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Stakeholder Voice Background

In every level of the value chain of any organisation, stakeholder groups are involved, be it management, suppliers, employees, retailers, and customers. Other stakeholder groups who are often also involved are communities, societies, boards, regulators, and the media. Many of these stakeholder groups can be subdivided into further sub-stakeholder groups such as human resources, information technology, technical, operations, safety, and health, etc.

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Engaging with an organisation’s stakeholders is important to ensure that maximum value is created as well as to enable continuous improvement and sustainability and manage risks.

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The Voice of the Stakeholder is critically important when engaging with stakeholders

Every organisation has a strategic intent, usually formal, sometimes semi-formal but at the very least informal. This strategic intent gives rise to the need for the development of a strategy. Strategy formation, with strategic intent as foundation, is one of the activities that most executives value highly and invest significant resources in.

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The business model and strategy of an organisation give rise to its operational model(s). In many organisations the operational model(s) are explicitly defined.

 

Many frameworks have been developed over time to inform strategy and operational model development. Mintzberg et al (1998) discuss ten of the most used frameworks and strategy formation concepts. Among them, Porter’s 5 Forces framework is probably referenced most. Frameworks such as the EFQM 2016, EFQM 2020 and the Balanced Scorecard address both the strategy and operational models.

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A key focus of most strategies is to drive towards organisational excellence to create most value for its stakeholders, or at least, for its shareholders. Key stakeholders represent, to a large extent, the reason for existence of an organisation and as such their views on many aspects of the organisation can uncover significant value and are essential in the journey of excellence. It is important to understand that the journey towards excellence never ends, as opportunities, capabilities, innovations, technology, competition, and environmental issues continuously impact the journey.

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Stakeholder Voice

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Stakeholder Voice was developed to provide organisations with the opportunity to engage effectively with a broad base of their stakeholders by acquiring their viewpoints regarding key business issues. Stakeholders respond to statements which are founded on well-known business frameworks. Analysis of the responses can provide valuable insight into aspects that need to improve, in particular, those aspects that affect stakeholders most. Effectively, the Voice of the Stakeholder provides organisations with an opportunity for internal benchmarking.

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The principal objective for an organisation to use the Voice of the Stakeholder is to enable it to understand the alignment of its stakeholders with the organisation’s strategy and principles. The results provided by an assessment can be used as guidance to organisational change and transformation in its journey towards excellence.

Many concepts discussed in the Voice of Stakeholder Themes Addendum are critical aspects that need to be taken into consideration when assessing, developing and executing the organisation’s strategy as well as to ensure its sustainability. Many of the frameworks addressed by the Voice of the Stakeholder allow organisations to obtain insight into these concepts.

Central issues that could be addressed after an Assessment may include:

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  •      Vision

  •      Purpose

  •      Strategy

  •      Governance

  •      Compliance

  •      Fiduciary duties

  •      Values

  •      Ethics

  •      Care

  •      Responsibility and Accountability

  •      Direction

  • ​     Alignment

Stakeholder Voice is a structured assessment system that enables organisations to engage with a wide range of stakeholders from different stakeholder groups to respond in the context of a business framework to encourage and facilitate:

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    1.  Broad based stakeholder participation

    2.  Governance compliance

    3.  Supplementing integrated reporting

    4.  Identifying process constraints

    5.  Enablement of continuous improvement

    6.  Instilling a culture of excellence

    7.  Alignment within

    8.  Identifying and managing risks

    9.  Improved communication

The term stakeholder first “appeared in the management literature in an internal memorandum at the Stanford Research Institute, in 1963” (Freeman, 1984, p. 31). In the Davos 1973 Manifesto, Professor Charles Schwab wrote as follows: “The purpose of professional management is to serve clients, shareholders, workers and employees, as well as societies, and to harmonize the different interests of the stakeholders.” (Davos, 1973). He emphasises the wide range of stakeholders that the management of the organisation should consider and serve.

