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When companies spend time and money addressing the concerns of all their stakeholders, a funny thing happens: profits go up
The traditional company is an economically driven entity where pleasing shareholders is a major managerial concern. Nevertheless, greater financial gains could be made if managers were equally concerned about going some distance to placate anyone affected by the company's operations. Addressing the reasonable concerns of the wider community is known as "stakeholder management," and practising it could give companies a competitive edge in the marketplace.
Under a system of stakeholder management, a stakeholder is any person, ad hoc group or formal organization that has an interest in the business, environmental or social effects of a company's operations. Traditional stakeholders are dubbed "internal." They include customers, employees, shareholders, financial institutions and government agencies. Breaking from tradition, but included in this list, are ethical stakeholders customers who buy goods and services from socially responsible suppliers and producers. Beyond "internal" stakeholders are "external" ones. These include politicians, competitors, neighbouring businesses, environmentalists, nongovernmental organizations, members of the public and the media.
By dealing with these people's concerns satisfactorily, a company can get the jump on its competitors. Addressing the concerns of all stakeholders is achieved by adding environmental and social management practices to traditional economic decision-making processes. The aim of environmental management is to encourage the prudent use of natural resources. Social management, meanwhile, aims at improving the quality of life in the community.
Certain changes in the international business environment suggest that stakeholder management practices make sense. This year, a number of companies throughout the world will be adopting standards set by the Geneva-based International Standards Organization for environmental management systems and environmental audits. It is likely that many of these companies will seek to do business with other companies that have adopted the standards. Though there will be no ISO standards for social management systems and social audits, companies stained by perceived human rights violations will lose market share. This was illustrated by Anita Roddick, founder and CEO of The Body Shop International, when she said in a 1996 CBC interview: "The vigilantes' cry is for less private greed and more public need. They protest corporate complicity concerning human rights and social justice. They demand...