How External Stakeholders Can Be Bad for Business

Stakeholders within a project are those who are affected by it. This includes staff working within the environment to be altered, the management that must implement the change, financial managers who will be paying for the project and any legal reviewers to insure that the project meets necessary legislation or statutory laws affecting the endeavor.

Many companies are now being approached with the demand that they discuss all plans with "stakeholders". However, these "stakeholders" are both separate from shareholders, those who own the company in part or in full, as well as internal "stakeholders" who actually work for the company.

The term stakeholders brought up more often in project management are those external to the company that are demanding input in how the company is run. The new "external stakeholder" is how interest groups are framing their interest in affecting the operations of companies. These stakeholders are interest groups seeking a way of ensuring their agenda is reflected in the decision making and, hopefully, the outcome of actions taken by a company.

These new external stakeholders seek a say in project management, site selection, loan and investment decisions, hiring criteria, and even ownership of the company. Why, then, is this bad?

A company should listen to its customers. After all, that is what keeps a company in business. A company should listen to its employees, because those are the people who keep them running smoothly, to the customer's benefit. A company should listen to its shareholders, since those are the owners of the company. Why not listen to stakeholders?

The reason is that stakeholders are not shareholders, employees, or even customers. They maya not even live anywhere near the company's locations. They are not seeking to help the company, and their interests are often contrary to those of the employees, the employer, and the business owners. How could this be?

A large number of these "stakeholders" seeking input in the business world are environmental groups. Many environmentalist groups actively seek the deindustrialization of the Western World. Their plans of preventing expansion of existing facilities are only a first step. After years of preventing expansion at major oil refineries in the US, their pleasure at shutting down the largest refinery in California early 2009 was proof of this larger goal.

We also see this in the interference of building new power generation. Groups have fought against the construction of solar farms for fear of disturbing desert tortoises and wind mills for fear of ruining rich people's views. Roads and infrastructure cannot be built because they will lead to more traffic and demand, yet a growing population is supposed to do more with less. Higher operating costs hurt business. Not being able to offer the same product at a similar or lower cost hurts customers.

Another large segment of these new "stakeholders" are unions. Unions are overwhelmingly in favor of high wages regardless of productivity levels, lend themselves to corruption despite the damage this causes companies and employees, and often only focus on the cash flow membership brings to unions instead of any actual financial benefit brought to employees. Unions bring high costs, decreased profitability, and often interfere in efficient operation of a company. The demand that they be allowed in as a stakeholder is a direct contradiction to shareholder interests.

Ask GM bond holders and internal stakeholders if they appreciated GM listening to the unions. Ask GE stock owners if they like the company paying off environmental groups. Ask many of the bailed out banks that let environmental and green groups veto third world infrastructure projects because they might harm the environment. Listen to your shareholders. Listen to your internal stakeholders who actually work for the company. But don't listen to the external "stakeholders", or your business and the world economy will suffer as a result.

Source:

Health Knowledge. Identifying and Managing Internal and External Stakeholder Interests. Accessed October 14th, 2012.