The Concept of Accountability to Stakeholders as an Obligation of Management - Example

Running Head: STAKEHOLDERS Stakeholders Name Course Instructor Date Introduction The concept of stakeholders has indeed achieved wide spread popularity among many organizations across the globe. Increasing numbers of clientele in organizations has significantly advanced the centrality and engagement of stakeholders in business, social and environmental performance of the organization. Constructive stakeholder relationships open up a business to a vast number of opportunities while poor relationships risks survival of the organization. Therefore, companies have realized the importance of actively establishing and sustaining relationships with stakeholders and the larger community in a bid to succeed through their projects (Laplume et al, 2008). The purpose of this paper is to obtain a conceptual understanding of stakeholders. It begins by giving definitions and typologies of stakeholders which have been discussed widely in literature. The report further discusses the concept of accountability to stakeholders as an obligation of management. Besides that, it will give reasons why the government consults stakeholders on particular issues that concern them and the organization. Lastly, the report will give a stakeholder analysis of the University of Sidney. Definitions and typologies of stakeholders An overview of literature on stakeholders creates a confusing impression about concepts underlying stakeholders. This ambiguity particularly regards concepts of the stakeholder theory, the stakeholder model, stakeholder analysis, stakeholder management and the stakeholder approach. Moreover, the stakeholder theory has suffered from numerous imperfections and shortcomings owing in part to ambiguity, vagueness and breadth of the terms stakeholders and partly due to its wide-ranging intuitive appeal, factors that have contributed to massive critiques. Similar sentiments have been expressed by Symons (2008) who maintains that it is difficult to conclusively define the term since it is context-specific and idiosyncratic. Nevertheless, there are several definitions that have been developed to elaborate the term stakeholders. The term stakeholder was first defined by Freeman (1984) who stated that “it is any group or individual who affects or is affected by the achievement of the organization’s objectives”. This definition has been accepted and at the same time contested depending on the position of the scholar. Many scholars have argued that this Freeman’s definition is rather too broad and could possibly include competitors and even terrorists who, obviously, affect the organization negatively. As a result, scholars have tried to propose narrower definitions of stakeholder. This further underlines the ambiguity and vagueness in scope of the stakeholder concept. The various understandings are based on differences between legal interpretations as well as managerial interpretations of the concept. They have been introduced through various stakeholders definitions such as the influence definition, which states that stakeholders are those who are affected by the organization or affect it a certain way, and the claimant definition which defines stakeholders as variables which determine survival of the organization (Venkataraman, 2002). The legal interpretation of the stakeholders is indeed a philosophical analysis and rests upon contracts and rights. In this case, the organization has duties and obligations while stakeholders have claims. On the contrary, the managerial approach, with origin from sociology and organization theory, is quite pragmatic and emphasizes on stakeholder-firm concrete relationships. The broad view of stakeholders as any individual or group that can be affected or affect the organization implies that care and respect has to be accorded to all of them and they have to be taken into account. The legal interpretation is more abstract and narrower in view of stakeholders. It suggests that it’s a selected number of legitimate individuals linked to the organization through a contractual relationship. Moreover, definition based on the claimant and influencer points of view are not mutually exclusive; a stakeholder can have a claim whether he is affected by or affects the organization; while one with no claim can still be affected or affect it. The claimant definition excludes competitors while the influencer definition integrates then since they can benefit or harm the firm. Essentially, competitors should be included in the strategic analysis. According to the managerial interpretation, stakeholder concept implies multiple relationships which vary substantially in the intensity of their power or influence. This definition is yet another broad view of the concept and possesses a pragmatic focus on managerial implications and strategic analysis. However, as highlighted by some opponents, technological evolution, globalization and improved information and communications systems have virtually included everything and everyone who can be affect or affect actions and decisions of the organization. This implies that everyone and everything is a stakeholder. However, due to limited cognitive capacity and managerial time constraint, the definition has to be reduced and simplified so as to counterbalance the comprehensiveness and capabilities of the organization. A more acceptable and concrete definition of stakeholders is that it is any group or individual who maintains a stake in a firm similar to shares possessed by shareholders. Stakeholders can be classified using various criteria: direct or indirect, primary versus secondary, legitimate versus derivative, generic versus specific, active versus passive, voluntary versus involuntary, moral and strategic, environmental and strategic stakeholders. Examples of stakeholders who fall into these categories include employees, customers, suppliers, shareholders, local communities, media, competitors, activists, financiers, trade unions, the government and business partners. Accountability to stakeholders Accountability is an imprecise concept subject to multiple understandings and interpretations. The traditional conception deduces that accountability emerges when authority is delegated by a principle to his agent to