Just a storm in a teacup! How often have I not heard CEO’s say this, only for the share price to be 20% down a day later!
Normally these are the visible signs, but a crisis poorly handled, have a wider impact than most managers anticipated. Look at the following model.
A single risk event is likely to have multiple impacts on a company‘s reputation. To understand this, imagine that XYZ Corporation has been fined by the Competition Commission for price fixing and allegedly engaging in unfair and predatory business practices.
News of the lawsuit is picked up by major media outlets, which run exposés on the company and how it has taken advantage of its customers.
The list below gives examples of how different stakeholders may react to this single lawsuit.
Current Customers – Possible Action: A number of customers believe they have been taken advantage of, and they refuse to do business with the company again. Other customers, who may not even be part of the lawsuit class, decide to cut back on their business or switch to new, aggressive competitors.
Potential customers – Decide not to do business with the company.
Suppliers and partners – Decide not to enter into an alliance or demand more favourable terms because of discomfort at being associated with the company.
Employees – Not wanting to be associated with a company that takes advantage of its customers, or believing that future opportunities at the company are limited, decide to take other jobs.
Financial markets and lenders – Believe the growth prospects of the firm are limited or even worse, that the business model is no longer valid. Discount the share price and demand more onerous lending terms
Government regulators – After a few politicians make speeches mentioning the fine, an aggressive regulatory agency puts a team of lawyers on the case to decide whether the company has broken the law and should face further fines or limitations on doing business
The downside of failing to meet stakeholder expectations can be enormous. In many cases, brand equity value is the single biggest component of a company‘s market value, even exceeding book assets.
Sixty-three percent of a company‘s market value is attributed to reputation (Weber Shandwick/KRC Research, Safeguarding Reputation, 2006).
The growth of the Internet-powered economy has dramatically raised the importance of reputation. Today, the velocity of information flow has increased to a level unthinkable in the years before the proliferation of websites, blogs, e-mail, instant messaging and other Internet-powered communications. In this environment, we say: Semel emissum volat irrevocabile verbum (Horace).
Loosely translated, this means that once the word is out, it has flown and cannot be brought back. In today‘s wired business environment, positive events may bring incremental benefits, while negative perceptions can spread like wildfire, with devastating results to a company‘s reputation and, ultimately, its shareholder value.
While a company‘s reputation can be harmed by a single major event, more frequently, reputations are harmed over time by “erosion” - slowly chipped away by one unsatisfactory stakeholder interaction after another. For example, dissatisfied customers are more likely to do less business with a company than they are to abandon it completely. Yet the cumulative impact of these decisions can be profound.
Question: Can you really afford to not manage your stakeholders? No wonder that, in the King 3 Code specific mention is made of the importance of stakeholder inclusivity (,i.e. that the legitimate interests and expectations of stakeholders are considered when deciding in the best interests of the company), stakeholder identification and determination of expectations and needs, the proactive management of stakeholder relationships, and that management should develop a strategy and formulate policies for the management of relationships with each stakeholder grouping.
To learn more about how to manage and engage stakeholders, you should consider attending the following event:
Last night I received an e-mail asking me for a modern definition of the word stakeholder.
Immediately my ‘humour’ side kicked in, and I thought of vampires a-la Edward.
This is a question that I ask at conferences and in my workshops, and inevitably I will get words such as someone or a group that has an interest, or position, or impact on an organisation.
But being a stakeholder is so much more. So this was my response to my client’s request.
My definition : An Organisation derives its reputation from the way it’s performance, actions and behavior is perceived by stakeholders.
A Stakeholder is any group or individual that can affect or is affected by the performance, behavior and actions of an organization.
These perceptions are influenced by the relationship building, communication and engagement practices of the organization.
In the King 3 Code on Corporate Governance specific mention is made of the importance of stakeholder inclusivity (,i.e. that the legitimate interests and expectations of stakeholders are considered when deciding in the best interests of the company), stakeholder identification and determination of expectations and needs, the proactive management of stakeholder relationships, and that management should develop a strategy and formulate policies for the management of relationships with each stakeholder grouping.
Here are some typical questions that leaders should be asking about stakeholder & reputation management processes in their organizations.
