CHAPTER TWO

Management of
Stakeholders
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CHAPTER 2 – MANAGEMENT OF STAKEHOLDERS
2.1. Definition of Stakeholder
 A stakeholder is a party that has an interest in a
company and can either affect or be affected by the
business.
 The primary stakeholders in a typical corporation are
its investors, employees, customers, and suppliers.
 A stakeholder is a person or group with an interest in
an enterprise. However, with the increasing attention
on corporate social responsibility, the concept has been
extended to include:-
 Communities
 Governments and
 Trade associations 2
Key Takeaways:
 A stakeholder has a vested interest in a company and
can either affect or be affected by a business'
operations and performance.
 Typical stakeholders are investors, employees,
customers, suppliers, communities, governments, or
trade associations.
 An entity's stakeholders can be both internal and
external to the organization.
 Shareholders are only one type of stakeholder that
firms need to be cognizant of.
 The public may also be construed as a stakeholder in
some cases.
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Types of Stakeholders
Stakeholders can be internal or external to an organization.

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 Types of Stakeholders Cont’d…
 Stakeholders can come from a variety of connections
to the organization or project.
 The following are the most common stakeholders of
corporations.
1. Owners of the corporation, usually referred to as
shareholders, are those individuals or groups who
have invested in the form of equity, or shares.
 Shareholders can number in the hundreds of thousands
for large corporations, or be a single individual in the
case of an unincorporated business.
 They supply an organization's equity and capital and
are responsible for organizational goals.
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2. Customers or Consumers
 usually expect organizations to deliver products of value.
 may be members of the public, usually referred to as
consumers; other corporations, referred to as industrial (or
business-to-business) customers; or governments or
government agencies.
 are the source of revenue for the corporation and should be
treated carefully.
 However, where a corporation is a monopoly, or where there
is a lack of competition in the market, customers can be taken
for granted.
 It is argued that the needs of individual consumers are
ignored by large corporations and instead of consumers
influencing production decisions, producers influence or
determine what consumers will purchase.
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3. Employees
 Employees are individuals who work for the corporation and
are categorized in several different ways.
 Managers are employees involved in supervising tasks at
low, middle, and top levels in the corporation.
 Workers may be thought of as blue- versus white-collar.
 Blue-collar workers are involved in manufacturing,
production, or servicing tasks, while
 white-collar workers are office employees.
 Retired employees, either managers or workers, have a stake
in the corporation where company pension plans exist.
 Employees are considered among the most obvious and,
perhaps, most important stakeholders.
 They have considerable influence for the simple reason that
they are critical for the operation of the corporation. 7
4. Lenders and Creditors
 Different types of individuals or groups lend
corporations money that will be paid with interest.
 Some lend for long terms by purchasing bonds while
others advance funds for short periods, as with trade
creditors.
 The lenders may be individuals or other corporations,
usually financial intermediaries that exist to lend money.
 This stakeholder has substantial influence: if the lender
is not paid as agreed upon in the contract, the
corporation's assets can often be seized.
 Mortgagees, lenders, & creditors have a prior claim on
the assets of a corporation if it ceases operations or
goes bankrupt.
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5. Suppliers
 Suppliers are usually other corporations that provide
raw materials, component parts, or finished materials
used in the manufacture or provision of the
corporation's goods and services.
 The influence of suppliers varies. If a supplier is the
only source of a particular material or component,
then it will be more influential.
 If the material component is available from several
suppliers, the corporation has alternative sources and
is not dependent upon a sole source.
 Sometimes, a corporation may, for a variety of
reasons, own its supplier.
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6. Investors
 are shareholders, who invest in organizations in exchange for
financial returns and often receive regular financial
reporting on the companies they invest in as well as voting
power in major decisions.
7. Communities
 have an interest in businesses being healthy, safe and
beneficial to local economies. Businesses create jobs and
business for local communities.
 Environment, sustainability and governance (ESG) are
increasingly important values for consumers and investors.
8. Governments
 collect taxes from companies and their employees.
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Types of Stakeholders Cont’d…
 Some of these stakeholders, such as the owners
and the employees, are internal to the business.
Others, such as the business’s customers and
suppliers, are external to the business but are
nevertheless affected by the business’s actions.
These days, it has become more common to talk
about a broader range of external stakeholders,
such as the government of the countries in which
the business operates, or even the public at
large.
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Cont’d…
Internal stakeholders:- are people whose interest in a company
comes through a direct relationship.
 They can include employees, project managers, boards of directors,
donors and investors.
 These individuals are often referred to as primary stakeholders, or
key stakeholders, because they have a direct stake and important
role in the company's or project's success.
External stakeholders:- are those outside of the company and who
do not directly work with a company but are affected indirectly by
the actions, decisions and outcomes of the business.
Suppliers, creditors, government agencies, labour unions and public
groups are all considered external stakeholders.
These entities are also referred to as secondary stakeholders
because their stake in the company or project is often more
representational than direct.
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 Cont’d…
An external stakeholder is normally a person or
organization affected by the operations of the business.
When a company goes over the allowable limit of carbon
emissions, for example, the town in which the company is
located is considered an external stakeholder because it is
affected by the increased pollution.
Conversely, external stakeholders may also sometimes
have a direct effect on a company without a clear link to
it.
The government, for example, is an external stakeholder.
When the government initiates policy changes on carbon
emissions, the decision affects the business operations of
any entity with increased levels of carbon.
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Stakeholders Vs Shareholders
 Shareholders are stakeholders who are financially invested
in an organization.
 While stakeholders are interested in a company's overall
performance, shareholders have an added interest in the
company's stock performance or return on investment.
 A shareholder's investment helps fund an organization and
its activities.
 Depending on the size of investment, shareholders can
sometimes have more influence on an organization and its
projects than stakeholders.
 Investment can grant shareholders the right to regular
financial information about an organization and to
participate in business decisions.
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Stakeholders Vs Shareholders Cont’d…
 Shareholders are only one type of stakeholder. And all
stakeholders are bound to a company by some type of
vested interest, usually for the long term and for reasons of
need.
A shareholder has a financial interest, but a shareholder can
also sell their stock in the company; they do not necessarily
have a long-term need for the company and can usually get
out at any time.
For example, if a company has poor financial performance:-
 Vendors in that company's supply chain might suffer if the
company limits production and no longer uses its services.
Employees of the company might lose their jobs.
However, shareholders of the company can sell their
stock and limit their losses. 15
 Stakeholders Cont’d…
 In the event that a business fails and goes bankrupt,
there is a pecking order among various stakeholders
in who gets repaid on their capital investment.
 Secured creditors are first in line,
 followed by unsecured creditors,
 preferred shareholders, and
 finally owners of common stock.
 This example illustrates that not all stakeholders have
the same status or privileges.
 For instance, workers in the bankrupt company may
be laid off without any severance.
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Importance of Stakeholders
 Stakeholders are important for a number of reasons.
Internal stakeholders are important because:
 The business’s operations rely on their ability to
work together toward the business’s goals.
External stakeholders on the other hand can affect the
business indirectly.
 Customers can change their buying habits,
 Suppliers can change their manufacturing and
distribution practices,
 Governments can modify laws and regulations.

