Categories: History of PR / Political spin / Trust and reputations

8 April 2010

5 comments

Wither stakeholder doctrine?

In 1994 Tony Blair promised to turn the UK into a “stakeholder society” when he declared New Labour, New Britain. It was the cornerstone of his “Third Way” politics. But nobody’s talking about either term in the current UK General Election. Maybe the wheels will come off the “stakeholder” rhetoric in business too.  

Here’s a muse on how the stakeholder doctrine failed both politics and business and how it may not survive the challenge from the BRIC countries where there’s a bit more realism about life.

Let’s start in the present with UK politics. Then we’ll turn to how stakeholder doctrine originated in the trendy 1960s in the business sphere. Finally, I’ll make the case for saving the term “stakeholder”.

What a difference thirteen years makes. Tony Blair’s mission, he said, was to use the stakeholder concept to redefine rights and obligations and to extend accountability in society. Under Mr Blair there was a flurry of government-NGO-private business partnership arrangements. The “Third Sector” swam into view. This was the stuff which Geoff Mulgan and the think tank Demos were promulgating. I suppose the point was that Thatcher gave us popular capitalism and Blair’s mission was to widen the remit to a new participatory, networking society. Trying to move things on, and find a new Tory mission, Mr Cameron castigated Mr Blair’s “bureaucratic accountability” (all that tick-boxing, all those targets which Blair actually inherited from John Major), which he claims he’s going to smash. Mr Cameron has his own “power to the people” agenda, and we’ll see if it happens.

As the New Labour project makes way for David Cameron’s Tories (or something less new than New Labour), we should remind ourselves that the slogan was a fiction. The new active politics was top-down, not bottom-up. This really did mark a significant shift from past practice: Tony Blair’s infamous decision-making “sofa government” was the most unaccountable clique to rule the UK in modern times. It was perhaps even more closed than aristocratic rule once had been. The involvement of stakeholders turned into the manipulation of stakeholders and the sidelining of a democratically elected parliament.

Of course the idea that politics is everybody’s business – that we are all stakeholders in it – is the very core of modern democracy. The term may have gone out fashion in politics, but the political class is obsessing on how to engage people, which is much the same as trying to make more people feel like stakeholders. Indeed, the tragedy is that so many people don’t feel and act like social stakeholders. They’ve volunteered themselves to be on the sidelines, not least by not voting. It’s tempting, too, to think of anti-social people as being the reverse of stakeholders. It’s enough to make one nostalgic for the idea that people are stakeholders in the degree to which they pay taxes and don’t sponge, but that’s another story.

But whilst the idea of everyone being a social or political stakeholder – at least in principle and as an ideal – is valid, and whilst the phrase was borrowed by politicians from business, I don’t think it make sense in a business context.

So now let’s go back a bit and look at how stakeholder doctrine worked its way into business.

The 1960s origins of stakeholder doctrine

The word stakeholder has been around most likely since the 1930s, perhaps before. But its modern persona began to take shape in the 1960s. According R Edward Freeman’s history of the term:

“The actual word “stakeholder” first appeared in management literature in an internal memorandum at Stanford Research Institute (now SRI International, Inc) in 1963. The term was meant to generalize the notion of stockholders as the only group to whom management need be responsive. Thus, the stakeholder concept was originally defined as  “those groups without whose support the organization would cease to exist.”

The groups defined as stakeholders back then consisted of little more than shareowners. So it was tightly defined and designed to help organisations understand and achieve their corporate objectives. But over time, as Freeman describes it, the meaning of stakeholder theory changed dramatically. It began to include people whose personal interests were closely related to those of a firm (employees and so on).  As the doctrine evolved it eventually came to be defined, as Freeman put it, “any group or individual who can affect or is affected by the achievement of the organization’s objectives.” It later evolved to mean the whole of society. This radical development in stakeholder theory dates from around 1975 with the introduction of the “stakeholder audit”. The aim of this was to measure the social costs and benefits of business to all its stakeholders and to give them equal importance to financial results. So what was a deliberately narrowing term transmogrified into its reverse: something as wide as possible.

