Jeff Judy

Jeff's Thoughts - June 10, 2009

Let Me Ask You a Trick Question

"Who are your most important stakeholders, the ones who should be foremost in mind when you craft business strategies?"

Now, I gave you fair warning, that is definitely a trick question, for a couple of reasons:

  1. I used "stakeholders" deliberately, not just as a trendier synonym for "shareholders";
  2. Asking that question narrows your focus, but I'm about to urge you to do just the opposite.

Shareholders vs. Stakeholders

That expression "stakeholders" originally came into common business vocabulary as something of a fad. These days, many organizations use it as a more appealing synonym for "shareholders," and at most it carries a hint that shareholders or stakeholders should get more out of the relationship, and put more into it, than just money.

Fad or not, I don't use the word "stakeholder" lightly. For me, "shareholder" is a very specific legal and financial relationship between an individual (or legal entity) and the bank.

"Stakeholder" then, applies to just about any mutually beneficial relationship that has costs for both sides (and that includes shareholders). After all, a shareholder invests money in your company, and your organization, at the very least, expends time and money to attract investors, to communicate with them regularly, to do the paperwork required to sell shares, and so on.

By my broader definition, "stakeholders" include employees, vendors, regulators, the general public, the media, and, of course, the aforementioned directors and senior management. And each category of stakeholder gives up something, although it isn't always easy to see -- perhaps their time, perhaps money, perhaps even their attention and their conversations about their experiences with you. They give you marketing help, really, or greater productivity and profitability.

And you may give them good service, financial returns, job satisfaction and fair treatment, a sense of accomplishment, or help with community activities.

The details vary with the group, and we don't have space here to discuss all the possibilities. It is more important to deal with the second trick in the question:

Who's Most Important?

The correct answer is, "all of the above."

We have seen, recently, what happens when all the attention and effort is focused one set of stakeholders to the exclusion of others. Just listen to the angry roar that has followed the payout of huge bonuses for lousy performance at some of our biggest financial services institutions.

Those "errors in judgment," to say the least, were a direct consequence of giving too much importance to the interest of one set of stakeholders, the directors and managers. And those institutions are now suffering the consequences of having mightily annoyed many other stakeholders, including the government and the general public.

Even forgetting about those extreme examples, however, many banks, and many companies in other industries, have been especially hard hit by the downturn in part because short-term results for one group of stakeholders -- those actual "shareholders" I talked about above -- were all that mattered to them.

Now, they find that the confidence and loyalty of their customers, and the dedication and productivity of their employees, are at their lowest just when they are most needed.

Oh, I know, life would be simpler if you didn't have to think about give-and-take, investment-and-return, for each of these different stakeholders. But life isn't simple, and neither is running a successful business, especially in these times.

Stop asking yourself trick questions when you make business plans. Take a broader, more complete view of your stakeholders, and don't sacrifice or neglect the interests of some in favor of the demands of others. Then share that broader perspective throughout your organization, through training and internal communications.

Sure it's a little harder. It's also a little harder to be better than your competition, but over the long haul, looking after all of your stakeholders is another important strategy to help you best your rivals.