Tuesday, June 21, 2005

Stakeholders in Business

Every business has three types of stakeholders. The stakeholders in business are the owners, the customers, and the employees. Some businesses have only one owner or one customer and sometimes the owner of a business is the only employee, but to be a business, an entity must have at least one of all three types of stakeholders. Potential owners, potential customers, and potential employees, can also be considered stakeholders, but not to the same degree as those who are already a part of the business.

Many of the people who work for a large corporation are also stockholders and customers as well as employees of the corporation. Employees of General Motors buy automobiles made by General Motors with money they borrowed from General Motors, financed by bonds secured by assets in the General Motors retirement plan. General Motors can't make a change to its business plan, without the change having an affect on all of its stakeholders.

The goal of every business and the role of senior management in the business should be to balance the competing needs of all of the stakeholders of the business. A change that would seem great for the owners of a business may be perceived as negative to the customers or the employees of the business. Likewise, a change that would seem great for the customers of a business may be perceived as a negative to the owners and employees of a business. And a change that would seem great to the employees of a business might be perceived as a negative to the owners or the customers of a business. For example, when employees are given raises, there is less capital that is retained by the business for the owners and there is less margin available for discounts to customers.

Christians are not just employees of businesses. Christians are also owners and customers. Sometimes a business will fire an employee in order to increase profits which will have a short term negative effect on the fired employee and his or her family if they were not prepared. The firing will also have a short term positive effect on the business because the business will be able to lower prices or increase earnings. Some Christians have gained in the short term and some Christians have lost in the short term when an employee is fired. However, the long term effects are not known by any of the stakeholders. The fired employee may find a better and more rewarding job and the business may lose customers due to the business being understaffed. Conversely, the fired employee may never find a better job and the business may be able to invest the money that was being paid to the employee in a way that discovers a new technology creating more customers and more opportunities and more jobs for employees and more earnings for owners.

Sometimes owners of a business are greedy. There are a lot of business decisions that are made purely for short term profits. These greedy decision are much more short sited than they are evil. There are also a lot of decisions that are labeled as greedy even though the decision is in the best interest of all of the stakeholders. The decisions of a company in regards to it's employees, it's customers, and it's owners expose the soul of the company. In America we still have the right to choose who we work for, where we invest, and who we buy from. If we want a more ethical America, we need to work for, buy from, and invest in, businesses that balance the needs of all of their stakeholders. If our goal is to make the highest salary, buy the least expensive products, and maximize the return on our investment, we are getting exactly what we deserve; crappy businesses.

1 comment:

Dan Edelen said...

David,

Thanks for expanding on my series on business over at my blog Cerulean Sanctum.

You are absolutely right about everyone having a stake in the company--owners, employees, and customers.

It seems to me that the companies that routinely make the best decisions are the ones in which those stakes are treated equally. Time and again the businesses that are actually owned by the employees are the ones that are most interested in seeing customers satisfied and also most interested in equity within the company.

Sometimes people do it right. I think it was a trucking company, but the founder of the company upon retiring gave the company to all his employees, essentially making each one a multi-millionaire overnight. The company had always had a strong employee emphasis and that translated over into how hard they worked and how good their service was. But now that they all owned the company outright, their joy was made more full. Do I have to tell anyone that the founder of the company is a believer?

We need a lot more of that. I'll be touching on this when my series wraps up (if it ever does!)