The Stakeholder Economy

This article gives a detailed summary of a conversation between Certified Chairs^TM Louise Broekman, Shiva Kannan and Cynthia Payne as they dive into the Megatrend of the ‘Stakeholder Economy” and what it really means for organisations who are now shifting their focus from profits to stakeholders either through reform or by strategic intent.

Defining a megatrend

The release of the 2023 State of the Market report by the Advisory Board Centre identified the Stakeholder Economy as a key megatrend that has transformed the way businesses operate.

It is a new economic system where business decisions balance the interests of all stakeholders, including people as well as the planet and is present across all areas where advisory boards have a key role to play, these being; political, economic, social, technological, legal and environmental sectors (i.e. the PESTLE model).

As stakeholders demand more from an organisation, the days of businesses solely focusing on shareholder value are fading and there is now a bigger focus on balancing the importance of all stakeholders including employees, customers, suppliers, communities, and the environment.

Shifting the Focus

With an extensive background into the Aged Care sector in Australia, Cynthia Payne shared her insights into how care and support-based organisations are starting to shift their outlook from a provider-centric focus to a more consumer-centric focus.

Sharing her thoughts on the Australian Aged Care reforms some of which are due to be in force in December 2023, Cynthia advised there needs to be a ‘rewiring’ of interests, whereby the focus is shifted to not only deliver better quality and safer care to elders, but also to implement consumer-centred feedback mechanisms through advisory boards to ensure ongoing stakeholder input is sought. In this setting, we are seeing the government itself as a key stakeholder, and driver of these mandated reforms.

Similarly, Shiva Kannan stated that since COVID there has been a huge spotlight placed on the healthcare sector globally. Healthcare workers have become burnt-out in the industry due to a shortage of talent, which has impacted the effective functioning of the industry overall in the provision of care to patients. “We have lost our focus on why we’re doing this”, he says. “The reason we’re doing this is to improve the lives of those under our care. And I think we took our eye off the ball on this. So, there’s a big shift, and there’s a lot more that needs to be done to get that focus back to place the patient at the centre of these priorities”.

So, what do we need to do to build a true stakeholder economy? What are the steps that we need to take to effectively create a sustainable stakeholder-centric economy? Cynthia states that there is a fundamental change to the narrative of the work of business that will need to occur, “to unpack purpose and performance for purpose, and create incentive structures that look at sustainable prosperity” – and that applies across all sectors of business.

Diverse stakeholder interests are making this tricky at best, but there is a real appetite to drive this shift.

A Balancing Act

There’s still plenty of work organisations need to do to get the balance in equity right across all stakeholders, in order for them to share in the prosperity and success of an organisation, Shiva notes.

Nonetheless, as reform starts to take hold across a wider range of industry sectors, it is inevitable, particularly across the PESTLE model where advisory boards are becoming more prevalent and, in some cases, mandated, that we will begin to see a shift in focus towards stakeholder-centric business models.

In order for such enormous shifts to take place, a change at the leadership level is suggested. Cynthia noted that in her sector, the very governance systems of provider organisations need to see and embrace this change in order for full scale change to take place throughout the organisation.

And how?

The 2023 State of the Market Report implies that advisory structures can support better informed decision-making at the leadership level, leveraging the voice of stakeholders to provide the opportunity for a true partnership approach to figuring out this challenge of delivering better outcomes for all.

By bringing the outside in, leaders have the opportunity to drive better-informed decisions, engage and embrace the voice of their customers and stakeholders. Some commentators see this as the future of good leadership.

Does rewiring governance need to wait for government (or regulator) direction?

Our panel contends that the opportunity is here right now. In Australia, the role of government in the Aged Care sector reforms has been highly significant for providers and has clearly driven the compliance need for change in governance structures in care providers. With such breadth of diversity of care providers, it is this central funding role that the government plays which sets all providers onto this same path of reform to ensure quality and safety are delivered and the voice of the consumer is heard. Cynthia maintains that fundamental reform will not occur until shifts are made at the governance and leadership level in this sector.

What about the application outside the ‘care’ sector?

Shiva and Louise discussed the fact that elsewhere and across sectors outside of the care economy, this represents an optimistic opportunity. In breaking down the key lessons being learnt here, ultimately what this means is a way to achieve better-informed decision-making. An example cited in the multinational and larger corporate space is the increasing utilisation of country advisory boards to support market entry or global growth and development strategies.

Shiva challenged that for multinationals operating across different geographies, the consideration of taking the steps early and having an involvement in shaping their sectors in new geographies can lead to a significant competitive advantage. Advisory structures to support navigating the local context, getting a sense of ‘what’s coming down the road’ can be invaluable for organisations to both influence that AND to take best advantage of those contexts.

In engaging their customers and consumers, companies establishing advisory boards to obtain direct feedback from stakeholders to understand their challenges, what’s working and what’s not. This is the opportunity now within reach for many sectors.

Shiva contends that “having advisory bodies to bring stakeholder voice through means you WILL be a better partner in that industry, you will drive best practice and you will ultimately drive greater sustainability for your organization.”

Whilst for the care sector in Australia experiencing this dramatic change, its genesis may be out of crisis, for the rest of us this represents a means for all companies to co-create together with customers/stakeholders and an opportunity to consider how you deliver continuous improvement across the organisation.

Forward-thinking leaders are embracing the notion of co-designing new (and better) outcomes for all involved, taking what could be seen for one sector as a new compliance burden, and swinging the pendulum to make this a means to deliver better outcomes, co-create improved services and offerings and potentially provide a blueprint for other sectors to drive greater stakeholder engagement and support prioritisation for leadership.

These are new muscles for all of us to build and develop, and Louise considers this an invitation to keep open-minded, see this for the positive opportunity that it represents. Applying the same approach to engaging the next generation, leveraging to build digital transformation – we have seen this in the case of Gucci and Deloitte.

An important point mentioned by Shiva – “when engaged well, next generation stakeholders not only represent a very large portion of spend, but also have the potential to become the greatest advocates for an organisation if engagement is done well”. He continued to suggest that greater transparency and authenticity will follow, and that a genuine demonstration of intent by companies in engaging stakeholders well can lead to harvesting the greatest benefits.

It seems that most developed economies globally are grappling with the challenge of getting the right outcomes for their growing aged populations, and this is a challenge and an opportunity that is not going to decrease in significance.

The Stakeholders versus Shareholders challenge?

According to Shiva, shareholders are not neglected in this dynamic – rather the move towards engaging your stakeholders to consider longer-term perspectives and sustainability for the company and not put undue pressure on society and environment, ultimately makes for long term shareholder value being enhanced and maintained. A win-win for all.

Louise and Cynthia commented that a best practice framework for advisory bodies provides a known model and approach to support leadership to become better aligned to stakeholders. Decisions are made to enable people and processes to deliver on these stakeholder-informed performance objectives. Best practice suggests a clarity on what you are measuring and ultimately this is aligned to the interests of ALL stakeholders, particularly shareholders who preside over better organisational outcomes.

In summarising, the panel noted that for many companies this new approach is not a clear path. However, with a transparent approach and active, engaging conversations, the challenges driving fundamental reform in one sector can be a valuable learning for all organisations seeking to drive greater value.

Rewiring governance and leadership can be everybody’s challenge and will require all stakeholders to engage with the journey.