Saturday, October 30, 2010


Sustainability Management

David Horsey cartoon on auto industry financial problems
Ignoring any stakeholder will
 damage the business and in time

cause problems for all of them
As part of looking for my next role, I was in Portland recently having lunch with an entrepreneurial colleague who advises and invests in start-up companies. We were talking about company leadership, on which subject writers have produced vast libraries of turgid prose peppered with the occasional insight. To me, however, leadership decisions are generally simple to make: it's all about the stakeholders.

Much lip service is given to stakeholders and their importance, but as with any bromide there's truth behind it. Who are the stakeholders?

  • Shareholders. The owners of the company are never far from the mind of management; both share an interest in the company making money and growing equity value. Shareholders are perhaps the preeminent stakeholders, as their interests are always considered, in no small part because they have at least the nominal power to change out the management.
  • Customers. No customers, no revenues, no profits. Management must attend to the customers or there is no business.
  • Employees. Not a stakeholder usually treated on a par with shareholders and customers, but they need to be. Sure, employees can be replaced (so can customers, but you hear less about that) but replacing employees is expensive and risky. Worse, ignoring employees or treating them as replaceable cogs will destroy a company's culture. Employees are a big part of the real stakeholder that matters here--company culture.
  • Vendors. The company is their customer, of course, but the reliance is two-way. Companies can (and should) replace customers where they pose problems for the business. A company relies on its vendors for yield, quality, reliability, price, and many other things. A valued vendor will come through for a company in a pinch.
  • Community. Many vendors and most employees come from the community in which a company operates, and often some number of customers as well. As with a company's culture, so too with its community--the long-term health matters because it ultimately affects the other stakeholders. In this era of global commerce, furthermore, community is global.
  • Environment. Not people per se, but where and how people live. Like culture and community, the environment cannot be treated in isolation from the other stakeholders.
These stakeholders are interrelated, and ignoring any is not only ill-advised in itself, but will cause collateral impacts on the others. Some stakeholders can impose consequences more quickly than others. Some stakeholders are more resilient to short-term damage, or replacement. However, management cannot ignore any of these stakeholders forever.

Interestingly, none of this is exactly new, but can now be seen in a slightly new way: as part of the broader movement of sustainability. Doing well is only possible in the long term if a company also does good, and that means the on-going nurture of all of its stakeholders, and being attentive to the needs of each.

Good company management is good stakeholder management. It's being sustainable across all facets of the business. It's recognizing that a business is part of an ecosystem where all parts must be healthy and in balance. It's also good ethics.

Good leadership does more than talk about stakeholders; it actively protects their stakes, and in so doing, protects everyone.

No comments:

Post a Comment