Part 2: Stakeholder Management Implementation

This step-by-step guide is designed to demystify the concept of stakeholder capitalism by focusing on its practical implementation, metrics, and continuous improvement process. This framework is based on the holistic, strategic, and systematic approach familiar to anyone involved with total quality management in manufacturing.

Step 1: Understand the Principles
Step 2: Clearly Establish Your Organization’s Purpose, Goals, Objectives, and Continuous Improvement Processes
Step 3: Implement a Formal Business Operating System Aligning the Focus of All Management
Step 4: Establish Meaningful Metrics for Stakeholder Management Linked to Purpose, Goals, and Objectives, Financial and Otherwise
Step 5: Better Understand Where Value Is Created in Your Organization
Step 6: Enhance Measurement of People Investments
Step 7: Establish a Culture of Voice and Gainsharing
Step 8: Maintain Continuous Improvement

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While the business media has continued to increase its coverage of stakeholder capitalism since the Business Roundtable first put the spotlight on the field in 2019 with its updated charter of the organization, relatively few people understand what it means or how to practically implement its principles in their organizations because the subject has only recently begun to show up in business education beyond a few select schools.

Without ever referencing a formal definition, the media generally focuses on the controversy created by the Business Roundtable statement that was followed up with little known action, rather than on the decades-long history of the field well documented in the Enterprise Engagement Alliance library on stakeholder capitalism.

The good news is that stakeholder management principles are grounded in the same holistic approach that has transformed quality in manufacturing known as total quality management. While it concerns itself with complying with the need for ethical practices explicit in the writings of Milton Friedman that are often ignored, its essential principle is that it’s impossible to maximize quality and productivity without addressing the interests of all the stakeholders directly or indirectly involved with the purpose, goals, and objectives and that a holistic approach to aligning stakeholders is simply more efficient than having a siloed organization.

Notice that not one step below focuses specifically on CSR (corporate social responsibility) or DEI (diversity, equity, and inclusion.) In the world of stakeholder management, these are baked in to the strategic plan as an opportunity to draw from the broadest pool of talent, customers, distribution and supply chain partners as possible..

Here are eight steps for stakeholder capitalism implementation whose principles are well established in manufacturing plants around the world dedicated to the application of total quality management.

Step 1: Understand the Principles

Based on over 50 years of history, stakeholder capitalism is “about enhancing returns for investors only by creating value for customers, employees, supply chain and distribution partners, communities, and the environment.” It is based on a growing body of research, most recently from Irrational Capital, with its Human Capital Factor independently validated by the quantitative analystics group at J.P. Morgan, that there is a direction connection between having highly engaged employees and customers and enhanced organizational performance and value.

It is not just capitalism with a long-term view: it focuses specifically on how organizations create value through people without offloading costs on to society; for instance, paying workers a wage they cannot live on, or having them work in unsafe conditions and in effect forcing them to seek government aid for food and healthcare; deceiving customers with shoddy products and service or worse or other practices designed to surreptitiously take their money; subjecting distribution and supply chain partners to onerous terms, and leaving communities to deal with derelict facilities, damaged infrastructure, or pollution. If corporate social responsibility is part of an organization's strategic plan, it is implemented consistent with its stated purpose, goals, and objectives, not in response to ad hoc requests.

Based on decades of study and practical applications in total quality management, stakeholder capitalism principles have almost nothing to do with the debate that was based on a contrived, vague definition resulting from the Business Roundtable pronouncement: the statement was quickly opposed by the left as grandstanding and greenwashing and by the right as diverting profits from shareholders to the pet causes of management or social causes unrelated to the purpose, goals, and objectives of the organization.

Any serious review of the literature finds that most proponents argue that it is simply a better form of capitalism in part aimed at addressing the ethical lapses that even Milton Friedman said were unacceptable in capitalism. In fact, the little-known field became transformed into a political debate by little more than one or two press releases conflating stakeholder capitalism with some new form of corporate social responsibility with almost no clear definition. Stakeholder capitalists are under no obligation to donate money to any cause: their commitment is to enhance returns by creating rather than extracting value or offloading their costs on to society.

Step 2: Clearly Establish Your Organization’s Purpose, Goals, Objectives, and Continuous Improvement Processes

Depending on the size of your organization, establish a committee representing management and all key stakeholders to formulate a concise mission statement clearly stating the organization’s purpose, goals, objectives in the short- and long-term. It does not have to be about changing the world, but rather how it will serve a market. This is the organization’s North Star, not only to guide planning and decision-making, but also as a basis for helping to make tough calls when trade-offs are required. This concise document should include clear metrics for the organization and all stakeholder groups, along with an annual or otherwise regular process for updating the mission statement. The annual business plan is accessible to all organizational stakeholders to foster alignment. If the organization’s goals involve issues related to DEI (diversity, equity, inclusion), they are built into the business operating plan and not relegated to a specific department with little authority. If effectively communicated, most employees, distribution and supply chain partner and shareholders, and even customers and community leaders where they operate, should be able to articulate some version of that purpose statement when asked. As examples, think Nike and Patagonia: large numbers of people have an idea of what they stand for.

