Insight Corporate Excellence Stakeholders management is a concept that transformed the whole management paradigm. The reality where stakeholders have the rights to access information has brought about an era of transparency in the companies that have to live with the risk of revealing sensitive information. Stakeholders management is after all a matter that affects corporate governance. The priority is to identify and evaluate stakeholders correctly. Besides, it is important to understand that stakeholders are a dynamic community, with changing vision, expectations and perceptions.
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It was the philosopher R. Edwards Freeman, Professor in Business Administration at the Darden School in the University of Virginia who, in 1984, launched his theory – until then unknown – about the administration of organizations such as the management of interest groups – stakeholders -, in other words, parts of society who have an interest in the evolution and development of a company from an economic, social, environmental or even psychological perspective, an interest to know if the company contributes to the general interest or only to its own good. For Freeman, the company had to change its rapprochement to the creation of value approaching it from a more holistic and integral perspective, where the said creation is not made ‘against’ society but ‘with’ society, with suppliers, shareholders, investors, clients, consumers, employees and the local community, namely introducing the Kantian perspective of not seeing people as media, but as an end in themselves. With the objective of changing it, of turning the tables, he proposed a new focus, a new mentality based on the management of interest groups, on the satisfaction of their needs, on the knowledge of their expectations and on the management of relationships between them. Clearly, this led to a change that has consolidated in the management of the intangible assets, as it is used in fields such as CSR, Reputation, Image, Communication, Public Relations or Corporate Governance. The stakeholder master copy The first tool that companies can use to understand and get know interest groups around them in detail is the stakeholder master copy, which includes 4 important points: 1. Identification: who they are and what they are called. 2. Expectations: what are they looking for and what do they expect. 3. Obligations: what rights do they have and what obligations do we have. 4. Prioritization: who are the most important in terms of the above. The problem is always this last point: how to define priorities, grant a value to each one and place Stakeholders management has, since the 80’s, been the paradigm that has transformed management the most. The right of companies to have information at their disposal about activities which affect them directly or indirectly has brought an era of transparency which coexists with the associated risks of revealing certain information. Strategy Documents I04/2011 Identifying and prioritizing stakeholders correctly, the key to good crisis management Public Affairs Insights
Transcript
It was the philosopher R. Edwards Freeman, Professor in Business Administration at the Darden School in the University of Virginia who, in 1984, launched his theory – until then unknown – about the administration of organizations such as the management of interest groups – stakeholders -, in other words, parts of society who have an interest in the evolution and development of a company from an economic, social, environmental or even psychological perspective, an interest to know if the company contributes to the general interest or only to its own good.
For Freeman, the company had to change its rapprochement to the creation of value approaching it from a more holistic and integral perspective, where the said creation is not made ‘against’ society but ‘with’ society, with suppliers, shareholders, investors, clients, consumers, employees and the local community, namely introducing the Kantian perspective of not seeing people as media, but as an end in themselves.
With the objective of changing it, of turning the tables, he proposed a new focus, a new mentality based on the management of interest groups, on
the satisfaction of their needs, on the knowledge of their expectations and on the management of relationships between them. Clearly, this led to a change that has consolidated in the management of the intangible assets, as it is used in fi elds such as CSR, Reputation, Image, Communication, Public Relations or Corporate Governance.
The stakeholder master copyThe fi rst tool that companies can use to understand and get know interest groups around them in detail is the stakeholder master copy, which includes 4 important points:
1. Identifi cation: who they are and what they are called.
2. Expectations: what are they looking for and what do they expect.
3. Obligations: what rights do they have and what obligations do we have.
4. Prioritization: who are the most important in terms of the above.
The problem is always this last point: how to defi ne priorities, grant a value to each one and place
Stakeholders management has, since the 80’s, been the paradigm that has transformed management the most. The right of companies to have information at their disposal about activities which affect them directly or indirectly has brought an era of transparency which coexists with the associated risks of revealing certain information.
Strategy DocumentsI04/2011
Identifying and prioritizing stakeholders correctly, the key to good crisis management
Public Affairs
Insights
Insights 2
By using a combination of these three attributes a more precise prioritization can be established:
1. Latent (they only have one attribute, of less concern): inactive (those who have power, but no legitimacy or urgency in their petitions); discretional (they have legitimacy, but no power or urgency); demanding (they have urgency, but no power or legitimacy).
2. Expectant (they have two attributes, of more concern): dominant (those who have power and legitimacy, but no urgency); dependent (legitimacy and urgency, but no power); dangerous (they have urgency and power, but no legitimacy).
Interest groups with the three attributes are those with a high priority for the company, who must be treated and analyzed with priority in any strategy.
This last model (developed in 1997 by Professor Mitchell to analyze who really counts) is the most appropriate for crisis management, according to Antonio Vaccaro, Assistant Professor at the Department of Ethics in Business at IESE, especially because it provides information not only, as in the first case, about the interest which certain matters related to it have on the company, but also about the potential they have to influence their environment, extend or contain good reputation, the good name of the company, as well as the time factor, fundamental in crisis management.