act on their behalf or interest. Central to this perspective is that only those who have superior authority over the agent have the right to demand accountability. Instances where this approach is used are in relationships between a company director and shareholders or between politicians and the electorate. The agent can only be held accountable if roles and responsibilities are clearly defined; there is regular monitoring and reporting of defilement of the roles; and the principle is in a position to impose sanctions for violation of roles. Essentially, accountability is an end result whereby judgment is passed in actions and results already realized (Heene and Dentchev, 2006). However, this understanding is quite narrow since accountability needs to be very broad to ensure that the organization is fully answerable to those it affects. Responsibility should be as diffuse as the organization’s actions. Accountability should neither be based on delegation of authority nor an end-stage activity but instead should be an ongoing process at every stage which involves decision making. Making judgments after a decision in fact makes the organization less accountable. Understanding of accountability in this context extends its boundaries beyond the former disciplinary mechanism to a transformative process. An accountable organization is one that not only ensures that decisions are adequate and sufficient in meeting the needs of its stakeholders, but also ensures an equitable decision making process. This more participatory and open view unlocks opportunities for organizational learning through accountability processes. Accountability integrated into the ongoing processes of the organization motivates stakeholders to input into the decision making process. As a result, feedback loops are created enabling the organization to identify what is effective or destructive. Therefore, besides being a disciplinary mechanism, accountability becomes an organizational force for strengthening its performance and a ground for change. With this basic understanding, accountability, by definition, refers to the process through which the management of an organization makes a commitment to respond and balance the needs of its stakeholders through a process of decision making followed by relevant activities that are in line with the commitment. The point of concern in this definition is balance. Today’s arena of global governance is not characterized by organizations that are unaccountable rather by organizations that focus their accountability on a specific set of stakeholders at the expense of others or they are accountable to the wrong stakeholders (Hall and Vredenburg, 2005). The key challenge sets in establishing an accountability that is more balanced such that the voices of the most affected shareholders is not overshadowed by the interests and voices of more powerful stakeholders. Accountability therefore, becomes a process in which power imbalances are leveraged or managed between the organizations stakeholder groups as well as between stakeholders and the organization. In order to achieve balanced accountability, it is paramount for the organization to recognize different interests of the stakeholders which could either be to assist or hinder activities of the organization. In light of this, it is worth noting that each stakeholder has different expectations and needs, capacity (in terms of expertise and knowledge) and access to reliable information. Organizations are required to prioritize on stakeholder groups to engage and the issues to engage stakeholders. Clearly, it is unrealistic to be accountable to all stakeholders concerning all issues: such as scenario would result to accountability paralysis. The starting point to effective prioritization of stakeholders is to carry out a stakeholder analysis. It begins by identification of stakeholders and clearly defining of their characteristics and interests. This is then followed by an assessment of the extent to which the stakeholders might affect the organization. It also involves understanding stakeholder relations including potential and real conflicts of interests. In general, prioritization should take into consideration responsibility, influence and representation. Hall and Vredenburg (2005) assert that accountability is unpacked in four basic dimensions; transparency, evaluation, participation and response as well as complaint mechanisms. All these dimensions need to be integrated into procedures, practices and policies if the organization is to be held accountable. Consultation of stakeholders by the government Government and stakeholders dialogue is a continuous process as policymaking never stops. At times, this dialogue will need to be more public and formal. When considering changing or developing new policies, practices or processes, it is desirable to conduct a formal, public, written, time-bound consultation exercise. Besides that, governments engage in participatory and consultative exercises with stakeholders whenever there is need to formulate, evaluate and implement development programs. When done properly, multi-stakeholder participation and consultation policy making, program design and implementation has the potential of reinforcing mutual benefits for both the government and the stakeholders. Consultation of civil societies, the private sector, the local communities, academia as well as other arms of government will increase sustainability of the government’s activities. These parties play a crucial part in the success or failure of such activities. In fact, ideas imposed from external sources have a higher possibility of failure in terms of gaining traction as compared to those in which stakeholders are involved in devising. The sense of ownership prompts them to safeguard the development. In seeking to decentralize its resources throughout the nations, the government has a primary obligation to consult stakeholders. The likelihood that policies will be responsive and effective to local needs is based on experience and views of the relevant communities particularly the more excluded minority groups. Engaging them in program management and policy making would be quite sensible to ensure proper targeting of resources. According Friedman and Miles (2006), consultation enhances