This statement forms the introduction of any Corporate Sustainability report and for the annual reporting requirements of large companies for the European Union Corporate Sustainabilty Repording Directive (CSRD.)

Step 3: Implement a Formal Business Operating System Aligning the Focus of All Management

Most organizations already have a formal or informal operating system used to keep all management and their teams focused on the purpose, goals, objectives, and metrics established for that year. These systems include the formal collaborative process for developing the annual business plan; the implementation, metrics, and reporting responsibilities for the management of each stakeholder group; the specific metrics for each group aligned with the central plan; regularly scheduled cross-functional meetings to review the data against the plan to address challenges, opportunities, and key insights gained from the stakeholder voice process explained below.

The business operating system is only effective if it follows a disciplined schedule and agenda focused on organizational priorities and that establishes and reinforces the integration and alignment of all stakeholder activities, including finance, human resources, sales and marketing, customer service, operations and logistics, administration, etc.

This process utilizes time better by focusing anything but emergency discussions into the weekly, bi-weekly, monthly, and or quarterly and annual meetings each organization sees fit based on the pace of its business.

A cross-functional approach helps reduce costs and conflict by encouraging better use of communications, rewards, and recognition, technology, and other systems across the organization. This generally is preferable to a culture in which stakeholder groups fight with each other for internal resources and technology, i.e. human resources, versus administration, or operations and logistics or marketing, etc.

For organizations focused on DEI or CSR, these activities should be baked into the business plan so that all stakeholder groups include these as part of their plans as well, with corresponding metrics and continuous improvement processes.

Organizations that seek to add a competitive element to management can set aside an annual budget and process that enables management teams to submit proposals for new ventures or other investments.

Step 4: Establish Meaningful Metrics for Stakeholder Management Linked to Purpose, Goals, and Objectives, Financial and Otherwise

A common mistake in any type of people management strategy is to focus on measuring the process rather than on the outcomes, resulting in significant inefficiencies. See these recent EEA YouTube shows on the sources of waste in marketing, customer experience, human resources, labor management relationships, and job design—much of it buried in organizational balance sheets. Effective metrics track not only the potential financial impact and effectiveness of strategics and tactics but also their impact on achieving the organization’s purpose goals and objectives.

Instead of simply measuring the effectiveness of processes, holistic metrics look specifically at outcomes and the strategies and tactics used to achieve them. Below are some examples for employees and customers in addition to the specific goals and objectives established by organizations for each year, making sure to include metrics that reflect the impact of each stakeholder group on its purpose, goals, and objectives as well as on the experiences of other stakeholders.

In principle, based on total quality management, the best metrics include both the results as well as the actions necessary to achieve them, using three to no more than five key metrics relevant to each group in the enterprise. Here are some basic metrics related to employees and customers whose trendlines can help predict future outcomes.

Employees: Human capital return on investment; human capital value add; sales and costs per employee; voluntary turnover by demographic group; employee referrals; safety incidents, discrimination or harassment claims or lawsuits; employee and customer engagement, including internal customer service scores; the degree to which annual goals are achieved and effectiveness of strategies and tactics.

Customers: Marketing return on investment; marketing value add; sales and costs per customer and/or distribution partner; voluntary turnover by demographic group; customer repeat business and referrals; number and nature of customer complaints; safety issues or recalls; discrimination and harassment claims or law suits; employee and customer engagement scores; the size and engagement level of the permission-based databases of prospects and customers, and the degree to which annual goals are achieved.

The same approach can be used for distribution and supply chain partners, communities, shareholders, or any stakeholders in government or not-for-profits.

Note: The EEA now offers Enterprise and Solution Provider members a free annual single-company license to the People Value Impact Calculator, which helps organizations quickly and easily correlate stakeholder management initiatives with achievement of their purpose, goals, and objectives, financial and otherwise.

Step 5: Better Understand Where Value Is Created in Your Organization

Due to the lack of effective measurement practices, many organizations make major decisions related to compensation, benefits, marketing, or other people expenses with little to no understanding of where value is truly created in the organization. In other words, which stakeholders are most critical to achieving the organization’s purpose, goals, and objectives, financial and otherwise. Another way to address the question: which group of stakeholders would have the greatest impact on the achievement of the organization’s purpose, goals, and objectives both in the short- or long-term if for any reason investments in their needs were significantly curtailed or increased?