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Examples of stakeholders
 Stakeholders exist across industries. For example:-
 In healthcare, stakeholders are those who have a direct interest
in healthcare services provided and the decisions made around
them. These include doctors, nurses and other medical
professionals; hospitals, clinics and healthcare
providers; healthcare IT, medical equipment and other suppliers;
governing bodies; nonprofit organizations; and patients.
 In a project setting, the stakeholders are people who have direct
influence on whether a project is successful. They include:
 customers, whose satisfaction with a product or project is the
end goal of a project plan;
 project managers, who manage and lead a project;
 project sponsors, who finance a project; and
 project team members, who are the employees executing a
project. 18
 1.3. Stakeholders Management
Stakeholder management is the process of
identifying, prioritizing, and engaging
stakeholders throughout the product
development process.
It’s an essential component of product
management because stakeholders ultimately
play a significant role in a product’s life.
It involves systematically identifying
stakeholders; analyzing their needs and
expectations; and planning and implementing
various tasks to engage with them.
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 Stakeholders Management Cont’d…
 In the 1984 book, Strategic Management: A
Stakeholder Approach, R. Edward Freeman
emphasized the idea that a business is
a system that's built on relationships, and no one
part of the system can be viewed as an isolated
entity.
 Freeman's stakeholder theory is an organizational
and relationship-based management model.
 It is credited with helping to raise social
consciousness in business about the value of
treating stakeholders ethically.
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 Stakeholders Mgmt. Cont’d….
 In their 1983 article, "Stockholders and Stakeholders: A New
Perspective on Corporate Governance," R. Edward Freeman and
David L. Reed proposed that for a business to succeed, it must
create value or be a value driver for the owners or stockholders.
 They also said that a business must create value for
stakeholders who do not have a direct financial interest in the
company's success, but without their help, the business could
not exist.
 Freeman and Reed's analysis stated that the job of
the entrepreneur is to find out who the stakeholders are and
determine where their interests intersect with those of the
stockholders.

