplinary actions for violations (Treatch, 2019). Fairness seems to be a subjective concept, heavily relying on the perception of the individual attempting to judge precisely what is “fair”. While the concept is sound, practice in the real world can prove more challenging. Realistically speaking, if there is a concern regarding the corporations finances the opinion of an entry level employee may not carry as much weight as that of the

Chief Financial Officer. Regardless, fairness and consideration for all stakeholders is a pillar that business should strive for.

Lund (2019) discusses how nonvoting stock can be used to make corporate governance more efficient by dividing voting power between informed and uninformed shareholders. This concept has faced criticism since it can allow for insiders to manipulate decisions. To contrast, the benefit of nonvoting shares is the pursuit of long-term vision without interference from outside shareholders.

Transparency. As discussed above transparency is vital in corporate governance. Hernandez-Perdomo, Guney, and Rocco (2019) discuss how transparency is capital for the stability of a company, and go even one step further, the stability of a country via the corporate sector. Transparency allows stakeholders insights about decisions the business makes. When Wageworks, Inc. acquired Fringe Benefits Management Company in 2011 transparency assisted employees in the change management that followed (Erickson, 2019).

“WageWorks communicated that there were changes in staff coming when the acquisition occurred, and it made the layoffs just slightly more palatable. The transparency helped the transition greatly,” Erickson, 2019).

Independence. In corporate governance, measures must be taken to ensure that conflicts of interest are avoided as much as possible. Conflicts of interest arise when an individual, or group, find themselves in a position to benefit personally from actions or decisions made in their official capacity (Dobel, 2018). Independent advisers and directors should also be free of any influence of those who stand to benefit from any particular decision.

Conclusion

Corporations have changed the world that humanity must share in. The bottom line is always going to be a factor, an import factor at that, however there are many more variables that must be considered. Stakeholders may not individually have very much power over a corporation, however advances in technology like social media have also brought much change. Each individual cannot be considered for every decision a business must make, still care must be had when dealing with all those who are impacted by one’s business. Internal and external stakeholders both play very important roles and it would behoove businesses to communicate effectively in such a way there is an apparent consideration for their stakeholders. Businesses must follow a similar moral and ethical code to the individual and should strive to conduct itself with good communication and transparency, fairness, and of course always be accountable for its actions and impacts in the community.

References

Boadi, E. A., He, Z., Darko, D. F., & Abrokwah, E. (2018). Unlocking from Community Stakeholders, Corporate Social Responsibility (CSR) projects for effective Company- Community relationship. Labor History, 59(6), 746–762. https://doi.org/10.1080/0023656X.2018.1470223

Bustin, G. (2014). Accountability: The key to driving a high-performance culture. New York NY: McGraw-Hill Education.Chapters 5 and 6

Dobel, J. P. (2018). The Strategic Advantage of Conflict of Interest Laws. Public Integrity, 20(5), 423–426. https://doi.org/10.1080/10999922.2017.1331635

Dzyaloshinsky, Iosif M., and Maria A. Pilgun. 2015. “Social Media in Russian Business Communication: Analysis and Development Prospects.” Russian Journal of Communication 7 (1): 27–39. doi:10.1080/19409419.2015.1008944.

Erickson, R. (2019, May 29). WageWorks, Inc. Customer Care Supervisor, Personal interview.

Hernandez-Perdomo, E., Guney, Y., & Rocco, C. M. (2019). A reliability model for assessing corporate governance using machine learning techniques. Reliability Engineering & System Safety, 185, 220–231. https://doi.org/10.1016/j.ress.2018.12.027

Klie, L. (2019). Winning Business by Making The Transparency Sale: Selling transparency is key to topping competitors. CRM Magazine, 23(4), 23–27. Retrieved from http://proxy.stu.edu:2114/login.aspx? direct=true&db=asn&AN=136409318&site=ehost- live

Lund, D. S. (2019). Nonvoting Shares and Efficient Corporate Governance. Stanford Law Review, 71(3), 687–745. Retrieved from http://proxy.stu.edu:2114/login.aspx? direct=true&db=asn&AN=135651625&site=ehost-live

Pozen, D. (2018). Transparency’s Ideological Drift. Yale Law Journal, 128(1), 100–165. Retrieved from http://proxy.stu.edu:2114/login.aspx?direct=true&db=asn&AN=132681181&site=ehost-live

Rarick, C. A., Williams, H., Barczyk, C., & James, A. (2018). Walmart de Mexico and the Foreign Corrupt Practices Act: Stepping Over the Border and Stepping Over the Line. Journal of Leadership, Accountability & Ethics, 15(1), 43–50. Retrieved from http://proxy.stu.edu:2114/login.aspx?direct=true&db=asn&AN=131191013&site=ehost- live

Stakeholder. (2019). Business Dictionary. Retrieved from http://www.businessdictionary.com/definition/stakeholder.html

Treatch, R. (2019). Fiscal and Economic Accountability: Module 3. Retrieverd from https://stu.instructure.com/courses/17499/files/644685/download?wrap=1

Tricker, R. (2015) Corporate Governance: Principles, policies, and practices. Oxford University Press.

Van Maanen, Victoria. BusiDate. March 2018, Vol. 26 Issue 1, p9-13. 5p