The Issue of Stakeholder Engagement - Term Paper Example

Reporting to Stakeholders Every business or organization has stakeholders. However, the nature of stakeholders is subject to great debate going by the hundred of definitions that have been postulated by different experts in its regard (Miles 2012, 287). Many experts, however, agree that stakeholders comprise any group or individual with an interest in the organization. Alternatively stated, a stakeholder is any person or group who are affected by or who can affect the extent to which an organization achieves its aims (Freeman & Reed 1983, 93). Today, many businesses appreciate the importance of stakeholders to their business activities and engage them in different ways. One of the ways that organizations engage their stakeholders is by reporting to them. This paper will analyze the issue of stakeholder engagement and will more specifically focus on reporting to stakeholders. Business Stakeholders As previously noted, stakeholders are those parties that have an interest in the organization’s wellbeing and are impacted by its activities, operations and goals to the extent that they have a stake in the business. Stakeholders also impact on a business in that their actions may affect the operations and profitability of an organization (Freeman & Reed 1983, 95). There are different types of stakeholders to a business. While many analysts categorise business stakeholders into two; internal and external, others note that there are, in fact, three types of stakeholders; internal, connected, and external (Mitchell, Agle& Wood 1997, p. 859). Internal stakeholders are those parties that are internal to the organization. Some of the internal stakeholders that an organization may have include managers, shareholders, and employees. Stakeholders that are external to the business are basically those that are not bound by a legal contract to it. The main stakeholders that fall under this category include the community or society in which the business operates, government, and competitors. On the other hand, connected stakeholders are those parties that have a contractual relationship with the organization and include creditors, suppliers, and customers. One organization that truly appreciates and recognises its stakeholders is Price Waterhouse Coopers (PWC). Over and above the aforementioned stakeholders, PWC acknowledges advocacy groups, professional bodies, global institutions, non-governmental organisations, government regulators, and the media as some of its main stakeholders (Price Waterhouse Coopers 2014). According to the company, engaging with the stakeholders is a central part of its business and goes a low way in achieving its goals. It is for this reason that the organization seeks always to get the views of its stakeholders and establish whether or not they would recommend it as a preferred option to other businesses or competitors (Price Waterhouse Coopers 2014). The Interests of Stakeholders in an Organization One of the areas that different stakeholders are interested in with respect to an organization is financial performance. The financial performance of an organization is normally presented through its financial accounts. Generally, the financial accounts of the organization provide a summary of historic information, and an evaluation of the company‘s performance, not to mention providing a summary of all the financial transactions that end up in the business accounts (lexander, Britton, Jorissen 2005, p. 46). Some of the accounts and reports that a company may present to shareholders and to government regulators include balance sheets, cash flow statements, directors reports, profit and loss accounts, and audit reports, to name but a few (lexander, Britton, Jorissen 2005, p. 52). Shareholders emerge as the key stakeholders of a business as noted by Freeman and Reed (1983, p. 97). They together with potential owners need to know how the company is performing so that they evaluate their investment. Based on the information they receive from business managers and directors, they are in a position to make informed decisions in regard to their investments. For example, they are to compare how their investments are performing relative to alternative investments. Furthermore, they are bale to establish how effective their business managers and judge the returns they may enjoy as well as the risks they may face in the future. By virtue of their investments in the organization, shareholders have a great interest in the profitability of the organization, the dividends that they get from it and always wish to have a say in how the business is managed. By getting reports on the business, business owners are able to evaluate how the organization is performing and whether their investments are worthwhile. Creditors have a stake in an organization by virtue of the fact that have lent money to it or are owned money by it (Figge & Schaltegger 2000, p. 25). This being the case, they are interested in the organization’s cash flow, profitability, liquidity and the extent to which it is liable. Through financial and other reports, creditors and potential creditors can make informed decisions on whether to lend the organization more money or not, and establish whether the business can meet its obligation of paying with interest the sum lent. Similarly suppliers are interested in knowing more about the financial performance of an organization so as to make an informed decision on whether or not to supply it with products on credit (Figge & Schaltegger 2000, p. 27). The financial information they get about the organization go a long way in helping them assess whether or not the company is able to pay the goods they have supplied on credit. On their part, competitors may use financial records of an organization for the purposes of benchmarking and to compare their performances with those of the organization (Figge & Schaltegger 2000, p. 36). In this respect, they may be interested in the sales volumes, profit margins, and investments of the organization, information which may be in the public domain. Employees that an organization has every reason to be interested in the performance of the business, and therefore in its financial accounts especially given that it bears heavily on their job security, wages, job security, and other benefits. This same situation applies to managers who have to develop plans, make decisions, and implement controls for the good off the entire business. Customers are interested in knowing the value they get for money and the innovations that the company is making or adopting that may benefit them. They are also interested in knowing that the prices that they pay for business products is reasonable if not the lowest possible for the value they are getting. Theory and Current Trends in Relation to Reporting to Stakeholders Given the stake that different stakeholders have toward an organization, it is important that they get informed of its activities and business situation periodically. It is in recognition of this fact that many an organization periodically report to their stakeholders. Companies such as Coca-Cola, Price Waterhouse Coopers, Barclays Bank, and numerous other organizations often hold Annual General Meetings (AGMs) which are important forums for reporting to