Although the core purpose of an organization is to maximize long-term returns for its shareholders, it is also expected to meet the interests of different groups of stakeholders.
Some of these stakeholders have
It is very important that as an executive of the company you manage the expectations of key stakeholder groups that may exist, taking into account their particular interests and goals.
In 1989, Exxon Valdez, an oil tanker owned by the supermajor ExxonMobil Corporation (NYSE: XOM), struck a reef that tore open the tanker’s hull and quickly spilled 11 million gallons of oil into the waters of Alaska’s Prince William Sound over just a few days.
Beyond the huge environmental mess, what really put Exxon on the spot was how their executives handled the situation with seemingly erratic and contradictory statements, a late acknowledgment of their mistakes and trying to manipulate the media to minimize the damage.
In the eyes of both public opinion and lawmakers, Exxon wasn’t handling the situation at the level it should. In fact, it took its Chairman three weeks to pay a visit to the affected area.
In the Exxon Valdez fiasco, poor management of stakeholders and public relations cost Exxon billions in publicity and market capitalization value that took years to recover.
Contrast that with how Johnson & Johnson (NYSE: JNJ) managed a crisis of its own when seven people died in Chicago in 1982 after taking cyanide-laced capsules of Extra-Strength Tylenol, the company’s leading brand.
Without even knowing who was behind the attacks, instead of using its power to minimize the damage in the public opinion Johnson & Johnson took the painful and expensive decision of recalling 31 million bottles of Tylenol and offering replacement products in a safer bottle, a move that cost them more than $100 million.
Johnson & Johnson’s share of the analgesic market dropped dramatically, and the stock took a brief hit as a result, but over time most analysts and investors agree that they made the right call by putting buyers’ safety first.
Your job as leader of a modern organization is to understand the real interests and expectations of each stakeholder group, not just what they say they want, and to manage relationships with them in a way that enables long-term value creation for the organization.
A good stakeholder management plan is one of those things that you really must have in place before you need it.
To simplify your work with stakeholders, you may classify those that benefit directly from the company’s operations such as employees, vendors and partners as primary stakeholders, and group all others under a common non-primary category, which may include larger groups such as government, media, employee representatives, the community, industry and associations, competitors, non-consumers and the general public.
When working with primary stakeholders, your main goal is to align their particular interests with your company’s strategic goals, something that you do through your execution system.
But when it comes to non-primary stakeholders on the other hand, what you want is to manage their perceptions around your company and what you do.
Managing the expectations of non-primary stakeholders can really smooth your ride and is especially helpful when your company is under public scrutiny or going through major transitions.
Since you can’t motivate non-primary stakeholders financially (and you probably shouldn’t try), the game with them has to be played in terms of political capital.
Understanding who is connected to whom, and who has a key stakeholder’s ear, goes a long way when trying to “let them have your way”.
One way to help you understand key relationships among non-primary stakeholders is to visualize a map of how they are connected to each other and to the organizations they represent.
A visual representation of non-primary stakeholders can really help you see connections that may not be so evident at first, making it easier for you to connect the dots.
Understanding these types of connections can entirely change the way we approach our strategy with each of the key players.
One common mistake is thinking that managing stakeholders is the job of the public relations team and not realizing that these relationships are key for the execution of the strategy, which is by definition everyone’s responsibility.