One of the most visible and mocked items of public sector jargon in Britain is the idea of the “stakeholder”. It is a word that is so widely used and abused that it takes on a wallpaper like quality.
As with all ubiquitous concepts, it is worthy of closer examination. Let’s go.
As with all ubiquitous concepts, it is worthy of closer examination. Let’s go.
The concept of the “stakeholder” became adopted with gusto in management theory sometime in the late 1970s, and had oozed its way into government by the end of the 1980s. But we can trace it’s origin back to a specific memorandum of the Stanford Research Institute in 1963.
Here, we find that it was coined – in a fine example of motivated reasoning – in opposition to the term “stockholder”, in the sense of a person who owns shares in an enterprise.
The idea behind the coinage, the memorandum, and the whole system of “stakeholder theory” which springs from it, is that organisations cannot afford simply to act in the interests of the people who own them; they must also attend to the needs of anyone with an “interest” in them.
A “stakeholder” is therefore loosely defined as “anyone with an interest in the fate or running of an organisation”. This can mean anyone from an employee to a customer or a supplier.
Confusingly, a stockholder is also a stakeholder by this definition. And it only gets worse.
Confusingly, a stockholder is also a stakeholder by this definition. And it only gets worse.
The meta-intent behind the introduction of this concept is a saw almost as old as the concept of the joint-stock corporation itself. You’ve probably heard it repeated by various left wing economists and other intellectual lightweights whenever there’s a recession on.
In brief: shareholder interest, broadly defined as seeking a return on investment, is too blunt an instrument, too short term in its thinking, to guarantee success in the long term (the bankers the bonuses) and must be tempered by a Holistic Approach that values Diverse Input.
It’s highly debatable whether or not this line of thinking is valid. That shareholders are inclined to seek returns is beyond doubt, at the very least. But most shareholders aren’t in the habit of dumping their holdings at the first sign of an uptick.
Anyone with experience watching the markets or watching company performance will know that one of the most reliable pathways to future returns is investment in the company’s long-term health and performance.
They’ll also know that executives can often convince their shareholders to forego some dividends in the present by promising them larger dividends in the future off the back of a particular investment.
The stakeholder idea also presumes that prior to circa 1963, no executive ever once took a suggestion from an employee, sought feedback from customers in the form of market research, or consulted with suppliers or partners as to operational effectiveness. An absurd notion.
This is enough of the “whence” of the concept to give you a general grounding. What interests me (and probably you) is the “why”. What about this concept made it catnip to the British public sector, and why is this significant?
I think we can lay the blame on three things:
1. An longstanding obsession with academic management fads.
2. A need to rationally justify a sentimental disposition towards a particular “correct” way of doing things.
3. A particular strain of collectivist thinking.
1. An longstanding obsession with academic management fads.
2. A need to rationally justify a sentimental disposition towards a particular “correct” way of doing things.
3. A particular strain of collectivist thinking.
Stakeholder theory was developed in the 60s, but only really began to take off in earnest in the late 1980s, at a point when the civil service was going through one of its major periods of reform. The coincidence is likely very significant.
For point 2, let’s consider Yes Minister. For the record, I don’t subscribe to the widely held belief promulgated by the show that civil servants were ever, as a rule, hyper competent manipulators protecting the status quo for the long term stability of the nation.
I’m sure this is how senior mandarins like to see themselves, but I’ve seen how the sausage is made. Yes Minister is important for our purposes only because while the term “stakeholder” is absent from its vocabulary, the concept of “stakeholder management” is visible everywhere.
A recurring joke in Yes Minister is that civil servants will insist on endless rounds of “consultation” of various groups before allowing themselves to be committed to any policy, with the one person whose opinion is never given serious consideration being their minister.
This is, in essence, the logic of stakeholder theory taken to extremes before the term had been popularised. The ultimate practitioner awaiting the ultimate trade.
It also illustrates by example the most important criticism of the idea: that it creates a false binary between “stockholder” and “stakeholder” in which a stockholder’s view is regarded with suspicion or hostility by default.
Lastly, we should consider the conspicuous collectivism of the British establishment, especially in the aftermath of the Second World War. This is an aberration in our history: we have generally been a people prone to individualism and an excess of individual ambition.
“Stakeholder management” is, in its essentials, a kind of corporatism: it presumes a set of defined bodies of people with specific defined interests which must be navigated to a compromise.
The British establishment has, for many years, selected and promoted its champions based not on any sense of merit, but upon their ability to navigate complex rules and procedures (which themselves grow more complex with every passing year.)
To these people, the idea of individual actors in positions of authority making decisions for themselves seems not just imprudent and dangerous, but also ghastly and immature. The stakeholder model presents itself as a natural alternative.
(This selection for conscientiousness and obedience I think also explains the strain of pig-ignorant xenophilia common in our establishment in the modern day: the naturally corporatist governing structures of many other countries is quite appealing to their sensibilities.)
The problem with this attitude is this: corporatism only makes sense where multiple bodies of relatively equal influence must achieve consensus to make decisions. When this isn’t the case, to “consult stakeholders” is simply to handicap decision making to no real benefit.
The most obvious example of this is the tendency for government departments to become lobbying organisations for the areas they are supposed to control.
But at the extreme, you will find that the Foreign Office actually considers foreign governments to be among its “stakeholders”, and that the Home Office thinks in very similar terms about immigrants. As does the Ministry of Justice about criminals.
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