shareholders. Other stakeholders may get reports about the activities and operations of an organization through publications, business websites, and on public media as opposed to meetings. While this is the case, organizations do not normally report to all their stakeholders and may not wish that some of their stakeholders get to know about certain things about them or their operations (Donaldson & Preston1995, p.72). For example, firms may have no business reporting to their competitors and may, in fact, lose so much when their trade secrets land in the arms of those they are in competition with. Also, an organization may be obligated to share more of its financial records with shareholders and government and less of them with suppliers and competitors. Ideally, what this implies is that different stakeholders may receive different sets of information from the organization to satisfy their particular needs or demands within a given context. Generally, companies commonly direct their reports to government, shareholders, the general public, customers, employees, and suppliers through different forums and media (Donaldson & Preston1995, p.71). Reports that are presented to stakeholders go a long way in reassuring them that the resources they have invested in the company are not only safe but are being put into wise use. In the event that stakeholders such as shareholders and creditors feel that the resources they have invested in the company are not safer or are being used unwisely, they may withdraw such investments (Donaldson & Preston1995, p.75). Managers and directors who are primarily charged with the responsibility of providing reports to various stakeholders must, however, maintain honesty and provide a truthful and fair view of the accounts even if the situation looks grim. Presenting false information to stakeholders is unethical and can come at a high cost to the managers and the business. Managers who present false information have in many cases faced litigations that bear on their finances and reputations. Many business experts note that there is great potential in stakeholder dialogues given that they can result in the creation of shared value. This realisation has seen cross sector collaboration and stakeholder dialogues become a common phenomenon (Kuenkel 2013). Strategic managers worldwide are in this respect wondering whether the business world is moving toward a convergence of values now that shared value is almost becoming a norm. Companies that have good vision are taking advantage of these trends to improve their business performances. The Coca-Coal company, for example, is proactive in engaging its stakeholders in addressing issues such as rising water challenges even as Kraf t Foods is taking the same measure in addressing the plight of African cashew farmers (Kuenkel 2013). Without maintaining a good relationship with stakeholders, businesses risk having low reputation score and losing on actual project results. Experts advice that when engaging with stakeholders, business managers and directors should be focused enough as to define the when’s, why’s, and what’s (Kuenkel 2013). In this respect, when businesses report to stakeholders, their reports should be issue based, methodological in approach, proactive as opposed to being reactive, and results oriented. Furthermore, it is important that engagements with stakeholders are measurable in light of the organization’s internal targets as Kuenkel (2013) notes. Experts further advice that organizations should update their commitment registers and be proactive in disclosing progress to parties that are affected. In this respect, they recommend that implementation actions and significant changes to commitments should be publicised (ifc.org n.d., p.88). They further recommend that monitoring results should be publicly accessible; more particularly reports published by external monitors (ifc.org n.d., p.88). Businesses will find it important to report regularly on their entire processes of stakeholder engagement. As they report to stakeholders, it is important that the targeted parties receive the message being passed. Taking this into consideration, parties charged with the responsibility of reporting to stakeholders should endeavour to use the language that the stakeholders easily understand even if it means using local dialects (ifc.org n.d., p.88). Conclusion Most of the stakeholders of an organization benefit from the progress and success of an organization. While shareholders would wish to see the business make more profits which translates to more value for them, employees benefit from the continued existence of the organization for their income and allowances. On the other hand, the government earns revenue from the taxes that it derives from the organization. Creditors and suppliers equally would like to see the business prosper so that they may benefit from the services and products they offer the business. When the business is not performing well and goes bankrupt, perhaps it is only its competitors that may directly gain from the situation. Many experts agree to the importance of reporting to shareholders especially for its contribution toward creating shared value, improving business performance, and maintaining favourable reputation. Those charged with the responsibility of reporting to stakeholders on different issues should maintain honesty and avoid falsifying or misrepresenting facts. So that stakeholders understand the facts being passed to them, reporting should be done using a language and format that is easy to understand. Other measures that should be taken when reporting include using standard formats such as in the presentation of accounting records, being proactive in giving records and updating stakeholders of progress, and being issue and goal oriented. References Donaldson, T. & Preston, L. 1995, ‘The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications’, Academy of Management Review (Academy of Management), vol. 20, no. 1, pp.62-77. Figge, F. & Schaltegger, S. 2000, ‘What is Stakeholder Value? Developing a Catchphrase into a Benchmarking Tool’, Geneva: University of Lüneburg in association with United Nations Environment Program (UNEP), CSM Lüneburg . Freeman, R. & Reed, D. 1983, ‘Stockholders and Stakeholders: A new perspective on Corporate Governance’, California Management Review, Spring 83, vol. 25 no. 3, pp. 88-106 ifc.org n.d.,’Reporting to Stakeholders’, viewed 27 March, 2014 http://www.ifc.org/wps/wcm/connect/35de848048855437b1ecf36a6515bb18/PartOne_ReportingtoStakeholders.pdf?MOD=AJPERES Kuenkel, P. 2013, ‘Stakeholder engagement: a practical guide’, viewed 27 March, 2014 http://www.theguardian.com/sustainable-business/stakeholder-engagement-practical-guide lexander, D., Britton, A., Jorissen, A. 2005, ‘International Financial Reporting and Analysis’, Cengage Learning, London. Miles, S. 2012, ‘Stakeholders: essentially contested or just confused?’ Journal of Business Ethics, vol. 108, no. , pp. 285–298. Mitchell, R.., Agle, B. & Wood, D. 1997, ‘Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What really Counts,’ Academy of Management Revie, vol. 22, no. 4, pp. 853 - 888. Price Waterhouse Coopers 2014, ‘Engaging with our stakeholders’, viewed 27 March, 2014 http://www.pwc.co.uk/corporate-sustainability/stakeholders.jhtml Read More