Dr John McManus MBCS discusses stakeholder management, including the meeting and managing of their expectations in an ethical and business-like way.

Management has an interdependent dynamic relationship with the organisation its people and the stakeholder community around them. It might sound like common sense to acknowledge this, but in my experience, few people working in management know their key stakeholders and to what extent stakeholders influence the way the organisation succeeds or fails. In this context, failure can be defined as the lack of ability to meet the expectations of stakeholders.

For an organisation, stakeholders are any group or individual who can affect, or is affected by the achievement of the organisation’s purpose. Those familiar with management theory should be familiar with stakeholder engagement as a way of increasing customer retention and profitability.

In any organisation, there are both internal and external stakeholders eager to influence events. In theory, diverse stakeholders within the organisation should have the same common purpose at a strategic level. The overall success of the organisation at a more operational or detailed level may depend on stakeholders having different priorities in terms of reaching the organisation’s goals.

It is not easy to manage different stakeholder expectations, as it is extremely improbable that all stakeholders will have the same interests and demands as each other. In this situation, there are many reasons to believe that the adoption of a focused ‘stakeholder management approach’ will contribute to the long-term profitability of the organisation. For instance, positive and mutually supportive stakeholder relationships encourage trust and stimulate collaborative efforts that lead to mutual benefits. By contrast, conflict and suspicion stimulate ongoing issues and limit efforts to reward success.

Positive relationships and success flourish when the stakeholder management approach is undertaken to further the goals and objectives of the organisation. It is the process of collaboration and consensus building that is important here.

The key is to use the knowledge of stakeholders in a productive way and make it inclusive. For example, with the ever-increasing demand placed upon finite resources, organisations have to prioritise their activities in a cost-effective manner to maximise benefits to customers. As a consequence there is constant pressure on managers not only to maintain critical focus, but also improve upon mechanisms of delivery. Ongoing initiatives consume a variety of resources; stakeholder collaborations ensure key roles and individuals are involved in the different stages of the value-creation chain.

Successful stakeholder collaborations are based on trust and trust is based on good relationships that include integrating diverse points of view, creating mutual benefits and developing shared power and responsibilities. The role and responsibilities of differing stakeholders can, of course conflict with differing power interests. This aspect is particularly important, because it can help explain the actions and reactions of differing stakeholders.

The tension between official roles and duties and individual interests are important. Why? Because, a space is created in which consultation can take place (whether formally or informally). Consultation increases the legitimacy and hence the quality and credibility of the proposals under review. Any issue of concern identified in the consultation process will help reduce conflict and shape resolutions for changes to be made.

Motivation theory

Stakeholder relationships require an appreciation for the personal values and traits important to those willing to give their energy and talents in order to accomplish shared objectives. Motivation theory strongly suggests that people need to know where they stand.

They need to assess their success as judged by those whose opinion of them matters. It should be remembered that the range of stakeholders and the roles they play is not static. Therefore, opinions matter to managers and other stakeholders alike. In similar terms, managers often assume that stakeholders are motivated or will be motivated to inducements from managers. While this is perhaps a logical and rational approach from a manger’s perspective, it is critical to understand that this is not always the case.

Managers generally thrive on challenge and conflict and conflict can exist at the highest levels of authority. In practice, some individuals are unaware of conflicting influences, or when they are, they vastly overestimate the amount of freedom or latitude they really have to deal with them. In this, context managers have to operate and survive many situations and are generally reliant on the good will of stakeholders and other peer managers.

It could be argued that a comprehensive view of the interdependence of a peer-to-peer relationship should include not only independence but also total interdependence. This total interdependence refers to the intensity of a relationship. A high level of total interdependence is an indicator of a strong, co-operative long-term relationship in which individuals have invested their time and energy.

Theory into behavioural management, points to a lack of intrapersonal and interpersonal skills, on which this interdependence is based leading both conflict and adverse behaviour when managing the expectations of other managers or stakeholders. Managing stakeholder expectations is not easy particularly when things are changing rapidly and especially were expectations and reality become disconnected.

Meeting expectations is a challenge in any field and involves, at one end of the continuum, handling expectations to ensure that these are realistic and, at the other end, as far as is possible, managing the reality so that any reasonable expectations can be fulfilled. Applying this to stakeholder management, as far as individuals are concerned, is important; discovering how realistic are their expectations of the business, including mission, objectives and practice, before and once they encounter the service, and to what extent might these be modified while they are engaged?

Arguably, the person with the highest expectations will be the one looking back at us in the mirror. Quite often, we project our expectations onto others. ‘This is what I expect from myself - it’s what everybody else will expect from me’.

In order to manage expectations one needs to be both moral and helpful in the way that decisions are formulated and communicated. Communication, if undertaken in an ethical manner, will serve to legitimise and challenge falsehood. Amongst stakeholders, communication should stimulate critical awareness of reality and help a person to distinguish truth from falsehood. Often it is necessary to develop alternative forms of language and communication so that ethical words and deeds can be realised.

Ethical management

From a stakeholder perspective, the honest person is generally characterised in terms of individual traits; as a moral manager, he is thought of as conveying an ethics message that others take notice of in their views and behaviours. Individuals must think of you as having certain traits, engaging in certain kinds of behaviours, and making decisions based upon ethical principles. Moreover, this ethical self must be authentic. Ethical behaviour relating to trust includes moral order, integrity, honesty, fairness, and fulfilment of obligations. In this context, one of the key characteristics of ethical management is that of being a role model through visible action.

Most positions in management involve obligations to the organisation, its staff and its customers (for example, the obligation to respect the thoughts and ideas of all staff). One of the ways to help prioritise ethical obligations within an organisation is to determine what actions are necessary to satisfy the perceived obligation and evaluate those actions in terms of whether they are morally required, morally wrong, or are merely morally permissible.

Sometimes senior managers fail to remember whom they are serving. It is the time old problem of decision makers being divorced from the day-to-day operations, which causes decision-making to be divorced from reality. Poor decision-making is to some extent the result of incomplete information underpinning the management structure. Weak monitoring, enforcement capabilities and limited resources available to the manager are also responsible for the poor state of trust between stakeholders and management. Moreover, many command and control strategies do not generally provide long-term incentives to staff to change their behaviour in such a way as to achieve sustainable outcomes.

The quality and credibility of decision-making to some extent rests on the manager’s perception and understanding of risk and management. Although widely used in decision-making, there is still considerable scepticism about the use of economic measures and valuation techniques by sponsors and other stakeholders. The situation is not helped by poor valuation studies and use of grossly inaccurate assumptions.

Understanding and assessment of cause-and effect linkages, required in virtually all risk valuation, need improvement. In order to overcome failure, it is necessary to change the way that decision-making is undertaken, so that wider risk implications are taken into account. This can be achieved by assessing stakeholder input and the political and economic impacts that have no obvious value to the business and its community (for example, human greed, poor practice, inappropriate policies and lack of legitimate enforcement).

Reducing practices that have a negative risk impact can be a powerful way to demonstrate the need for suitable mitigation and compensation measures and cost-effective targeted monitoring programmes. If carried out appropriately, the approach can avoid tomorrow’s problems and potentially save organisations and stakeholders considerable latent costs and liabilities.