What Is a Stakeholder — and Why Should Every Leader Care?Aug 23, 2021
Learn what the term 'stakeholder' means and why it has become one of the most important words in business.
By Meghan French Dunbar and Amanda Kathryn Hydro
When the Business Roundtable — the largest industry group of businesses in the world including the CEOs of J.P. Morgan Chase. & Co, Johnson & Johnson, and Amazon — came out with a statement that redefined the purpose of an organization in 2019, they explicitly stated that the purpose of business should be to maximize benefits for all stakeholders.
If you heard about this or if you’ve heard about the burgeoning concepts of stakeholder capitalism, stakeholder management, or a stakeholder-centric organization, and you feel confused about what a stakeholder actually is, you’re not alone.
What exactly is a stakeholder?
While 'stakeholder' has become one of the most important terms in business over the past decade, the definition of 'stakeholder' is still not widely known. In the simplest terms: a stakeholder is any person or entity your business directly affects. This would include your business’s customers, team members, vendors, and shareholders; but this also includes not-as-obvious entities such as your business’s community and the environment.
It seems simple enough, yet the ramifications of expanding the purpose of business beyond value creation for shareholders to include value creation for all stakeholders is profound. Every business leader should clearly understand why this is so important.
Why shift the focus from shareholder to stakeholder?
For more than 50 years, the business world has accepted the narrow definition of the purpose of business as being to maximize benefit for all shareholders. A shareholder includes any owner of shares in the business, from founders and executives to investors.
For half a century, business leaders have accepted that their one-and-only priority is to maximize the benefit, or profit, for this one select group. This singular focus has unwittingly reinforced systems of discrimination.
When a leader has a mandate to maximize profit for their shareholders, it provides them not just with cover but with explicit direction, to do whatever they need to do, at any cost, to make money. This is how some leaders have justified actions such as slashing worker pay, requiring workers to work at unhealthy levels in unhealthy conditions, polluting the environment, cutting corners on product quality and safety — you get the picture.
At the same time, capitalism has proven to be the most effective system on Earth in combating poverty and globalizing information sharing, increasing the knowledge and awareness of consumers around the world. While the world changed, most societies grew more conscious of one another’s dignity and the impact of our individual actions. And yet the business community — laser-focused on shareholder profit — lagged behind.
This new focus on corporate purpose and stakeholder capitalism is providing a pathway for business leaders to catch up and grow into more holistic business models that add value for all stakeholders. Thanks to the Business Roundtable, business leaders now have a mandate to maximize the benefit for every person and entity that their business affects.
This is not business as usual. This is so much more.
In practice, this looks like taking all your company’s stakeholders into consideration when making business decisions. It requires asking difficult questions, like How can we create mutually beneficial opportunities that benefit all? It means supporting personal work-life rhythms, the communities we belong to, and the planet we share — all by profitably meeting the challenges faced by humanity. While it is a much more complex way of thinking as a business manager, stakeholder management creates resilient, better-performing companies over the long term.
And it’s not just good for companies; it’s good for business leaders, too. No longer bound by a mandate that enforces systems of oppression and extraction, business leaders are free to make better decisions about the way they want to treat their devoted employees, their faithful customers, and their trusted vendors, as well as the communities in which they live, work, and play. Stakeholder management offers business leaders an opportunity to bring the best of themselves into the work they do every day, without compromising their highest and most cherished values.
For more on stakeholder capitalism, check out our podcast mini-series, 10 Things You Should Know About Stakeholder Capitalism.
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