Tobacco class action lawsuits leave tobacco companies poorer by hundreds of billions of dollars. These are brought on behalf of not only consumers (current smokers), but also other entities like former smokers, families of former smokers and non-smokers. In software companies, employee happiness and loyalty is sought through monetary incentives like stock options and intangible benefits like a fun working environment, else 'value walks out of the door every evening'. The Enron saga and Sarbanes Oxley regulation clearly demonstrate the overwhelming impact of regulators and clients' stakeholders on accounting firms. The Kyoto Protocol is aimed at making countries environmentally friendly as it establishes legally-binding greenhouse gas emission targets for them. The ensuing trading of carbon credits creates restrictions for polluting countries and companies while providing revenue-earning opportunities for others.

Entities other than investors significantly impact the course of business and a company's future. Today, companies are increasingly realising the importance of focussing on 'stakeholder' value and not just limiting themselves to 'shareholder' value creation.

Stakeholders include all entities that have a stake, implicit or explicit, in the business. There is a common agreement that shareholders, employees, customers, creditors and suppliers have an interest in the business. There are, however, other groupings within society, environment and government, which have an impact, or get impacted, by the business forays and operations of a company. All these stakeholders have a stake in the firm, and they collectively shape a company's value, profitability, brand and reputation among other things. Shareholders invest; talented employees add value through their knowledge, experience and skill; customers buy products and services that the enterprise offers; and the community looks up to the organisation for support on social and welfare issues. In other words, a stakeholder is anyone who has a 'legitimate interest' in the firm. (Source: Donaldson and Preston, Academy of Management Review, Vol. 20, 1995). In the existing corporate milieu, it is instructive to look closely at issues concerning the role, significance and interdependencies related to all the stakeholders. By doing so, one can appreciate the stakeholder dynamics in the emerging corporate landscape in India.

It is pertinent to note that shareholders too are stakeholders. Some business thinkers argue that shareholder value and corporate responsibility to other stakeholders are by definition at odds with each other-that a focus on anything other than shareholder value is a violation of the fiduciary responsibility of the management. The fact remains that corporate responsibility to all stakeholders is a prerequisite to delivering sustainable shareholder value reliably. Clearly, stakeholders such as customers, suppliers and employees who participate in a company's value chain affect shareholder value. Stakeholders who do not formally participate in the company's value chain, such as government regulators and communities, can often directly affect shareholder value. For example, regulators can promulgate regulations that are either cost-effective or overly expensive to comply with, and communities can undertake lawsuits or bring about boycotts. It is a foregone conclusion that companies that ignore corporate responsibility towards any one or more stakeholders do so at their peril.

Market forces and corporations impact people and their lives, as much if not more than government or regional and international institutions. Only those corporations that deliver value without robbing value from stakeholders have a truly sustainable business. Companies today are concerned and are being judged more by reputation, brand and corporate ethics than merely by financial considerations. Some recently published statistics corroborate this view:

• 86 per cent of institutional investors across Europe believe that social and environmental risk management will have a significantly positive impact on its long-term market value. (Source: The European Survey on SRI and the Financial Community, conducted among 302 financial analysts and fund managers across Europe, Taylor Nelson, 2001)

• 83 per cent of finance directors believe that a strong corporate reputation conveys a valuation premium. (Source: FTSE 350 FDs, Edelma, November 2002)

• 44 per cent of European consumers surveyed are willing to pay more for environmentally- and socially-responsible products. (Source: MORI/CSR Europe, 2000)

• 40 per cent of business leaders get new business ideas through community activities. (Source: Roffrey Park, 1999)

Virtually every decision to create value has positive or negative consequences for other stakeholders like employees, communities, customers and the public at large. For example, closing a large manufacturing plant in a small community might improve manufacturing efficiency and create shareholder value, but would also create a lot of pain for people who lose their jobs and for the communities in which they live. A major investment in new manufacturing capacity, however, might add value for shareholders, create new jobs, and bring additional revenue into the community's economy. So, managers today must increasingly address other stakeholders' concerns, through both their actions and the information they provide on the consequences of those actions. In other words, sensitivity to what constitutes value for different categories of stakeholders is of critical significance.

