A big problem with the concept of the stakeholder is that it is so elastic. The general idea is that a person or group that may not actually be a shareholder in a corporation is nevertheless intimately and directly affected by the activities of the corporation. This term was initially used to encompass rather obvious members extending from shareholders themselves to employees and communities.
But the theoretical foundation of the concept is intended to justify the exercise of power over an organization by groups that had not been anticipated by traditional legal and regulatory methods, and in ways that had been viewed as restricted to owners. And in public reaction to an environment of apparently widespread corporate corruption and scandal, topped off with a blithely detached culture of extraordinary compensation for senior executives, the idea has found traction.
The term is part of the vernacular, now. And the original range of groups it encompassed continues to grow. It is not at all unusual to see included in it, for example, non-governmental organizations, interest groups – even competitors. Some go further and count those who only potentially could find themselves in such groups as effectively under the baleful influence of the organization after all – thus, a potential stakeholder becomes a stakeholder.
This black-hole concept is not through drawing in whatever attracts its notice. In today’s climate of politically-hypersensitive discourse, it shouldn’t be surprising to find polar icecaps, blue whales, or even celestial objects identified as stakeholders of some unfortunate organization or another. It can seem at times to be a vast Lillipution conspiracy tossing one constraint after another over these presumptively guilty Gullivers, overturning, in the process, traditional legal and regulatory approaches to corporations’ non-contractual relationships.
But the questions still remain: at bottom, what does the concept really mean? Does the overreach in its application threaten a basically sound idea? What role will the notion play in the developing corporate governance debate? Indeed, perhaps we should begin to come to grips with inputs like these to that debate before we get too deeply embroiled in it.
Briefly, we can see that shareholders seek out and literally purchase a responsibility, or active risk, in exchange for the rights in and the rewards they take from their organizations. Stakeholders don’t (we are not counting employees here – their relationship to the organization is closer to that of shareholders in that it is consensual, contractual, and well recognized in traditional legal theory).
Stakeholders have a “stake” in the sense that they inadvertently are affected by what an organization does – that relationship arose circumstantially, as a consequence of the organization’s existence and its activities. Its stakeholders (again, not counting shareholders and employees) didn’t seek it out and intentionally merge their fates with that of the organization. And yet, they can be profoundly affected by it.
What is the organization’s responsibility – and what are its rights – in such an event? Conversely, what are these so-called stakeholders’ rights? Do they even have any responsibilities, and if so, what are they?
The stakeholder movement makes bold claims about how organizations should be run – and even about who should run them. It is a phenomenon that managers will do well to keep an eye on, and it is one we will continue to follow, here. Please do join us.
Today’s tip: One early winner of stakeholder status is the customer. This is a natural development from the early “customer is king” days. But it is also one that has flaws, perhaps in both senses. Please see this excellent post by Alexander Kjerulf, the Chief Happiness Officer, about the problems with this concept (my favorite is the first – which is yours?).
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