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The Board and oversight of the effective management of key stakeholders

The Board and oversight of the effective management of key stakeholders

The Board of Directors must have a proactive role and involvement in caring for key stakeholders. Likewise, these interested parties must be considered in the decision-making processes carried out. It is necessary, therefore, to contribute to senior management in establishing a stakeholder management system and monitoring that this system is implemented appropriately.

Professional stakeholder management includes the processes that allow you to identify key actors, analyze their expectations and impact in relation to the organization, study the mutual commitments to be agreed upon, and develop strategies to manage them appropriately. These management strategies include planning engagement with stakeholders, monitoring those stakeholders, and designing appropriate responses to achieve a mutually beneficial exchange with the organization within the framework of agreed commitments.

The first step of professional stakeholder management is identify them periodically and carry out an analysis of each one. Its identification must be carried out with the active participation of the general manager and other members of the company, taking into account the internal aspects of the organization, as well as the characteristics of the context.

It is useful to create a broad registry of stakeholders, to then analyze them and select those that should be managed with greater attention. Stakeholder analysis involves understanding their interests, mutual interdependencies, and knowing the status of some very relevant attributes such as:

The level of power/influence. This has to do with the amount of resources/discretion available with high impact on the organization, and the ability to mobilize them (or the ability to influence the deployment of those resources/discretion). For example, a customer to whom 50% of the production of an easily replaceable item is sold is a stakeholder with a lot of power, as they can influence the company’s income very negatively or positively.

The level of interest It refers to the intensity of the stakeholder’s expectations for the organization. For example, a customer who is sold an item for which there is no readily available competitor or substitute will be very interested in his or her key supplier.

The level of alignment It refers to the position adopted by the interested party regarding the interests of the organization and is usually classified as: follower, moderate follower, neutral, moderate opponent, and opponent.

In addition to power, interest and alignment, other stakeholder attributes that are considered relevant can also be considered, such as legitimacy of their influence on the organization, the relative urgency of the influence, and the knowledge of the interested party about the organization.

All of these attributes allow the stakeholders to be characterized with some depth. This first step of identification, analysis and classification of key stakeholders is very important as it allows the Board of Directors to develop an adequate and effective approach for prioritizing stakeholders and for defining the degree of involvement with each of them.

After the identification and analysis of key stakeholders, The Board of Directors must ensure that the organization guarantees adequate planning and management of the relationship. Planning engagement with stakeholders is a process that allows developing, based on organizational objectives, relationship strategies that consider the expectations, needs, impact, and influence of those stakeholders, within the framework of the mutual commitments assumed.

This planning process should provide an implementable plan for interaction with each key stakeholder, as well as a compliance metric for said plan that allows for effective monitoring. Although the responsibility for the management of the majority of stakeholders will be placed with management, the Board of Directors must monitor their correct performance.

The Board of Directors must monitor that the management of key stakeholders is carried out according to the agreed planning and generates the expected results. This body must decide its frequency and level of involvement in following up on stakeholder monitoring. When monitoring detects deviations, the response plan must be activated as planned.

You must also determine the situations that require your immediate involvement in responses to certain situations and inform management so that they can issue the corresponding notices.

Sufficiently effective interaction between an organization and its main stakeholders is decisive for its continuity. It is vitally important, then, that the Board of Directors exercises its oversight function, providing vision and strategic content, monitoring performance indicators, evaluating risks and opportunities, and intervening when it deems necessary.

It is recommended that Boards review the stakeholder identification and analysis process once a year.. We also suggest a periodic review, perhaps semiannually or quarterly, that reports on the status of relationships with the stakeholders most decisive for the performance and continuity of the organization.

This text is an adapted extract from the book “Directories creating value”, whose authors Pedro Vázquez and Alejandro Carrera are professors at the IAE Business School, heading the PwC Chair of Corporate Governance.

About IAE Business School

IAE Business School is the business school of the Austral University. Founded 45 years ago, its mission is to contribute to the development of knowledge and the training of men and women in companies, both in management skills and in the human virtues necessary for the exercise of management.

Since its creation, More than 120,000 executives have been trained at the IAE, of which more than 19,000, who are distributed in 50 countries, are part of its Alumni community. The school has 40 full-time faculty and an Academic Advisory Board made up of academics from Harvard Business School and IESE Business School.

Besides, The IAE has been selected for more than 20 years in the prestigious Financial Times ranking of executive education, among the best schools in the world, being the only Argentine school with that recognition. It is also the only business school in the country that has the Triple Crown, that is, the international accreditations of EQUIS, AMBA and AACSB, a distinction that only 1% of the world’s schools have access to.

Source: Ambito

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