A stakeholder is any individual or group that is affected by, or can influence, decisions or actions taken by your organisation. Some common examples of stakeholders are:
- Members of the organisation
- Investors/grant makers/lenders
- Customers/service users and families
- The local community
- Local voluntary organisations
- The local authority
Stakeholders and conflicts of interest
Many charities, social enterprise and co-operatives have stakeholders on their boards. Indeed, the Charity Commission encourages this because of the benefits they can bring. However, the charity board members are under a legal duty to act only in the interests of the charity. They cannot make their decisions based on:
- their own personal interest; or
- their relations with, or loyalty to, another person or organisation.
From time to time board members may find themselves in a situation where the interests of their organisation coincide with their own personal interest, or the interests of another person or organisation with which they have links. This situation is called a conflict of interest.
A conflict of interest automatically exists in the case of most stakeholders who are board members. For example, a board member who is a service user of the charity has a personal interest in the activities of the charity. Conflicts of interest can also arise with board members appointed by a local Council with financial or other links with the charity, social enterprise or co-operative.
Examples of ways to manage conflicts of interest include:
- keeping a register of board members' interests
- having board members declare any conflict of interest that may arise
- having those board members with a conflict of interest leave the board meeting at which the matter is discussed and not taking part in the vote
- having only a minority of board members who are also service users/beneficiaries
If conflicts of interest are not properly managed, the decisions of the board may be invalid. If the organisation is a charity, the Charity Commission may also argue that the failure to properly manage conflicts of interest means that the organisation is not demonstrating sufficiently clearly that is run for public rather than private benefit.
Working with stakeholders
Working with stakeholders can be an important factor guaranteeing the success of your organisation. You should think carefully about how you involve stakeholders in the running of the organisation, ensuring that individuals who have responsibility for the organisation have the appropriate freedom to make decisions while allowing stakeholders the opportunity to contribute.
In legal terms, stakeholders can be thought of in three categories; constitutional stakeholders, contractual stakeholder and third party stakeholders.
In most organisations there are two main constitutional stakeholders; the members and the individuals who sit on the board of the organisation.
In law, members of organisations are like the shareholders of a private company. They generally have the powers to amend its constitution, to change its name, to wind it up and to appoint and remove individuals to the board of the organisation.
In some organisations (such as some community interest companies (CIC's) limited by shares and co-operatives) the members also have the right to receive a return from the organisation. Others, particularly charities, are generally prevented from paying any benefits to members.
Sometimes the word members is used for individuals who do not have any constitutional rights but simply have a contractual right to receive certain benefits from an organisation. These benefits might include access to a stately home or a newsletter. It is important that organisations maintain a clear understanding of the different types of membership.
There are many different names for the individuals who sit on the board of an organisation. If the organisation is a company they are usually called directors, if it is a charity they are usually called trustees, if it is unincorporated, they are called members of the management committee. They may also be called board members, governors or councillors. In each case, what is meant are the individuals with responsibility for the management of the organisation.
This category includes staff, funders and customers. These are all individuals and organisations that already have a formal relationship with the organisation but it may be appropriate to add to it. For example, some organisations are staff co-operatives (Co-operatives UK refer to this as 'worker co-operatives') so that all staff are also members.
Third party stakeholders
This category can include everyone else affected by your organisation. This might include neighbouring businesses, the local authority or people who live locally.
Pros and Cons of stakeholder involvement
- Giving stakeholders a sense of ownership can encourage them to support the enterprise.
- Involving employees can be good for staff morale and reduce staff turnover.
- Closer engagement can help with raising finance from stakeholders.
- Services can be better tailored to user/customer needs when there is a greater opportunity for direct input and/or feedback.
- Decision-making can be slower because a wider group of people need to be consulted.
- Stakeholder representatives may find it difficult to reconcile the interests of their stakeholder group with those of the organisation.
- Close involvement with the day-to-day running of the organisation can be a burden for stakeholders.
- Stakeholders may not want to be involved - stakeholder apathy.
Charities, co-operatives and social enterprises often involve their stakeholders to a greater extent than many private businesses. This can often be a great source of strength to the organisation. However, it is worth giving careful thought to exactly how people can become involved, to ensure the organisation can be run effectively. Stakeholder involvement is not an ‘all or nothing’ process, and there are several ways in which people can be involved, from being consulted to taking full control of the business. No method is necessarily ‘better’ or ‘worse’ than any other, and different levels of involvement will be appropriate for different groups or situations. You can include a wide variety of different methods of involvement in your organisational structure.