How to establish priorities and how to dialogue with stakeholdersIn order to establish clearly which interest groups are a priority, Professor Vaccaro proposes to carry out 3 steps related with information:
1. Obtain it: to know what they think (data collection).
2. Contribute it: to analyze what you do (re-design).
them on an understandable and manageable map. Professor Freeman proposed an initial division of interest groups:
1. Primary: those who are directly, significantly or potentially affected by the activities of the organization.
2. Secondary: those indirectly affected or for whom the impact is not that relevant.
A second way to prioritize interest groups consists in dividing them into three categories:
1. Key: those who are essential to the survival of the company.
2. Strategic: those associated with relevant threats or opportunities.
3. Environment: those who are not included in any of the other two (all the rest).
‘The problem is always how to define priorities, grant a value to each stakeholder and place them on an understandable and manageable map.’
Finally, there is a third way to differentiate or categorize a company’s stakeholders:
1. Urgency: the relationship with the stakeholder is marked by time and is key for the company.
2. Power: the stakeholder can influence others to take decisions that wouldn’t have been taken on their own.
3. Legitimacy: the stakeholder has a moral or legal ‘capacity to influence’ the behavior of the company.
Identifying and prioritizing stakeholders correctly, the key to good crisis management
Source: 12 Manage; 2011.
Example of primary and secondary stakeholders
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areh
olders
Customers Strategic Partners Employees
Management of the organization
Banks
Customers
Suppliers
Unions
Source: Academic of Management Review, 1997.
Types of stakeholders through 3 attributes
Power Legitimacy
Urgency
Stakeholders defendants
Latent stakeholders
Dominant
DependentsDangerous
Stakeholders optional
Definitive
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3. Link it: to change the perceptions they have (action).
In the process of dialogue with stakeholders it is essential to speak in the same frequency, to have common points of connection to establish dialogue, bearing in mind that in many cases, the relationship with the different interest groups either is not based on or has nothing to do with an economic question, but a social or even an emotional one.
Communication problems with stakeholders tend to be with the establishment of very specifi c points of discussion, the dichotomy between simplicity and transparency, and the need to rapidly fi x contact points, bases on which to build mutual dialogue, as well as identifying the boundary value, the opportunities of fi nding meeting points, often more in one’s surroundings than in the relationship itself.
The increase of ethical expectations in society also prompts the gap between expectations and practice to widen, even when the latter has improved, leading therefore to the dialogue with interest groups becoming diffi cult and complicated. The danger of communication with stakeholders is also to increase expectations through communications itself.
Stakeholders and Crisis CommunicationsThere are 3 types of crisis:
1. Related to Customer Service.2. Competence failures in the operation.3. Others: exogenous factors.
One of the usual dilemmas in these kinds of situation is what type of information is transferred to interest groups and according to what criteria (in relation to the data obtained for its prioritization and its attributes: urgency, power and legitimacy), in order to avoid the risk of information which is not controlled.
Another key aspect is to clearly identify the company’s business, the brand promise and acquired social commitments, the expectations of stakeholders: what is expected from the company (also in ethical terms) and on what basis is the confi dence placed on it so far.
One of the most effective approaches is the so-called ‘reverse way’ or backwards way, which consists in identifying and prioritizing interest groups well, what interests and expectations they have (not only extrinsic motivations, but also intrinsic ones), as we’ve mentioned before, and, above all, compare both things, fi nding a solution of interest for all important parties involved.
In any case, a good Crisis Communications management is not possible without taking into account stakeholders’ expectations. When a
company goes through a crisis, it cannot and must not hide its responsibilities, nor can it avoid them or put them in someone else’s hands. That is the true socially responsible attitude.
At the worst times, companies should prioritize key stakeholders’ interests, but especially those of its employees: in a crisis situation, before any other constructive action is taken with clients and investors, for example, employees morale must be immediately reconstructed: they will only know what to do correctly if they have previously been taken into account.
Examples such as 9/11 in the US and the companies (many of them of professional services, consulting and accounting) who had their headquarters in the Twin Towers or the fi re in the Windsor building in Madrid and the Deloitte case in February 2005 confi rm this: they managed to make their relationship with their employees a priority and produce a sensation of relative normality, despite the diffi cult circumstances, reinforcing the confi dence of the other stakeholders.
‘In any case, a good Crisis Communication management is not possible without taking into account stakeholders’ expectations.’
In the management of a crisis, the possibility of converting a threat into an opportunity is always present, and that opportunity in both cases was the fact that employees were supporting the activities of the company facing clients, institutions, the media and society as a whole.
Conclusions: upcoming challengesFinally, the management of stakeholders is a question that affects the Corporate Governance of organizations. One of the priorities is to correctly identify/prioritize them. Furthermore, it is a live, dynamic question, there are no static visions, interest groups change and so too do their expectations/perceptions.
Frontier values, the common aspects and interests that can be found on the horizon, not looking at each other, but outwards in the same direction. The next challenges in stakeholder management are centered on changing the vision of the management that refers to this approach, its true implementation, overcoming the gap between theory and practice, and favoring social change.
Identifying and prioritizing stakeholders correctly, the key to good crisis management
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