Four Types of Stakeholder Power

by Kevin Johnston, Demand Media Google
    Listening to stakeholders can save you a lot of time and trouble.

    Listening to stakeholders can save you a lot of time and trouble.

    When you work for yourself, you soon find you work for a lot of other people as well. Anyone who has an interest in how your business succeeds is a stakeholder. Stakeholders have a stake in your success. This includes employees, vendors, landlords, lenders, the community and even the federal government. Your stakeholders have influence and power over your company.

    Legal Power

    Many stakeholders have relationships with you and your business that the law regulates. Employees have rights, customers have protections, your contracts with vendors carry legal obligations, and your loan with a bank must meet legal standards pertaining to a few stakeholders that could have legal claims on your business. You must deal with all of these stakeholders in a manner that meets the requirements of the law. When dealing with lenders, the law says that your failure to pay can result in forfeiting your collateral. A vendor has the legal right to sue you if you don't pay your invoices. Even in cases where a violation will not subject you to criminal charges, you could be subject to a civil lawsuit, such as when a customer or an employee gets injured on your premises. As you deal with stakeholders, keep any legal implications of the relationship in mind.

    Economic Power

    Any new project you undertake requires financial support from stakeholders. To make money from an initiative, you must sell to customers. In addition, you may have to get credit from lenders and vendors. You have to safeguard stakeholder relationships where money is at stake. For example, you must treat customers fairly and honestly, or they can stop buying from you. If you consistently pay vendors late, they may stop extending credit to you. A lender may call in a loan if you fall behind on payments.

    Social Power

    Your business belongs to a community. Companies serve a public purpose: For example, your brick-and-mortar business occupies space in a neighborhood, and the appearance of that building, along with the behavior of employees, contributes to the feel and look of the neighborhood. Even an online business becomes part of the larger community of similar businesses that have like-minded customers. The knitting community, for example, expects respect for craftspeople, fair pricing and excellent customer service. You can also rankle your community if you act in a way that suggests racial or religious bias, a willingness to take advantage of the disadvantaged or a propensity for dishonesty in financial transactions. Failure to contribute positively to your community can result in social pressures in the form of a negative word-of-mouth campaign, complaints to community organizers and government regulators, or even protests.

    Decision-Making Power

    Some stakeholders can disrupt your business plans and cause uncertainty in the operation of your business. They can actually influence or veto your decision-making. For example, a bank that turns you down for a loan you planned to use for expansion has basically decided your expansion plan is not viable. If you decide to raise prices, customers may challenge your decision by refusing to buy from you. An investor may not approve of your new marketing plan, and a neighborhood watch group may influence you to install lighting to make your property safer at night. Though you may have gone into business to make your own decisions, stakeholders may rein you in with their own needs and opinions.

    About the Author

    Kevin Johnston writes for Ameriprise Financial, the Rutgers University MBA Program and Evan Carmichael. He has written about business, marketing, finance, sales and investing for publications such as "The New York Daily News," "Business Age" and "Nation's Business." He is an instructional designer with credits for companies such as ADP, Standard and Poor's and Bank of America.

    Photo Credits

    • Brand X Pictures/Brand X Pictures/Getty Images