Stakeholder analysis

Stakeholder analysis

A stakeholder analysis is required in order to identify all the parties that are directly or indirectly affected by the enterprise’s operations. It sets out the issues, concerns and information needs of the stakeholders with respect to the organization’s sustainable development activities.

A company’s existence is directly linked to the global environment as well as to the community in which it is based. In carrying out its activities, a company must maintain respect for human dignity, and strive towards a society where the global environment is protected.

At the beginning of this century, company strategies were directed primarily towards earning the maximum return for shareholders and investors. Businesses were not expected to achieve any other social or environmental objectives. Exploitation of natural and human resources was the norm in many industries, as was a lack of regard for the wellbeing of the communities in which the enterprise operated. In short, corporations were accountable only to their owners.

Today, business enterprises in developed countries operate in a more complicated, and more regulated, environment. Numerous laws and regulations govern their activities, and make their directors accountable to a broader range of stakeholders. Sustainable development extends the stakeholder group even further, by including future generations and natural resources.

Identifying the parties that have a vested interest in a business enterprise is a central component of the sustainable development concept, and leads to greater corporate accountability. Developing a meaningful approach to stakeholder analysis is a vital aspect of this management system, and one of the key differences between sustainable and conventional management practices.

The stakeholder analysis begins by identifying the various groups affected by the business’s activities. These include shareholders, creditors, regulators, employees, customers, suppliers, and the community in which the enterprise operates. It must also include people who are affected, or who consider themselves affected, by the enterprise’s
effect on the biosphere and on social capital.

This is not a case of altruism on the company’s part, but rather good business. Companies that understand what their stakeholders want will be able to capitalize on the opportunities presented. They will benefit from a better informed and more active workforce, and better information in the capital markets.

In identifying stakeholder groups, management should consider every business activity and operating location. Some stakeholders, such as shareholders, may be common to all activities or locations. Others, such as local communities, will vary according to business location and activity. Finally, the stakeholder analysis needs to consider the effect of the business’s activities on the environment, the public at large, and the needs of future generations.
After the stakeholders have been identified, management should prepare a description of the needs and expectations that these groups have. This should set out both current and future needs, in order to capture sustainable development concept. The key is to analyze how the organization’s activities affect each set of stakeholders, either positively or negatively.

Developing these statements of needs and expectations requires dialogue with each stakeholder group. To this end, some companies have established community advisory panels. Similar groups made up of employees, shareholders and suppliers have been used to help management better understand their needs and expectations.

Because the needs of stakeholder groups are constantly evolving, monitoring them is an ongoing process.

The stakeholder analysis may reveal conflicting expectations. For example, customers may demand new, environmentally safe products, while employees might be concerned that such a policy could threaten their jobs. Shareholders, meanwhile, may be wary about the return on their investment. A stakeholder analysis can be a useful way to identify areas of potential conflict among stakeholder groups before they materialize.