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Enterprise Risk Management: From Incentives to Controls, 2nd Edition by James Lam

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CHAPTER 11

Stakeholder Management

In order to appreciate the significance of good stakeholder management, we need only reflect on the high turnover rate of customers, employees, investors, and other stakeholders at a company. On average, U.S. companies lose half of their customers over five years, half their employees over four years, and half their investors in less than one year.1 These high turnover rates have an enormous impact on a company's profitability.

When people think about a company's stakeholders, they often think only about those who hold its equity, and perhaps those who hold its debt. However, a truer picture is that any group or individual that supports and participates in the survival and success of a company counts as a stakeholder. The obvious stakeholders are employees, customers, suppliers, business partners, investors, stock analysts, credit analysts, and special interest groups. Regulators should also be included if regulatory approvals and examinations are critical to an organization's business success—as, for example, in the financial, energy, and pharmaceutical industries.

Stakeholder management should involve providing key risk information to these stakeholders. The board of directors and regulators need to be assured that the company is in compliance with internal policies and external laws and regulations. Stock analysts and rating agencies are increasingly asking for risk management information on a company's investment and derivatives activities. ...

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