Freeman identified “stake” as an “interest” or a “share” (in an undertaking) and he considered three groups of stakes: Equity stakes (held by shareholders); economic or market stakes (employees or customers); influencer stakes (interest or activist groups).

Of course, stakeholders like publics are often found in more than one role. Employees can be shareholders, customers can be activists, suppliers might be creditors etc. Their interests might be contradictory in the different roles they occupy. Moreover, the stakeholder’s perception of his or her own interest might not be measurable clearly either by consultation and or research (that’s an issue I’ve looked at on my PR blog in relation to Edelman’s trust survey results here here here).

Reasons to cutback on stakeholder hype

Here are my concerns about the stakeholder doctrine in business:

  • Firms were no longer run for the benefit of their owners who risked their capital in them.
  • The objective of business with stakeholder theory became the balancing of stakeholder interests (this precluded favouring one group over another) rather than maximising shareholder value by achieving specific corporate objectives as defined by the owners.
  • The foundation stones of capitalism are the concepts of private property, the rights of its owners to exploit it, and the first duty of its agents being owed to principals. Those foundations have not been overthrown in a social revolution. Rather they remain legally binding but weakened by populist nonsense in the public domain. The suspicion has to be that stakeholder theorists are crude propagandists trying to effect change by the back door, or that they are self-deluded.
  • Stakeholder theory created ambiguities for corporate governance – exactly to whom and for what is management accountable?
  • If management is effectively accountable to everybody, then it is not accountable to anybody.
  • If “active publics” define stakeholders, as Jim Grunig seems to suggest, then perhaps that gives them power over the silent majority that they don’t deserve? For sure, laws and democracy were long-ago designed to limit activist power in the interest of the greater good.
  • The specificity of the terms stakeholder, public and “activist public” as useful categories is rendered meaningless if one accepts Freeman’s definition of what constitutes a stakeholder, which includes the unborn, the environment and much more.
  • At its most absurd stakeholder theory identifies irreconcilable forces as each other’s stakeholders. Hence Greenpeace becomes a stakeholder in the nuclear industry.
  • Stakeholder theory does little to tackle the real problem business faces today; which is that managers have become unaccountable to their owners for their poor results. Today’s recession is partly caused by irresponsible bankers destroying shareholder value because they pursued short-term interests. The recession is about falling profits, failing businesses and their social consequences, not a shortage of CSR (BTW: corporate governance is not primarily about the relationship of corporations to society).
  • Right now, business has to make brutal decisions. Consensus will matter but so will speed and agility. Stakeholder management techniques, if taken seriously, are slow. They lack the robustness to be tough and to set priorities which produce clear winners and losers.
  • The insight that stakeholder theorists claim as theirs that relationships, networks and consent are crucial to business success has been known since trading in goods and services began.

How some of this works in politics

  • Politicians who big-up stakeholder politics on the basis that it’s participatory can be taken with a pinch of salt. New Labour went in for the Big Conversation and masses of consultation, but it often turned out to be a sham.
  • In the modern perverse definition, stakeholders are self-defining. Victims – or anyone who says they feel strongly – have to be listened to as though they were experts.
  • Representative democracy empowers people who go to the trouble of getting elected: stakeholder politics risks undermining that process.

Whose side are PRs on?

One of the startling logical implications of stakeholder theory for PRs is that we no longer remain representatives of our employers. Rather we become brokers of different interest groups, listeners, facilitators and managers of the many stakeholder relationships an organisation has. In this brave new world PRs are more likely to want appear on the side of activists or competitors than on their employer’s side. This fiction needs a reality check in the interest of transparency.

What then was the great attraction of stakeholder theory? In my view it was the opportunity to have power without accountability or risk. This compelling doctrine is a hippy hangover from the post-World-War-II boom. It promised all the benefits of business and political life without the responsibility and disciplines of them; no wonder it became popular among freeloaders.

