Creating a Stakeholder Culture

by Mark S. Fulton

Nineteenth century American journalist Horace Greeley had a favorite piece of advice for young men seeking their destiny. “Turn your face to the west,” he wrote, “and there build up a home and fortune.” And that’s exactly what many of them did.

With the passage of the Homestead Act of 1862, anyone age 21 or older could take possession of 160 acres of public land in the West by paying a small filing fee and agreeing to live on the land for five years and make improvements to it. Once they had staked their claim, settlers got busy doing the hard work of turning a piece of wilderness into a home that could sustain them and grow into a legacy for future generations.

A century and a half later, the Homestead Act is history. Modern day homebuyers go prospecting in the newspaper or retain a real estate agent to hunt for their next home. However, the notion of being a stakeholder has found a present-day application in the world of business.

The modern business owner is the counterpart of the 19th century homesteader. From pioneering a new venture to forging a commercial empire, the business owner relies on industriousness, courage, perseverance, discernment and a host of other virtues while he or she stakes a claim to some acreage in the American Dream. It can be lonely and dangerous out there on the commercial prairie, but it can be exhilarating and satisfying, too.

Your stake in your business encompasses all of the corporate assets and emotional investment that make your enterprise uniquely yours. Nevertheless, you are not (or shouldn’t be) the only stakeholder in it.

According to the “stakeholder theory” of business management, a stakeholder is anyone who has a stake in or claim on a business. Typically, the term refers to stockholders, managers, employees, customers, vendors and even members of the community in which the business is located.

Businesses that subscribe to the stakeholder theory of management acknowledge that sound relationships between a company and its stakeholders are vital to the company’s profitability. Consequently, management is obligated to build and maintain stakeholder relationships that are based on mutual trust and cooperation. Furthermore, all decisions about business processes and outcomes are evaluated according to their effect on the company’s stakeholders.

Sounds okay so far, right? Well, this is a pie that might have a pit in it for some business owners. A key precept of stakeholder theory is that the interests of all stakeholders should be assigned equal value. That means company shareholders (i.e. owners) don’t outrank employees, customers or vendors when a financial or ethical decision must be made. Gulp.

I can hear the wheels beginning to turn. Let’s see, I own the business but I’m supposed to assign the same importance to the needs of my employees, customers and vendors as I do to my needs. How does that pay off for me?

Consider baseball. Like every other professional sport, baseball is a business. Of course, it’s more than that, too. It’s a fountainhead of great athletic moments and memorable feats; a drama of triumph and travail; a paradigm for the power of teamwork. In short, it’s a wonderful metaphor for your enterprise.

In baseball, everyone has a stake in the game. Owners make money. Players make money and build their potential to make more money. Concessioners make money and promote their products. Fans get a respite from the daily grind and an opportunity to yell their lungs out and drink beer.

Smart baseball team owners do their best to put together a winning team of the most talented players—paying them well for their skills and treating them with respect. Happy players hit a lot of home runs and win a lot of games. Meanwhile, the players know that peak performance will lead to more money and prestige, especially if they make it into post-season competition.

Owners expect fans to flood the ballpark of a successful team in order to soak up the fun (and the beer). Excited fans give the players energy and motivation to play well.

Concessioners clean up when the team consistently beats the competition. Consequently, concessioners work a little harder to support a winning team.

When a baseball team plays well, everyone involved with the team wins. In other words, everyone is a stakeholder in successful team performance.

Do your employees, customers and vendors have a stake in your business? Do they feel motivated to help it be successful? Or do they just see it as merely a provider of income, the source of a product or service or a place to sell merchandise?

Creating a stakeholder culture in your business can provide a powerful stimulus that enhances the overall performance and profitability of your company. It produces a spirit of exhilaration that energizes employees, attracts customers, encourages vendors and inspires a community. Because stakeholders see themselves as intimately involved in the success of the business, they invest more of themselves in its success.

Over the course of the next few columns, I’ll share some thoughts on why treating the people whom your business touches as partners—rather than performers, consumers, peddlers and spectators—makes good business sense.

Copyright 2001 © Mark S. Fulton