The economic and social upheavals of recent years have revived the old debate over the extent to which companies serve the interests of shareholders as opposed to stakeholders. Maximising shareholder value has been the prime focus of business ever since the birth of the corporation. Those who uphold this view may argue that the different groups that have a stake in the performance of a business often present conflicting agendas, and that these agendas will in any event be best served by keeping a close eye on the company's bottom line.

Many company directors share this outlook. They consider the firm's interactions with stakeholders such as governments, regulators, media, and the wider public as primarily a distraction from the business activities that the organisation was set up to perform. In extreme cases, boards may have an outright negative perception of some stakeholders, such as non-governmental organisations. Directors may view NGOs as at best not having a direct relationship with the company; and at worst, as representatives of groups that are innately anti-business and typically a source of nuisance and opposition to a company's operations, as well as to its broader interests and general well-being.

Shareholders vs. Stakeholders: A Definition

Whereas the definition of a shareholder has remained virtually unchanged for centuries, the concept of stakeholders has gone through many shifts over the past few decades. This has been largely in tandem with changes in the dominant discourses on business and management. Today's discussions of the roles, mandates, and expectations attached to corporations are firmly rooted in the paradigm of ‘business in society’. In this perspective, a company's goals and activities cannot be divorced from the impact they have – not only on stakeholder groups such as customers and employees, but also on local communities and society at large.

The stakeholder conversation is therefore increasingly relevant in the boardroom. Managing stakeholders is a complex undertaking that at times may feel like navigating a minefield of disparate perceptions and expectations. But as the spate of corporate and boardroom dramas this century has illustrated, how stakeholders see an organisation is a strong indicator of its health – particularly at critical junctures in the company’s existence – and of its potential to create long-term value. Stakeholders also act as a company's moral compass, challenging it to do the right thing – on a day-to-day basis as well as in situations that are crucial to its survival.

How to Identify a Company's Key Stakeholders

Stakeholders that are critical to a company's long-term success are those that cannot be disregarded, ignored, or replaced without damaging the firm's reputation and long-term growth prospects. Typically, they include a government's law-making bodies and regulatory agencies, as well as public utilities; unions and other employee representatives; consumer associations and consumer rights advocacy groups; and influential NGOs that often set the tone and topic of debates on issues such as the environmental impact of a particular industry's or corporation's current projects.

Today, social expectations and corporate governance standards dictate that companies and boards continually elicit their main stakeholders' support, and engage them in active dialogue. Analysing different growth and risk scenarios will cast new light on which stakeholders act as gatekeepers on various frontlines and whose buy-in will be critical in executing new growth, innovation, and integration initiatives.

The Board Can Be Instrumental in Shaping the CEO–Stakeholders Conversation

Board members can exert strong influence in moulding the CEO's view of stakeholders, including NGOs. Directors can also offer considerable guidance and support as the chief executive goes about engaging with the company's stakeholders. To begin with, board members tend to have a broader range of access through their network and more open perspectives than CEOs, as well as a wider sense of the organisation's purpose. The board therefore has a critical role to play in backing and inspiring the CEO's interactions with stakeholders.

Importantly, even if the organisation is entering uncharted territory in reaching out to specific types of stakeholders, the board cannot limit its involvement to just ticking boxes and complying with regulations. Instead, listening to key stakeholders gives directors a good opportunity to understand the real concerns of the company's customers, suppliers and employees, and the broader public. Many corporate disasters happened because the board was removed from what was happening on the ground. A sudden event whose repercussions may upset a firm's stakeholders – internal or external – is very likely to produce a crisis that the company will be hard-pressed to defuse.

In that context, making the stakeholders' voices heard in the boardroom can be crucial in narrowing the gap between the board's perception and reality. As we saw in Chapter 21, the chair in particular is in a strong position to represent the company in building relationships with major stakeholders, and to bring the knowledge gained back to the boardroom.

Anticipating Stakeholders' Influence and Impact

A company's strategic planning process must ensure that all stakeholder relationships are managed properly. This is particularly important for anticipating, assessing, and measuring the impact that these different groups can have on a company's direction and results. Stakeholders have their own sets of checks and balances that are likely to sound an alarm bell if the company tries to exaggerate its accomplishments or play down negative results. In many corporate crises, it is the stakeholders that provide early-warning mechanisms by flagging the company's shortcomings and its impending or recent transgressions.

This particular role played by stakeholders becomes even more important to an organisation's sustainability and success when it concerns international operations, especially those in developing countries. In these environments, stakeholders such as NGOs often compensate for underdeveloped legal, regulatory, and ethical frameworks. On the downside, cultural, historical, linguistic, and other barriers tend to be firmly entrenched. This means that situations can become fraught and dramatic scenarios flare up quite unexpectedly, more so than in the company's domestic market.

Many companies have learned from experience that maintaining the local status quo is enough of an uphill battle in itself, and are therefore reluctant to discuss how their business affects local communities. There are even more constraints to negotiate in fast-growth markets run by authoritarian governments, where national and local regulations can change on a whim.

For today's companies, properly managing relationships with their stakeholders are no longer an afterthought subsumed to a larger project of maximising returns to shareholders. External stakeholders in particular are no longer relegated to the fringes of activity and influence. Governance imperatives, growing regulatory pressures, and the public's newly articulated expectations of accountability and social responsibility, have placed stakeholder engagement squarely on the boardroom radar. The availability of new communication platforms such as social media has brought an extra level of volatility into these relationships. But it has also allowed chairs and directors to be proactive, analytical, and empathetic when addressing stakeholder needs and requirements.

By paying increasing attention to stakeholders and societies, and taking a broader long-term view of the organisation's activities while at the same time delivering results, boards are embracing the concept of stewardship. In the concluding chapter, we discuss the importance of stewardship and the role that boards can play in promoting it.