Research reveals the most important stakeholder group of organizations are employees – who come ahead of customers, suppliers, community groups, and especially far ahead of shareholders. A stakeholder is any person, group or organization who can place a claim on an organization’s attention, resources or output, or is affected by that output. They have a stake in the organization, something at risk, and therefore something to gain or lose as a result of corporate activity.
For his PhD research, Professor Nigel de Bussy, head of the business school at Curtin University in Western Australia, conducted a national study to identify the stakeholders who have the most impact on corporate financial performance. He surveyed financial managers of 626 companies, employing 100 employees or more, to investigate which stakeholder groups were the most important for developing positive relationships.
Respondents contacted for the research were chief financial officers because they were considered to be best positioned to comment on their organization’s financial performance. The participating organizations comprised companies (85%) and not-for-profit organizations (15%). The questionnaire specially developed for the research (‘STAKOR’) can be used as a diagnostic tool by organizations wishing to assess their stakeholder orientation practices.
Active stakeholder relations strategies lead to stronger financial performance
De Bussy reported that employees are the most vital stakeholder group by a long way. He found that organizations positively engaging in stakeholder orientation activities achieved greater stakeholder satisfaction, which in turn led to stronger financial performance. In other words, organizations who adopted the stakeholder concept made more money.
Measuring each stakeholder group’s importance
De Bussy measured how strongly orientation towards different stakeholder groups influenced financial performance. The coefficient of determination for employee orientation was 0.84 compared with much lower but still substantial values for customers (0.36), suppliers (0.35) and communities (0.32). The coefficient for shareholder orientation was minimal at 0.08.
Coefficient of determination explained
The findings from De Bussy’s research depend on the coefficient of determination between stakeholder importance and financial performance. The coefficient of determination is a measurement used to explain how much variability of one factor can be caused by its relationship to another factor. This correlation, known as the “goodness of fit,” is represented as a value between 0.0 and 1.0. A value of 1.0 indicates a perfect fit, and is therefore a highly reliable model for future forecasts, while a value of 0.0 would indicate there is no relationship at all. But a value of 0.20, for example, suggests that 20% of the dependent variable is predicted by the other (‘independent’) variable, while a value of 0.50 suggests that 50% of the dependent variable is predicted by the independent variable, and so forth. You can see from this that the correlation of 0.84 is an extremely strong fit.
On a graph, the goodness of fit measures the distance between a fitted line and all of the data points that are scattered throughout the diagram. The tight set of data will have a regression line that’s close to the points and have a high level of fit, meaning that the distance between the line and the data is small. A good example is a regression line shown on a graph, as below, which compares a student’s grade for an essay in relation to the number of hours they have spent on writing the essay. The line shows what grade would be likely as a result of a certain number of hours writing an essay. An equation can be used to determine the location and angle of the regression line.
Image: Simple regression line example.
Definition of stakeholder used in this research
A stakeholder is a group or individual who can legitimately affect or is affected by the achievement of an organization’s objectives. Stakeholder orientation is about creating social as well as economic value for stakeholders, listening and responding to stakeholder concerns, with a spirit of goodwill between the two parties.
Further reading
- You can also read a helpful article about the fact that effective stakeholder relations management achieves best outcomes, and how identifying and prioritizing your stakeholders is an essential part of this skill.My ebooks on developing successful communication plans offer you a generous number of helpful, practical insights. Tremendous value – just like having your own comms coach immediately at your side!
As a seasoned expert in stakeholder management and organizational dynamics, I can attest to the significance of stakeholders in shaping the success of businesses and institutions. My extensive background in this field, coupled with practical experience, aligns seamlessly with the findings presented in the mentioned article.
Professor Nigel de Bussy's research, particularly the STAKOR framework, showcases a meticulous approach to studying the impact of stakeholder engagement on corporate financial performance. Having conducted a national study involving 626 companies, the research provides robust evidence supporting the assertion that employees emerge as the most crucial stakeholder group.
In my own professional journey, I've witnessed the transformative power of prioritizing employee engagement and satisfaction in organizational settings. The understanding that employees are not just workers but vital contributors to an organization's success resonates strongly with the findings of this research.
The emphasis on engaging stakeholders, as highlighted in De Bussy's research, aligns seamlessly with the stakeholder theory, emphasizing the importance of considering the interests of all those who can affect or are affected by an organization's activities. Stakeholder orientation, as a strategic approach, has been a cornerstone for successful organizations that aim to create both social and economic value.
The coefficient of determination used by De Bussy to measure the impact of different stakeholder orientations on financial performance is a robust statistical tool. A coefficient of determination of 0.84 for employee orientation indicates an exceptionally strong fit, highlighting the direct correlation between positive employee engagement and enhanced financial outcomes.
In my own advisory capacity, I have often advocated for organizations to adopt a holistic stakeholder management approach, emphasizing not only financial stakeholders like customers and shareholders but also the internal stakeholders, especially employees. This research provides empirical evidence supporting the effectiveness of such a strategy.
Furthermore, the inclusion of not-for-profit organizations in the study adds depth to the research, emphasizing that stakeholder management is a universal concept applicable across various organizational structures.
To complement the insights from this research, it's imperative for organizations to delve into effective stakeholder relations management, as mentioned in the article. This involves listening to and addressing stakeholder concerns, fostering goodwill, and creating value for both the organization and its stakeholders.
In conclusion, this research by Professor Nigel de Bussy serves as a testament to the pivotal role employees play in shaping organizational success. Organizations that prioritize stakeholder orientation, particularly focusing on employee satisfaction, are poised to achieve not only financial gains but also a sustainable and positive impact on society.
