A business has many stakeholder groups, whose interests are impacted by strategies, policies and operations of the business. They include shareholders, bankers and other lenders, employees, customers, suppliers, the local community, local politicians, the government and the media. Business schools teach budding managers that stakeholder groups should be managed by mapping their power and level of interest. Members of the stakeholder group, which has low interest and low power, are malleable. Therefore, they should be directed as they are expected to follow instructions. Communication with stakeholder groups, which have high interest but low power, should be strengthened to minimise the number of dissenters in those groups. Stakeholder groups, which have low interest level and high power should be kept satisfied to avoid them gaining interest and becoming a member of a group, which has high level of interest and high power. Managers should ensure participation by stakeholder groups, which have high interest level and high power, because they are the major drivers of the change and major opponents of strategies. The industry practice is not much different from what is being taught in business schools.
This approach leads to ignoring the interest of those groups, which have low power, even if their interests are impacted significantly by strategies, policies and operations of the company. Managers are rewarded for manipulating stakeholders and not for aligning and protecting interests of various stakeholder groups or for resolving concerns of various stakeholder groups in just, fair and equitable manner. In most companies, manager’s decisions and actions are not evaluated against strict ethical standards. For example, non-unionised employees may not get fair deal unless they occupy important positions and thus, enjoy strong bargaining power derived from their position or expertise. Therefore, companies often do not provide non-unionised labour, compensation and benefits at the level at which unionised labour is paid. Similarly, interests of the local community are ignored unless the community enhances its bargaining power by eliciting support from social activists groups and media. Recent land acquisition disputes and issues surfaced in the mining sector (Bellary is an example) have demonstrated the current management practices of managing stakeholders.
Managers of ‘responsible companies’ have to unlearn what they have learned in business schools and through experience of managing stakeholders; and business schools need to groom future managers in a manner that they fit into the culture and management practices of responsible companies. The Ministry of Corporate Affairs has recently issued ‘National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business’. The guidelines stipulate nine principles. One of the principles is: ‘Businesses should respect the interests of, and be responsive towards all stakeholders, especially those who are disadvantaged, vulnerable and marginalised’. Application of this principle requires that a company should not formulae strategy for managing stakeholder groups by mapping their level of interest and power. Rather, it should be sensitive to the impact of its strategies, policies and operations on the interests of each stakeholder group. It should pay special attention to stakeholder groups, which do not enjoy strong power and which are vulnerable to the pressure tactics. A company should be proactive in identifying stakeholder groups and understand their concerns. It should resolve differences with stakeholders in a just, fair and equitable manner.
The current practice needs a radical change – from manipulating stakeholder groups to working with them.
Implementation of above principles requires strong commitment of the company to adhere to the principles stipulated in voluntary guidelines. It will also require radical change in the organisation culture. Therefore, those principles cannot be implemented just by articulating them in communication to internal stakeholders and others who are directly associated with the company (e.g. customers and suppliers).
The board has to take the initiative. It should set the tone at the top and must take the responsibility for implementing the principles stipulated in the Voluntary Guidelines issued by MCA. An appropriate action plan should be designed and implemented. The first step may be to audit big decisions taken in recent past to understand the extent to which earlier decisions pass the test of good governance as envisaged in the Voluntary Guidelines.
Let us hope that independent directors will rise to the occasion and will persuade the board to adopt the Voluntary Guidelines in their true spirit.
The author is a director at the International Management Institute, Kolkata