How to Design and Implement a Stakeholder Strategy?
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Why Stakeholder Strategies are Gaining Momentum
20 years ago I wrote in an article that a
pure financial corporate purpose was no longer desirable for 2 main reasons:
1. To avoid the
short term thinking and potential
violation of public trust (both are correlated to shareholder strategies), and
2. To accommodate the
increasing importance and value of other forms of value, specifically: knowledge and creativity of employees, innovation, customer reputation & relations, environmental sustainability, social responsibility, and organizational agility.
In that article ("Shareholder Value Doctrine Increasingly Looses its Status") I went on to state that "generating long term financial value for the shareholders continues to be very important, but
other forms of value need to be involved in the formulation of the vision, mission and strategy". And "What forms of value should be taken into account and to what extent can differ per individual company and per sector".
Today, we can see that a lot of corporations are adopting a
stakeholder capitalism perspective, even in countries like the US and UK who used to be inclined towards the shareholder perspective. That is not only necessary for our world, but also makes financial sense in the long term. Recently Bain & Company consultants Rigby et al. conclude: "The data is clear: The companies that create the greatest total value across all the mentions of performance don't do so at the expense of shareholder value". The influence of currently increasing interest rates and activist shareholders/investors on all of this remains to be seen.
How to Design and Implement a Stakeholder Strategy?
Focusing and tracking progress of all efforts in each value category is a lot more complex in a stakeholder strategy than it is in a shareholder strategy. Defining, measuring and communicating these values are the "Achilles heel" of stakeholder strategy. To meet this challenge to some extent, Christiaan Schreuder and I developed a "Universal Valuation Framework" back in 2002 featuring 6 categories of potential corporate capital/value (communication capital, financial capital, intellectual capital, agility capital, durability capital, and risk capital) including how these value categories can be defined, tracked and communicated.
Rigby et al. likewise describe how any company can define what categories of value it wishes to create and to what extent (by adding a weightage to each category), and how it can measure strategic progress by
combining internal data with public data available from external companies like:
- Refinitiv, Institutional Shareholder Services (level, quality, and sustainability of financial and shareholder returns),
- Bain & Company NPS, J.D. Power, and the American Customer Satisfaction Index (customer satisfaction),
- Glassdoor, Payscale (employee engagement and compensation),
- Sustainalytics, MSCI (community impact),
- Drucker Institute, Just Capital, the Embankment Project for Inclusive Capitalism (combining multiple stakeholder interests).
Interestingly, they suggest a practical
3-step approach to Stakeholder Strategy:
1. Make sense of outside measurement methods and perspectives (as used by the above companies).
2. Create your own stakeholder strategy (define your priorities, add your own, internal insights, analyze the interdependencies among your stakeholders).
3. Create a culture, structures, processes and a measurement system to sustain your stakeholder strategy (adding your own data and weightages).
⇨ What are your ideas about implementing a stakeholder strategy?
References:
Jonge de, J.H.M., "Shareholder Value Doctrine Increasingly Looses its Status" (in Dutch), Het Financieele Dagblad, Feb 19th, 2003.
Rigby D., First Z., and O'Keeffe D. (2023), "How to Create a Stakeholder Strategy - A data-driven approach to design, measurement, and implementation", HBR May-Jun 2023, pp. 63-71.
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