By Professor Vincent Bagire– (Makerere University Business School)
The theme of this Issue is on corporate governance and stakeholder engagement. Stakeholder satisfaction hasbeen a primary operational model for most organizations in both the public and private realm. Several empirical studies have highlighted the concepts of stakeholder engagement and or management. Managers of all types of enterpriseslay a lot of emphasis on understanding stakeholders. Subsequently in academic circles, the concept of stakeholder mapping has become very popular. In the mapping, there is a clear distinction and mention of internal and external stakeholders. Previous work by Freeman (1984, p. 46) defines stakeholder as “any group or individual who can affect or are affected by the achievement of the organization’s objectives”. From this definition, it is indicative that stakeholders are in two forms that is internal and external (Kaur &Lodhia, 2018). Internal stakeholders refer to a specific group who are have direct involvement. They possess contractual obligations which must be fulfilled during the execution of activities. Some of the examples of internal stakeholders are employees and managers. On the other hand, external stakeholders refer to the group of people who do not have a direct or contractual obligation into the project, yet they affect or are affected by the project outcomes (Frandsen & Johansen, 2011). For instance, customers, government and the local community are the common examples of external stakeholders.
But still challenging is the inner circle lines of the stakeholder map. In this article I will raise arguments and general questions that we need to think over so as to understand who and how to manage or engage as stakeholder.
Internal stakeholders are considered to be themselves the makers of the organization’s value. And so employees and managers are placed in this category as mentioned above. But there are evidences that managers quite often forget the stakeholder value of employees. What of the board who are the policy makers? Well, exclusive of executive directors,board members are still contentious whether they are internal or external. Even the shareholders for example in the case of companies, who actually are the owners, should be placed in either categorization cautiously. To have a stake, is to have ‘an interest’. Importantly therefore is to assess the level ‘of interest’ that a person, group of people or institution has in an organization at hand.
Anyhow, internal stakeholders by their contractual obligations with the organization, it is indicated that their engagement is critical in ensuring results. This brings in a notion, that whether internal or external, stakeholder factor in attaining results is critical. So would it not be wiser to categorize stakeholders by level of engagement? Simply put, we need a “stakeholder scale” but not “stakeholder map”? or stakeholder scaling not mapping. Either way, do we get the same output? In many aspects we talk of ‘key stakeholders’. This presupposes that some stakeholders are not key. So we need to put a scale so as to comfortably enlist those that are key and the reverse.
Let us explore more about these concepts. We are used to the mapping. The broad mapping is internal and external as already alluded. Then, as we know maps in geography, they are a representation of a given area. Ordinarily, we have ‘maps’ within ‘maps’. The map of Uganda is within the map of East Africa and later that of Africa, etc. But within the map of Uganda, we go further down to identify the smaller areas and their characters. But notably each map remains its own full self; the map of Kampala city is not because the map of Uganda is, by boundary and reason. But maps also change, for example through political demarcations of areas. This is why we need to rethinking our stakeholder mapping all the time. Academically put, stakeholders have both within and without influences to the other. So importantly is to understand the magnitude and direction of stakeholder positioning. This will basically remain contextual to and organizational specific.
There are ‘standing’ stakeholders. The government and the community are stakeholders of all time and for all enterprises. Business exists for their direct stakeholders specific in their needs, but general for society and the government. Boards must therefore thrust the engagement of the government and society in continuous view. Taking the example of government, what does it expect of the company that the board must pay attention to? Many things! So in analysis of government as a key stakeholder to an enterprise, we must make a detailed assessment. The government expects a company to abide by national laws and statutes – on labour, quality, taxes, environment, quality etc. both directly and indirectly.
This raises another concept of ‘stakeholder profiling; so from mapping, to scaling and to profiling. It is said that the assessment of stakeholder engagement among internal stakeholders is not necessarily the same for external stakeholders. For example, internal stakeholder engagement analysis is based on the employee engagement attributes of vigor, dedication and absorption (high energy, resilience, a willingness to invest effort on the job, to resist fatigue, and persistence when confronted with difficulties; dedication is a strong involvement in work, enthusiasm, sense of pride and inspiration). These are not simple and direct elements to obtain from employees, and equally they are not static once achieved. The challenge for boards and managers is how to get such out of an identified interest group. The answer is to engage them – involve them, consult with them, work with them, feedback system to them, also some control to what they do and don’t do.
Fundamentally therefore, all principles of corporate governance must be embedded in what an organization invests to give to stakeholders and the output to be enjoyed. As seen from just the example of employees, there are many other ‘gives and ‘takes’ from each category of stakeholders. So we need to map the stakeholders, as is generally appreciated. But we should go beyond and draw the scale after profiling them. Stakeholder mapping ordinarily involves the latter two actions but it has been limited in scope and actual application. We must rethink the concept. It is true, back to our geography, that a map can be just the outline of the boundary. We recall the various maps in atlases (general one or one with manyspecific details).
Business is very dynamic and in today’s increasing competition, any small flaw on understanding a stakeholder attribute can lead to losses – of a customer, a skilled employee, key knowledge, positive attitude and support from government or the community. So the take home for boards. Whenever management proposes a policy or a key decision point, fundamentally take interest in the effect on the stakeholder positioning. Generally put boards and management must keep an eye of interest, concern and service on the stakeholders in their respective map, scale and profile.
The writer is an Associate Professor of Strategic Management at MUBS,
and member of the ICGU board committee on Finance and Administration