By some accounts, the automotive strike cost the companies $3.6 billion, not to mention the risks to productivity and quality due to low morale. In the meantime, the automakers involved in the latest strike are estimated to have spent $5 billion in stock buybacks in the year prior to the strike. The automakers can hardly afford having a disaffected workforce when not one US automaker is on the Consumer Reports top 10 list of cars based on reliability, even though all say they implement total quality management.

The goal of understanding where value is created is to have a better basis for making decisions on compensation or other people investments. Does increasing executive pay at a rate far above those of employees or buying back shares provide a greater value to shareholders than investing more in employees to enhance quality, productivity, safety, referrals and greater customer satisfaction, retention, profitability, and referrals? Very few organizations have a formal basis for making that determination.

Had the automotive companies used this method to evaluate the value created by their union employees, they might have found a less damaging, more cost-effective way of avoiding a strike.

This evaluation process can be conducted in multiple ways.

Analysis of metrics. Organizations using scorecards that correlate financial results and achievement of their purpose, goals, and objectives by stakeholder group with actual management practices over time, can see how financial results vary based on investments in stakeholder groups, strategies, and specific tactics. Over several years, the impacts of increases or reductions in investments become apparent in human capital or marketing return on investment or value add figures.
Management and employee views. The simplest approach is to conduct an internal poll of senior management representing all stakeholders at a meeting; conduct an anonymous survey of management, and/or use the same survey for employees to get their views. The approach is straightforward: ask people two basic questions: 1) which internal stakeholder groups have the most impact on their ability to do their jobs, on a one-to-10 scale and 2) rank in order of importance their impact on the achiement of the organization’s purpose, goals, and objectives, financial or otherwise. Using a standardized 1 to 10 scale, 10 has the most impact.

EEA membership includes discounted access to the Stakeholder Management Assessment Calculator, which companies can use to quickly see how the marketplace would view them if AI were deployed to analyze them.

Step 6: Enhance Measurement of People Investments

Instead of focusing on the effectiveness of people management processes or survey results, correlate such information about human resources, sales, marketing, service, and other people investments against specific outcomes designed for each stakeholder group. Utilize the same statistical process controls used daily in total quality management to measure results based on three to no more than five related quantitative and qualitative metrics that can be weighted to reflect their actual impact.

Step 7: Establish a Culture of Voice and Gainsharing

Voice. Establish a strategic and systematic approach to listening to all stakeholders, not only for complaints but concrete suggestions. The system needs to respond to each submission rapidly and transparently; act upon any that support the purpose, goals, and objectives, etc. of the organization, and either way communicate to the individual the outcome and why.

Gainsharing. A plan that enables employees to benefit from meeting or exceeding their goals and making meaningful suggestions is a bedrock principle in total quality management and applies equally to people management. Beyond the opportunity to receive rewards or compensation for suggestions or referrals, most employees are like management in that they generally feel more engaged when working toward goals whose achievement offers concrete meaningful benefits.

Step 8: Maintain Continuous Improvement

With the purpose, goals, and objectives the basis for evaluation, utilize the business operating system, established metrics, and stakeholder voice process to continually identify new ways to enhance outcomes and experiences. Stakeholder input should be on the agenda of every business operating system meeting.

Repeat the strategic planning process based on these findings and any updates in the defined purpose of the organization, goals, and objectives as circumstances arise.

ESM Is Published by The EEA: Your Source for Effective Stakeholder Management, Engagement, and Reporting

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1. Professional Education on Stakeholder Management and Total Rewards

Become part of the EEA as an individual, corporation, or solution provider to gain access to valuable learning, thought leadership, and marketing resources to master stakeholder management and reporting.
The only education and certification program focusing on Stakeholder Engagement and Human Capital metrics and reporting, featuring nine members-only training videos that provide preparation for certification in Enterprise Engagement.
EEA books: Paid EEA participants receive Enterprise Engagement for CEOs: The Little Blue Book for People-Centric Capitalists, a quick implementation guide for CEOs; Enterprise Engagement: The Roadmap 5th Edition implementation guide; a comprehensive textbook for practitioners, academics, and students, plus four books on theory and implementation from leaders in Stakeholder Management, Finance, Human Capital Management, and Culture.

2. Media

ESM at EnterpriseEngagement.org, EEXAdvisors.com marketplace, ESM e–newsletters, and library.
RRN at RewardsRecognitionNetwork.com; BrandMediaCoalition.com marketplace, RRN e-newsletters, and library.
EEA YouTube Channel with over three dozen how-to and insight videos and growing with nearly 100 expert guests.

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Strategic Business Development for Stakeholder Management and Total Rewards solution providers, including Integrated blog, social media, and e-newsletter campaigns managed by content marketing experts.

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