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The Davos 2020 Manifesto defines the purpose of a company as: “…  to engage all its stakeholders in shared and sustained value creation. In creating such value, a company serves not only its shareholders, but all its stakeholders – employees, customers, suppliers, local communities and society at large.” This was followed by the seminal work on the subject by R. Edward Freeman (1984).

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The imperatives of stakeholder management have grown to a level where corporations who ignore the concept do it at their peril. In fact, in the South African governance guideline, the King IV™ report (King IV, 2016), the relationships with stakeholders occupy a central position, together with the concepts of ethics, jurisprudence and accountability.

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Professor Klaus Schwab, the Founder and Executive Chairman of the World Economic Forum, the International Organisation for Public-Private Cooperation in 1971, contrasts “stakeholder capitalism” with “shareholder primacy” as follows: “Though the concept of "stakeholder capitalism" has been around for a half-century, it has only recently begun to gain traction against the prevailing shareholder-primacy model of profit maximization. Now, advocates of a more socially conscious economic system must take steps to ensure that their vision takes hold for the long term.” (Schwab, 2019)

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Me. Adena Friedman, President and CEO of Nasdaq on Facebook (18 November 2019): “The conversations around the purpose of a corporation are driven by “and” not “or.” Leaders today need to remember that a company’s mission and vision can serve multiple stakeholders.”

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Organisations cannot exist without stakeholders. Stakeholders are involved in:

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  • Identifying the needs for products and services

  • Inventing new concepts and ideas of products and services that consumers may need

  • Establish the funding to start and operate businesses

  • Building businesses that satisfy the needs of consumers

  • Operating and managing businesses

  • Providing labour to provide products and services

  • Maintaining the infrastructure and processes in the businesses

  • Improving the performance of businesses in order to generate value

  • Identifying markets

  • Competing in the marketplace

  • Communicating with and marketing to potential and actual consumers

  • Gaining profits generated by the businesses

  • Consuming the products and services provided by the businesses

  • Experiencing the effects that businesses have on the environment and on societies

  • Ensuring ethical and responsible actions in businesses

  • Assuring the sustainability of the businesses

  • Accounting for actions and operations in running the businesses

 

Engaging with stakeholders from a number of stakeholder groups has become important as the realisation of the impact on organisations

It should be noted that in many of the publications, the concepts of stakeholders and stakeholder groups are often used interchangeably, however, it is important to distinguish between stakeholders, that are individuals, and stakeholder groups to which stakeholders belong. In some instances, stakeholders may belong to more than one stakeholder group.

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Stakeholder Definitions

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Over the years, a number of definitions of who constitute stakeholders of the organisation have been presented. According to Freeman (1984), the Stanford Research Institute (SRI) provided the earliest definition. They define stakeholders as “those groups without whose support the organization would cease to exist”. Freeman’s 1984 definition is “any group or individual who can affect or is affected by the achievement of organizational objectives”. Freeman rephrased his definition later as: “Corporations have stakeholders, that is, groups and individuals who benefit from or are harmed by, and whose rights are violated or respected by, corporate actions” (Freeman, 1994)

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Further definitions include:

  • Donaldson and Preston: “Stakeholders are identified through the actual or potential harms and benefits that they experience or anticipate experiencing as a result of the firm’s actions or inactions.” (Donaldson and Preston, 1995)

  • GRI: “Entity or individual that can reasonably be expected to be significantly affected by the reporting organization’s activities, products and services, or whose actions can reasonably be expected to affect the ability of the organization to successfully implement its strategies and achieve its objectives.” (GRI, 2019)

  • GRI Note 1: “Stakeholders include entities or individuals whose rights under law or international conventions provide them with legitimate claims vis-à-vis the organization.” (GRI, 2019)

  • GRI Note 2: “Stakeholders can include those who are invested in the organization (such as employees and shareholders), as well as those who have other relationships to the organization (such as other workers who are not employees, suppliers, vulnerable groups, local communities, and NGOs or other civil society organizations, among others).” (GRI, 2019)