- Who are our stakeholders?
- What are our stakeholders’ stakes?
- What opportunities and challenges do stakeholders present?
- What economic, legal, ethical, and social responsibilities does our organization have towards our various stakeholders?
- What strategies or actions should we take to best manage stakeholder challenges and opportunities?
- Do you have a system for managing relationships with stakeholders?
- How do you measure results? What metrics do you use to assess and gauge stakeholder relationships?
- In a crisis how quickly can you communicate with your relevant stakeholders?
- Do you know the various methods to engage with stakeholders and when not to use it?
- Can you state how much you are spending on each stakeholder group and what your ROI is?
- Have you developed a set of rules and practices on how best to manage the process of building stakeholder reputation with each stakeholder group?
Another definition says that the term ‘stakeholder management’ refers to the development and implementation of organisational policies and practices (example decision-making) that take into account the goals and concerns of all relevant stakeholders.
Example: If you have employees in wheel-chairs, surely you should have wheelchair ramps. In SA, the Chinese community went to the highest Court to be included as part of Black Economic Empowerment legislation.
The keywords here are relevant (to the outcome or issue on hand) and the word stake.
The word stake can mean an interest, a legal or economic position (example shareholding or ownership), moral ( I do my best even though I am just a salaried employee), it could mean a public interest stake ( Media – The public has a right to know) or it can even be emotional in nature (example – I cannot relocate, because my forefathers are buried here – symbolising an emotional connection with the land – often seen at Land Claims Court).
Inclusiveness means to ensure the inclusion of the full range of different stakeholders, including marginalised and vulnerable groups.
Relevance - Include only relevant stakeholders – those who have a significant stake in the process (i.e., not everyone is included).
Remember Gender sensitivity. Both women and men should have equal access within the participatory decision making process (and never forget transsexuals as well…real inclusiveness)
If you want to unpack it further:
· A stakeholder is any group or individual who can affect or is affected by an organisation’s impact or behaviour – I saw this on a Body Shop delivery truck in Singapore. Definition based on Friedman’s work
· Those who are affected by a particular issue, incident or program;
· Those who have information, knowledge, resources or positions which are relevant to the issue;
· Those who have some control over the outcome of the issue.
OK, so what does the above teach us:
- A Stakeholder can be a group or individual (example – a blogger)
- Stakeholder Profiling is contextual and have to be done EVERY TIME, a situation or issue change. Example – I may decide to become active over certain issues but stay dormant on others. THUS stakeholders can change positions.
Read this article for more clarity: http://deonbinneman.com/2012/05/21/understanding-analysing-stakeholder-positions/
This is what I teach.
A recent report by Goldman Sachs reported that economic growth in the BRIC countries will be impacted by the fact that young people will have to look more and more after older people. Estimates show that there will be a 46% increase in these countries of people over the ages of 65.
This information reminded me of reading the Commissioner’s report on Hurricane Katrina in New Orleans where it was mentioned that one of the stakeholder groups Emergency Teams were not equipped and prepared to deal with was old people – most not in the medical system. Disaster staff reported dealing with bed ridden old and frail people.
Due to world-wide advances in health care, people will tend to live longer than the median age. More and More reports are showing that many people will not be able to retire and live off their pensions.
This raises interesting thoughts for Stakeholder Managers, for instance:
- How do we look after these people?
- How do we make use of their experiences and knowledge?
- What are their preferred needs and wants?
- Their preferred communication methods?
Viewing it from another angle it also raises interesting angles for Universities. Your alumni will get older and will need to be kept in the fold.
There is also this fallacy that all people want to retire and live happily ever after. In the early 80’s I managed a Mentorship Scheme for the Small Business Development Corporation where we used retired executives to do small business management consultations and act as advisors to entrepreneurs (Similar to the US SCORE program). I recall working with a retired Swiss CEO called Werner Freund. He was as sharp as ever at 72 and I learned more from him in a year than I learnt in my studies.
These are the type of people who we need to embrace and use. They can be a useful resource if you think strategically about it.
I would also recommend that you visit the Department of Social Development’s website for updated information such as this report deals with the rights of older people.