We appreciate that varied industries, firms and internal organisational departments generally define their own processes for the identification, prioritisation and classification of specific stakeholders.
The strategic planning process affords governance designates and other organisational actors an opportunity to determine how best to categorise stakeholders so as to maintain cordial, compliant, meaningful and mutually beneficial relationships which simultaneously present value for all pinpointed parties. Our stakeholders, generally described as individuals and entities (both internal and external) with an interest in the organisation, must be correctly defined and classified in order for us to be of utmost value to them and vice versa.
Stakeholder segmentation generally refers to the exercise within the strategic planning process that entails the identification, analysis and grouping of parties with an interest in the organisation and its operations. For governance designates, usually Boards of Executives and Chief Executive Officers, a simplified stakeholder segmentation basis would comprise two overarching or all-encompassing domains, being firstly, Financial Stakeholders and secondly, Interest Stakeholders. The domains are considered all-encompassing because parties at the governance level are usually concerned with the universe of stakeholders, their expectations, impact, and influence regardless of their internal or external categorisation. A surface-level interrogation of the two broad segments follows.
The firm’s financial stakeholders would include those entities with a pecuniary interest or particular financial relationship with the organisation. In essence, these stakeholders would have their expectations, value or well-being compromised if the organisation’s performance were to suffer or face difficulty. In populating this domain, governance designates may consider entities such as the government, with its taxation requirements, levy expectations (at municipal or local authority level) and import and export tariffs for cross-border transactions. Employees are another example of a stakeholder in this domain as they have salary and benefit interests as well as a wider range of expectations relating to their jobs, linked to the physiological and safety/security needs outlined in Maslow’s Hierarchy of Needs.
Other stakeholders that governance designates would include in this domain are shareholders and varied investors, with their capital and financing interests and their operational performance as well as profit/return expectations. Lastly, some financial stakeholders of note are suppliers and customers of goods and services due to their respective cost and revenue influences. It must be noted that the above is not an exhaustive list as more stakeholders can be identified.
Interest stakeholders are those who are more concerned with organisational behaviour than financial aspects. In considering this, boards and executives could turn to the culture, values, objectives and impact elements of their overall strategy as a guide to the population of this domain. Ample consideration and emphasis should be placed on this domain as its constituents tend to wield a significant amount of influence or ‘power’ on the organisation’s brand, operations, and overall longevity.
One such constituent within the interest stakeholder realm is the media whose probes, publicity and reporting must be dealt with very carefully due to its potential reach as well as the impact that misinformation would have on the organisation. This is reflected in a wide range of organisations which have departments specifically dedicated to media and in organisations which prefer to have only the Board Chairperson, or Chief Executive Officer addressing the media.
Non-governmental organisations and activist groups are also crucial interest stakeholders as they tend to have concerns relating to the impact of organisational activities on the environment, for instance. Their environmental, social and governance (ESG) concerns must not be taken lightly as they exist to uphold certain values and beliefs with which governance designates may want to ensure the organisation’s congruence. This is shown in the emphasis on inclusion of a wide range of elements relating to ESG themes in Integrated Reporting, as highlighted in King IV.
Another interest stakeholder would be the organisation’s competitors, who are concerned with organisational performance and strategy (including both the development and implementation thereof), with a further assessment of how this might impact their own performance as going concerns. It is also crucial to note that government (which also formed part of the financial stakeholder domain) may fall under the interest stakeholder domain, primarily due to aspects such as the organisation’s compliance to regulatory precepts and statutory legislation, elements that governance designates are encouraged to be mindful of.
Having considered the above two-pronged approach, we highlight, once more, the importance of the appropriate identification, prioritisation, and categorisation of stakeholders. This assists in better understanding the relevance of diverse stakeholders and can help reveal how the organisation can best meet stakeholder needs. Furthermore, organisational actors can then focus particular actions and programmes towards the stakeholders and their respective segments for maximum value.
The views and opinions expressed in this article are those of the author, Dumisani F. Ntini – Governance and Strategy Practitioner. Contact dntini@governancegroup.org