  • IIRC: "Those groups or individuals that can reasonably be expected to be significantly affected by an organization's business activities, outputs or outcomes, or whose actions can reasonably be expected to significantly affect the ability of the organization to create value over time.” (IIRC, 2013)

  • KING IV™: “[Internal stakeholders] are directly affiliated with the organisation and include its governing body, management, employees and shareholders. [External stakeholders] could include trade unions, civil society organisations, government, customers and consumers. Internal stakeholders are always material stakeholders, but external stakeholders may or may not be material” (King IV™, 2016)

  • The European Foundation for Quality Management (EFQM): “A stakeholder is a person , group or organisation that has a direct or indirect stake or interest in the organisation, its activities and performance, because it can either affect the organisation or be affected by it.”

 

R. Edward Freeman and Milton Friedman had radically opposing views regarding Stakeholders. In Friedman’s view, the only stakeholder group that the organisation is accountable to is the shareholder, while Freeman viewed a range of stakeholder groups that organisations need to consider. Freeman’s view and the views above clearly have lately become the dominant viewpoint.

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The European Foundation for Quality Management states that: “An outstanding organisation considers the needs, demands, requests and expectations of the stakeholders in its ecosystem, balances then, and evaluates its performance in relation to its most important stakeholders, its ‘Key Stakeholders’.” (EFQM,2020)

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In the publication “Business through a new lens” PwC (2016) P7, the percentages of CEO’s from large organisations who indicated that the following stakeholder groups had a “high” or “very high” impact on the development of their strategies:

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  • Customers and Clients                                                    90%

  • Government and Regulators                                          69%

  • Industry Competitors and Peers                                    67%

  • Employees                                                                        51%

  • Supply Chain Partners                                                    48%

  • Providers of Capital                                                         41%

  • General Public                                                                  30%

  • Local Communities                                                          27%

  • Media                                                                                 25%

  • NGO’s                                                                                   9%

 

Stakeholder Theories

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Donaldson and Preston presented three stakeholder theses: Descriptive, Instrumental, Normative and Managerial. These are outlined below:

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Thesis 1: Descriptive

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 “The stakeholder theory is unarguably descriptive. It presents a model describing what the corporation is. It describes the corporation as a constellation of co-operative and competitive interests possessing intrinsic value.” (Donaldson and Preston, 1995)

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Thesis 2: Instrumental

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 “The stakeholder theory is also instrumental. … the proposition that corporations practicing stakeholder management will, other things being equal, be relatively successful in conventional performance terms (profitability, stability, growth, etc.)” (Donaldson and Preston, 1995)

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Thesis 3: Normative

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“[The] fundamental basis [of stakeholder theory] is normative and involves acceptance of the following ideas:

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  1. Stakeholders are persons or groups with legitimate interests in procedural and / or substantive aspects of corporate activity. Stakeholders are identified by their interests in the corporation, whether the corporation has any corresponding functional interests in them.

  2. The interests of all stakeholders are of intrinsic value. That is, each group of stakeholder’s merits consideration for its own sake and not merely because of its ability to further the interests of some other group, such as shareholders.” (Donaldson and Preston, 1995)

 

Thesis 4: Managerial

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“The stakeholder theory is managerial in the broad sense of that term. It does not simply describe existing situations or predict cause-effect relationships; it also recommends attitudes, structures, and practices that, taken together, constitute stakeholder management.” (Donaldson and Preston, 1995)

 

Awareness of Stakeholders

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For an organisation to consider its stakeholders, it should ask and answer several pertinent questions:

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   • Who are our current and potential stakeholders?

   • What are their interests/rights?

   • How does each stakeholder affect us?

   • How do we affect each stakeholder?

   • What assumption does our current strategy make about each important stakeholder?

   • What are the “environmental variables” that affect us and our stakeholders?

   • How do we measure each of these variables and their impact?

   • How do we keep score with our stakeholders?

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