Managing the New Spectrum

While investors may be the ultimate winners -- or losers -- they are not the only stakeholder group that matters. If value is not delivered to a broad spectrum of other stakeholders, then an enterprise risks its hard-won reputation. And reputation matters. It influences the attitudes and behaviors not only of existing and potential investors, customers, employees, and suppliers, but also that of regulators and the voice of local communities -- pressure groups and media. Stakeholders not only have the ability to influence corporate reputation significantly, they are its arbiters too.

Loss of reputation is now considered the single greatest risk facing U.K. companies according to a recent study of the top 2,000 private and public organizations conducted by Aon, the insurance group. Furthermore, failure to change was rated the second largest risk. If firms fail to listen to their stakeholders, they cannot respond to their concerns. Failure to change then becomes in itself a reason for diminished reputation.

Increasingly, CEOs worldwide recognize these vital issues and understand the new complexity inherent in the management of global organizations. Anders Dahvig, CEO of the Swedish home-furnishings chain Ikea, said in September 2000, "The world has changed enormously in the past decade. ... All of us now act in ways we did not 10 years ago. Globalization means stakeholders and responsibilities everywhere, which have to be managed. It's quite a different level of complexity."

By the end of the 1990s, a balanced scorecard performance measurement system could no longer get away with including just two stakeholders -- investors and customers. First, in an age of greater outsourcing, suppliers and alliance partners were becoming increasingly important components. Furthermore, a number of companies, some of them huge organizations, were falling foul of regulators that had gained greater powers -- sometimes with headline-catching revelations of unscrupulous business practices. With the development of the Internet, communities and pressure groups were gaining in power and prominence too. The advent of the Corporate Social Responsibility movement is further evidence of this change in the way that corporations are expected to behave.

There has been much controversy in the business press about whether companies can really serve several masters as opposed to their shareholders alone. However, it quickly became apparent to us, as we developed our framework, that organizations didn't have a choice -- they simply had to address the added complexity of the stakeholder economy. Does it create ambiguities? Of course it does, but they are dilemmas that executives definitely need to work through, understand, and formulate policies for.