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 Stakeholder analysis
 Stakeholder analysis start with the process of identifying and
ranking a project's major stakeholders.
 Once stakeholders are identified, stakeholder analysis
weighs the demands and influence of those stakeholders,
then ranks which ones are most likely to influence or be
influenced by the company's actions.
 Stakeholder analysis is a central part of stakeholder
management, which is a process that studies the varying
motives and concerns of stakeholders to cultivate positive
relationships.
 Both internal and external stakeholders must be considered
when conducting stakeholder analysis.
 Stakeholder analysis process include identification, mapping,
prioritization and engagement.
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 Stakeholders Analysis Cont’d….
 Stakeholder analysis helps to identify the right individuals
or groups before the project begins.
 There are four primary components to a stakeholder
analysis:
1. Stakeholder Identification
 Stakeholder identification is the first step in the stakeholder
analysis process and it’s the base of your stakeholder
management plan.
 As its name implies, this process consists in identifying all
your internal and external stakeholders.
 Later these stakeholders will be analyzed, prioritized and
engaged.
 Who will be affected by your project the most? Brainstorm
a list of potential stakeholders with the product team.
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2. Stakeholder Mapping
 Determine the level of interest and the power or
influence that the identified have over the project.
 This is an important step in the stakeholder
relationship management process, because this is
when you’ll get the information needed for
stakeholder prioritization.
 Assess stakeholder interest, influence, and level of
participation in the project.
 A helpful way to visualize this is to create a Power
Interest Grid. People in your grid’s High Power/High-
Interest quadrant are your key stakeholders and
should receive full engagement throughout the
process (See the next slide). 24
Power Interest Grid

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3. Stakeholder Prioritization
 Prioritizing your project stakeholders by
their importance to the project.
 Decide who among them have the most
influence on the project and are affected
by it.
 Once you’ve determined who your key
stakeholders are, it will be easier to keep
an eye on them and determine which are
the best stakeholder management
strategies to keep them satisfied. 26
4. Stakeholder Engagement
 Finally, with the information created in your
stakeholder map, you figure out how to
engage your stakeholders.
 This is the process by which you decide how
you’ll communicate and interact with your
project stakeholders.
 This leads to a stakeholder communication
plan that outlines the channels and frequency
of communications between you and each
project stakeholder.
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How Does Stakeholder Management Work?
 Stakeholder management, in a business project sense, works
through a strategy.
This strategy is created using information gathered through the
following processes:
 Stakeholder Identification - It is first important to note all the
stakeholders involved, whether internal or external. An ideal
way to do this is by creating a stakeholder map.
 Stakeholder Analysis - Through stakeholder analysis, it is the
manager's job to identify a stakeholder's needs, interfaces,
expectations, authority and common relationship.
 Stakeholder Matrix - During this process, managers position
stakeholders using information gathered during the stakeholder
analysis process. Stakeholders are positioned according to their
level of influence or enrichment they provide to the project.
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Cont’d…
 Stakeholder Engagement - This is one of the most important
processes of stakeholder management where all stakeholders
engage with the manager to get to know each other and
understand each other better, at an executive level. They agree
on a common set of Values and Principles, which all
stakeholders will stand by.
 Communicating Information - Here, expectations of
communication are agreed upon and the manner in which
communication is managed between the stakeholders is
established, that is, how and when communication is received
and who receives it.
 Stakeholder Agreements - This is the Lexicon of the project or
the objectives set forth. All key stakeholders sign this
stakeholder agreement, which is a collection of all the agreed
decisions.
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Failures in Stakeholder Management
Some organizations still carry on poor stakeholder
management practices and this arises because of:
 Communicating with a stakeholder too late. This does not
allow for ample revision of stakeholder expectations and
hence their views may not be taken into consideration.
 Inviting stakeholders to take part in the decision making
process too early. This results in a complicated decision
making process.
 Involving the wrong stakeholders in a project. This results
in a reduction in the value of their contribution and this
leads to external criticism in the end.
 The management does not value the contribution of
stakeholders. Their participation is viewed as unimportant
and inconsequential. 30
 2.3.Implications for CSR
 All business must consider their ethics and corporate social
responsibility(CSR) when interacting with stakeholders.
 CSR is an approach that includes all internal and external
stakeholders of a company in its various decision .
 Ethics:- a set of Moral principles that guide a business needs
to establish and follow governing what is considered to be
“right” and “wrong”
 CSR:- the commitment by the business:
 To conduct its business in an ethical manner
 To take responsibility for economic, social and
environmental consequences of its activities
 To be accountable to a wide range of stakeholders(not just
shareholders),including employees, customers and local
communities.
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 Implications for CSR Cont’d…
 Stakeholder engagement is a key aspect of
corporate social responsibility (CSR) and
sustainability.
 It involves identifying and communicating
with the groups and individuals who have an
interest or influence on the social,
environmental, and economic impacts of your
business.
 By engaging with stakeholders, you can gain
valuable insights, improve your reputation,
and create shared value.
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Thank You!
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