How to rescue the term stakeholder

Stakeholder theory therefore requires a radical overhaul because the challenges ahead call for risky and accountable leadership. So it will either reform, get real, or be blown away by necessity as the democratic West reorganizes to compete with the BRIC countries.

We should begin with this proposition. It’s a nice compromise, I think. Stakeholders are people with a stake in a firm’s – or any entity’s – well-being. So yes, it can be much wider than shareholders or voters alone. What’s more, legitimate stakeholders may differ very strongly about what a firm’s or country’s aims should be, just as shareholders and voters can. Plenty of people who are not strictly speaking stakeholders may have very interesting and useful views to contribute. Having skin in the game is not the measure of a person’s value to a firm or to the rest of us. But the more skin you have in the game, the more of a stakeholder you can legitimately claim to be. If we are to rehabilitate the stakeholder category usefully, we must first cut the crap.

Note: I owe a debt to Elaine Sternberg’s “Stakeholding: Betraying The Corporation’s Objectives“, SAU, 1998, for insight on this challenging topic.

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5 responses to “Wither stakeholder doctrine?”

  1. Craig Pearce says:

    I admire the energy and strong perspective of your post, Paul, and its cut-the-bullshit aesthetic, but I don’t agree with the seeming reductive notion of what comprises stakeholders (forgetting Grunig’s uptight definitions, much as I admire him) and the appropriateness of an organisation’s business and communication responsibilities.

    One key element of my opposition to some of your thinking is that I believe many stakeholders can influence the nature and ‘well being’ of an organisation and hence its ability to achieve its business objectives. So I subscribe to taking a broader view of what stakeholders are relevant to an organisation. Ultimately, either directly or indirectly, they can impact significantly on its bottom line.

    And taking a more social, altruistic perspective, government is anaemic. Organisations/companies rule the world. Hence, the latter have a responsibility to society, not just to those that profit economically from their existence.

    As always, I look forward to reading your future posts.

  2. Paul Seaman says:

    Craig,

    Thanks for the comment. I’m not sure that companies rule the world or that they should even if they could (that wouldn’t be good for democracy). Companies have to be careful about what they say they can do for society, otherwise they’ll get caught in the credibility gap. The truth is that firms are struggling with their day job right now and that’s why we are in recession. It was the state, after all, that kept business afloat when the Credit Crunch struck.

    At a practical level, I’m not sure how much of a difference there is between us – not much is my guess. For instance, I agree with your point about stakeholders and well being.

  3. Peter Walker says:

    Paul,
    Apposite as ever – if the subject was not a serious one then surely Van Helsing was the only true stakeholder!

    Interesting that you quote SRI in the sixties and stakeholders, Prof Bob Tricker (Templeton College) used the term in his battle for improving corporate governance and board structures in the ’60s. But I think that that the Canadian accountancy profession’s definition of Stakeholders is by far the most pertinent ‘ those groups with a right to information beyond the shareholders’. The key is ‘rights to information’ not some sort of quasi- social or behavioural science based inter-relationship that is almost symbiotic and creates the paradoxes you identify.

    As for Blair’s third way – and community engagement, we now live in a world where behaviour is regulated, emergency services are unable to rescue drowning children or chase villains across roofs, parents volunteering to care for each others children after school have to have a licence and use premises, their homes, that are subject to inspection then of course there are criminal records checks. Blair, the Van Helsing of his day, drove a stake through the heart of what was then and never can be again – community. Civil society, the real blood sucker, lives on or at least operates in a structured and Government regulated environment that sets out targets for judging appropriate behaviour and lifestyles.

    If there is a role for public relations it is in responding to the challenge of the Canadian CPAs and providing information, not data, in an appropriate, relevant, regular and consistent form to those who truly have ‘rights of information beyond shareholders’.

    Best wishes

    Peter Walker FCIPR – Chartered Practitioner
    PIELLE Consulting Group – London

  4. […] doctrine and presented a manifesto in defence of shareholder value elsewhere on my PR blog here and […]

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