What is Stakeholder Value?

Stakeholder value involves creating the optimum level of return for all stakeholders in an organization. This is a more broad-based concept than the more common shareholder value, which usually focuses just on maximizing net profits or cash flows. The stakeholder value concept still places some emphasis on net profits or cash flows, but it also incorporates the needs of other stakeholders, such as employees, the local community, governments, customers, and suppliers. Thus, stakeholder value might also include matching the charitable contributions made by employees, funding local "green" initiatives, minimizing resource usage, or bolstering the employee benefits plan, even though doing so is not strictly necessary from a competitive perspective.

Financial Impact of Stakeholder Value

The stakeholder value concept tends to result in lower net profits, unless taking the steps noted above results in so much community goodwill that the sales of the business actually increase. However, this is not normally the case. Instead, the chief executive officer must be prepared to defend his or her actions to the board of directors in expending funds in areas that are more likely to benefit stakeholders than shareholders.

Advantages of Stakeholder Value

The stakeholder value concept has merit when setting corporate strategy for the long-term, since it has the following advantages:

Avoids future conflicts. Dealing with shareholder issues up-front can keep these issues from festering over the long term.
Enhance brand image. Promoting stakeholder value is a good way to generate a positive corporate brand image.
Builds support. The business can garner support from a large group that may be willing to assist the entity during those times when its financial situation declines.
Enhance future growth. With support from all stakeholders, a business has a better chance of increasing its sales over the long term. These stakeholders may also be able to provide lower-cost funding, which can also support long-term growth.
Favorable legislation. It can also lead to favorable legislation that gives the organization a better competitive posture than might otherwise be the case.