strengthened accountability relationships among stakeholders. Meaningful engagement around programs and policy choices establishes trusted relationships between citizens, development partners and governments. National governments and donors demonstrate commitment to responding to societal needs by opening up their policies for consultation. In addition, mutual responsibility is encouraged as citizens are engaged in program implementation and program design. Risks involved in project outcomes are shared among stakeholders. University of Sydney stakeholder relationships University of Sydney is an educational organization which realizes the importance of audit trails, feedback and information loops as important components in quality assessment in learning and teaching. Its mission is to effectively improve its core activities which are basically teaching and learning. According to the university management, quality enhancement is a collaborative task involving all the key stakeholders and not the students or the staff alone. Evidently, the largest stakeholder group in the university is the student body though other stakeholders play major roles in the running of the university. These include the internal stakeholders such as academic staff, senior management, members of the academic board faculty and other support staff members. External stakeholders on the other hand include Australian Quality Universities Quality Agency, DEEWR and the Australian and International accreditation bodies. All the stakeholders work collaboratively to ensure students satisfaction during their entire academic period in the university. Essentially, the academic board is responsible for quality assurance and therefore, to achieve this, it has initiated faculty visits to review and assess academic outcomes. The board works closely with the academic staff including lecturers and tutorial assistants to encourage development and maintenance of high standards of learning, research and scholarships through sustainable and effective quality assurance arrangements within faculties. Symons (2008) argues that for institutions of higher education to be successful, the voices of student have to be listened and their needs should be given priority in the university businesses. He further points out that ineffective use of such information would potentially fail to meet student’s expectations and satisfaction. The university management has bestowed upon itself the regular task of collecting data from students about their university experience through Course Experience Questionnaires (CEQ). These data is reported to the Department of Education, Employment and Workforce Relations (DEEWR) which uses the information to evaluate and plan for the needs of Australian Higher Education sector. Information from the CEQ also provides the university management with evidence about areas that need change in the learning and teaching curriculum. The Australian Federal government had also been of great assistance in the ongoing success of the university. In addition to funding most projects within the university, it caters for a larger proportion of the tuition fees for regular students such that their fees are much more subsidized. In 2006, it introduced the Learning and Teaching Performance Fund (LTPT) that is awarded to universities that demonstrate excellent performance and improvement in undergraduate learning. The university alumni have been actively involved in the activities of the university. They include prominent figures such as business leaders, Oscar winners, Nobel laureates, artists, medical pioneers, activists and intellectuals. They are involved in mentorship and peer counseling programs for continuing students and have generated funds directed towards the development of the university. The community surrounding the university is also a major stakeholder in the university. In a bid to give back to this community for what the university terms as a serine environment with fewer disturbances, it has engaged in public health and environmental activities. Other community activities include winning sports championships and art and music performances. Clearly, relationships of the internal and external stakeholders have acted as catalysts to the ongoing development of the university and have culminated a more attractive product. Conclusion Clearly, stakeholders form an integral part of the organization and they are major determinants to the success or failure of organizational projects. Definition of the term stakeholders is somewhat difficult as it has been argued by various scholars who describe it as context-specific and idiosyncratic. Nevertheless, consensus has emerged and defined it as any group or individual that has stake or direct interest in an organization. With the basic knowledge of the role of stakeholders, accountability is a central point of concern. It is a process in which the organization responds to the needs of its stakeholders following crucial decisions that affect these stakeholders. The government has a vast number of stakeholders and due to the nature of its operations, it is required to constantly consult with them in order to implement its policies and developmental programs effectively. The University of Sidney demonstrates clear cut evidence into the importance of stakeholder relationships in any given organization. References Freeman, E., (1984). Strategic management: A stakeholder approach. Boston: Pitman. Friedman, A., & Miles, S., (2006). Stakeholders: Theory and Practice, Oxford University Press, Oxford. Hall, J., & Vredenburg, H., (2005). Managing Stakeholder Ambiguity. MIT Sloan Management Review. 47 (1): 11-13. Heene, A., & Dentchev., N., (2006). A strategic perspective on stakeholder management. Accountancy & Bedrijfskunde, 26 (1): 25-34. Laplume, A.O., Sonpar, K., and Litz, R.A. (2008). “Stakeholder theory: Reviewing a theory that moves us”, Journal of Management, vol. 34 no. 6, pp. 1152-1189. Symons, R. (2008). Analyzing, evaluating and reporting on the student experience at the University of Sydney: responding to the changing demands of stakeholders. Sydney: University of Sydney. Venkataraman, S., (2002). Stakeholder Value Equilibrium and the Entrepreneurial Process. Business Ethics Quarterly, The Ruffin series: Special issue 3: 45-58. Read More