13/10/2010

By Jeremy Thorn

This article is about balancing the needs of all our different stakeholders. And I don’t think this is ever an easy task. There are so many of them, and some are much less obvious than others.

The idea of getting the balance right in a business can cover many themes. On any personal level, a prime concern must be the balance of work and family time. For Boards more broadly, it may also be about juggling short-term needs with long-term aspirations, choosing between operational necessity and primary core values, handling conflicting view points (even within the Board, let alone outside) and balancing all the different skills and needs of a multi-functional team.

But these are rather introspective concerns you might think, however important. We also need to balance the needs of our wider stakeholders. Who might they be?


Customers, Employees and Suppliers as Stakeholders

Most organisations are all too aware of the need to look after their customers, of course, who are de facto stakeholders in the organisations they buy from. We won’t have a business without being utterly dedicated to serving our customers’ needs. So, at least for most of us, balancing the needs of customers probably comes top of our list of stakeholders.

We also need skilled, committed and loyal staff and colleagues, and we can never presume their goodwill without strong and consistent, leadership, training and support.

So much may be blindingly obvious. But then, why is it that so many customers and staff don’t actually feel that the rhetoric of customer and employee care always matches the management’s intention? (Have you travelled by rail recently, for example?)

That’s where customer and employee surveys are so important, both formal and informal, to keep track of reality. Such surveys don’t need to be expensive to run — but the results do need acting upon!

But that is not the whole story. We also need to consider our most important suppliers as stakeholders. If Marketing Strategy is about winning and growing great customers, and HR Strategy is all about recruiting and keeping great employees, then Purchasing Strategy must be about securing dedicated and cost-effective suppliers, who are usually just as important to a business as its customers. (Even in a service company, think how reliant you are on your IT and telecoms supply, for example?)

You may well feel that communicating your corporate messages to your core suppliers (and treasuring their feedback) is every bit as important as working with your own staff and customers.


Neighbours and Community Stakeholders

For those driven solely by driving up profit and return on investment, external community stakeholders may seem to fall way down the list in hierarchy of importance. But organisations may ignore them only at their peril, and they could be amongst your organisation’s very best supporters.

Neighbours don’t only include those who may complain about traffic congestion and parking problems your organisation may help create, your factory noise late at night or noxious emissions. They also include the families and friends of those you employ — some of whom you may one day want to employ, or even sell to or buy from.

I have personally found the investment in good community relations is always time well spent. Whether you want to encourage young students to work for you in the future, recruit local staff who have developed skills you need, or sell to consumers in your area, why wouldn’t you want the best relationships you can manage? And if you should ever face any local problems, wouldn’t you want your community to be as well disposed to you as possible, long before any difficulties might arise?

So in all the businesses I have run, I have always wanted to get to know my immediate neighbours, employees’ family and even local politicians. Perhaps you too?

And then, what about your relationships with your broader business community, such as trade bodies, professional institutions, local educational establishments, trades union if relevant and business-support bodies? They can all be invaluable community-stakeholders in your business, just as you might be in theirs. And that is even before you consider your networks in the wider community, such as charities and health-care, which may perhaps be far less self-serving in the short-term.


Shareholder and Investor Stakeholders

Many business-owners may immediately think of ‘shareholders’, at the mention of ‘stakeholders’. And it is important they do — especially in today’s finance markets where traditional sources of capital have become increasingly reluctant to lend. Indeed, balancing debt-to-equity ratios is a major strategic concern facing many Boards today. If a business needs ‘new money’, this is probably going to have to come more from shareholders than banks, than any of us have previously known.

But whatever the source of finance, have you noticed how easy it is to forget the providers’ needs once the money is secured?

That is of course why you talk to your investors regularly, long before you have any problems, and keep them updated. But do balance the requirements of all your investors?

It is the fiduciary duty of all Boards to look after their shareholders’ needs, and this can be an especially challenging task when their needs vary. I have worked with many Boards where some investors wanted security above all else and others more risk-taking and entrepreneurial growth. Perhaps you too? It is not an easy balance to find, but it is a key task for the Chairman at least, and any Non-Executive Directors.

There is also another fine balancing act required by Boards here, in deciding how much of the profits should be returned to shareholders as dividends and how much should be retained for further investment. This may well depend on specific circumstances, but if you want a helpful rule of thumb to guide you, many start at least with the principle of a third for the taxman, a third for shareholders and a third for the business to be reinvested.


CONCLUSIONS

Balancing stakeholders’ needs is never an easy task; there may be so many conflicting demands on your time, and indeed money.

To improve profitability, do you screw your suppliers to the wall at the risk of alienating them and prejudicing the service you need, or do you raise prices at the risk of losing customers? Like all such matters, it is a fine balance.

To safeguard cash-flow, do you hound debtors or put off creditors? To keep your focus on the business, do you ignore external stakeholders, and how much time can you afford in looking after these? These challenges all need a balance too, don’t they?

And to reward your stakeholders, how much of your income should go to your staff, how much to investors and how much should be retained in the business?

My suggestion is that while the needs of the business will always drive your immediate choices, you should have a clear set of principled values as a Board to guide all your decisions, and a firm commitment to the sound (and legal) requirements of good Corporate Governance.

Worth discussing at your next Board Away-Day?

I wish you well!

Jeremy Thorn is a long-standing Non-Executive Director and Board Advisor of several successful high-growth companies. Having first been the Managing Director of a large international engineering company, he set up and developed his own successful nationwide consultancy which he then sold to its management. An experienced executive coach and author of several prize-winning management books, he is a frequent workshop facilitator, speaker and writer for the Academy for Chief Executives and others. His passion is for developing successful organisations and their senior managers to achieve their full potential.

You can contact him at Jeremy@JeremyThorn.co.uk — or see his website www.JeremyThorn.co.uk


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