Seen from a stakeholder perspective, the need today is to successfully merge social responsibility with the imperatives of corporate efficiency. It is not enough for business people to stay within the law and make their money-recent studies have shown that businesses are rewarded when they are ethical as well. An ethical practice does not call for profit at any cost, but sets up norms for functioning that are clear and transparent in every respect. It is this clarity that adds to the bottomline on a more enduring basis, as customers know exactly what they are getting, the employees are assured that nobody is playing favourites within the organisation, and the shareholders are satisfied that the company is keeping them fully informed about its activities. Thus we see that while the notion of what constitutes value varies widely across different stakeholders, it is the ethical management that is able to harmonise this divergence to optimum advantage.

All this makes it imperative to link stakeholder value with the diverse energies and goodwill from customers, dealers, creditors, employees and stockholders in order to leave competitors behind. Business leaders across the globe have set up standards, and are now eyeing the employees, the customer and the community to give their companies a high profile and a healthier bottom line. General Electric is reported to spend about $800 million (Rs 3,520 crore) a year on leadership and training. The Royal Dutch/Shell Group has developed its sustainable development framework (SDMF) to incorporate principles of stakeholder responsiveness and responsibilities into its daily operations worldwide. This framework ensures that sustainable development of Shell is for the benefit of all stakeholders, and brings in the necessary structure and consistency to its efforts. Moreover, it publishes the 'Shell Report' to communicate with stakeholders about its economic, environmental and social performance, to balance its financial interests with its social and environmental obligations. In India, companies like Wipro, Tata Steel, Mindtree Consulting, Gujarat Ambuja, Canara Bank (Source: Praxis, Business Line's Journal of Management, December 2004) have taken important steps in areas of business ethics and corporate social responsibility. Their business styles have moved away from charity and dependence to empowerment and partnership.

The old model of measuring value created by a company by examining solely its financials is giving way to a holistic model of value creation and measurement. This approach re-examines the question: "In whose interest and for whose benefit should the firm be managed?" Such a model comprehensively evaluates the contribution made by the company to all the entities in the big picture-shareholders, employees, suppliers, business partners, society and the government. (Cracking the Value Code: How Successful Businesses Are Creating Wealth in the New Economy-Richard Boulton, Barry D. Libert, Steve M. Samek). This encourages managers to articulate a shared sense of value that can bring its core stakeholders together, and propels the firm to generate outstanding performance, determined both in terms of its overall purpose and financial metrics.

As corporations emerge as the most influential institutions of modern society, creating and distributing a large part of wealth, corporate managers need to act and perform as trusted constituents of society. Here, it is important to note that the managers have to deal with various stakeholders, not all of them viewing value in the same way. Shareholders are more concerned about how competitive the company is in the marketplace, and what they can expect in terms of financial returns. Employees value respect, a stimulating working environment, job satisfaction and appropriate remuneration. Customers want quality products at appropriate prices. And finally, the community values environmental responsibility and forward-looking business policies that encourage upward social mobility. The task of a manager is to manage and respond to all the stakeholders, thereby further adding value to the organisation.

To achieve this, managers must develop relationships with stakeholders, keep these relationships in balance, and create communities where everyone strives to give their best to deliver the value the firm promises. In doing so, it is important to understand the company as a social institution in which diverse groups participate. In such a scenario, the shareholder too is an important constituent and profits are a critical feature, but concern for profits is the result rather than the driver in the process of value creation. In the end, nothing can be more sustaining for a business organisation than when all its stakeholders enthusiastically rally around it.

Socially responsible companies ensure that their business operations, as well as their interactions with employees, customers and society, are an accurate reflection of their business ethics and values. They believe in 'profit optimisation' and not 'profit maximisation'. They behave as socially-responsible citizens by demonstrating respect for human rights and community health and adherence to the law of the land. They consciously invest time, effort and monetary resources to help under-privileged sections of society, and preserve the environment for future generations. Such corporations strive to be the 'biggest corporation', in Theodore Roosevelt (1902) terms: "The biggest corporation, like the humblest private citizen, must be held to strict compliance with the will of the people."

Going forward, companies would need to function increasingly as value generators for all stakeholders and achieve a greater degree of corporate governance and transparency. They need to be seen and believed by all entities as 'responsible citizens'.