Top five mistakes companies make in engaging stakeholders
I’m going to post a number of recent articles, thoughtpieces and such over the coming days. For some of you this is old and repeated content. Sorry about that. I just want to get it all to the Blog so it remains here and is accessible.
Top five mistakes companies make in engaging stakeholders
A CSR Thoughtpiece from the CSR Training Institute
-by Wayne Dunn
Responses to questions by Toby Webb of Innovation Forum
Has the term ‘corporate stakeholder engagement’ lost its meaning because it’s so casually over-used by companies today?
I can tell you it gets real meaningful real quick when your operation gets shut down by disgruntled stakeholders and their allies!
The reality on the ground, where business meets community, is usually way different than the language of corporate websites and presentations. So, call it what you will; but remember, many phrases are over-used so much that the words are nearly meaningless.
You have to look beyond terminology; it’s how companies engage with local stakeholders, and how they can organize operations and activities to bring meaningful benefits to local stakeholders, that can often mean the difference between long term success and shuttered operation and damaged brand.
I would suggest FMCG companies and extractive firms are the leading sectors in viewing engagement as strategic; would you agree?
Absolutely. And I think that is driven by their vulnerability.
Extractive firms have complex permitting processes to navigate at start-up and ongoing. These create intervention platforms; public opportunities for unhappy stakeholders and their allies to voice their opposition.
They provide a process that allows stakeholders to publicly communicate their concerns and they can often delay, disrupt and sometimes kill projects, damage corporate reputational capital and derail individual careers.
On the other hand, the Fast Moving Consumer Goods (FMCG) sector is also vulnerable because they have so much value tied up in Brand. In today’s always-on and instant global communications world, disgruntled stakeholders can find ways to reach consumers and influence how they think about brands. This can have big and quick impacts on sales and profitability (and on companies and careers).
So yes, both sectors are vulnerable to the impact that disgruntled stakeholders can have, so finding ways to deliver value to stakeholders and engage effectively with them is extremely important and a strategic goal; important for protecting and growing shareholder value.
Big companies now grasp the risk-management benefit of stakeholder engagement, but how many really see the opportunity side? Surely without that, firms risk slipping into complacent box ticking?
Stakeholder relations can be an effective risk management tool, but simply ticking the boxes only gets a company part way there. There is a big difference between compliance-focused engagement and strategic stakeholder engagement
With the ever-increasing number of global standards, reporting frameworks and engagement protocols it often feels safer to focus on compliance. It is an easier story to tell, easier to manage and gives that feel-good sense of accomplishment with ever tick.
But, it is a false feel-good!
A purely compliance based approach will miss key strategic opportunities; opportunities to create value for stakeholders and company. And ironically it is often these missed strategic opportunities that can also offer opportunities to mitigate risk and protect shareholder value.
Coming from a hockey background (I’m Canadian, eh?) I see strategic engagement as more like offense and compliance focused engagement more like defense. The challenge is finding the balance between these, between strategic offense and compliance defense; because an effective corporate approach requires both.
Use just one and you’ll find yourself in the penalty box often and winning seldom!
Give us some examples of companies who do engagement well, or have done it well in the past.
There are many examples of individual projects, or even discrete units within businesses, that do stakeholder engagement well, but not nearly so many where a large company does it well across all of its operations.
One of my favourite examples comes from the 1990s. Cameco Corporation, the largest Uranium mining company in the world at the time, was a leader in developing the Saskatchewan (Canada) uranium industry.
The industry was based in northern Saskatchewan with a population of 40,000 people (largely indigenous) scattered over 250,000 square kilometres.
Literacy levels were low, there was little history of industrial employment and many families were only a generation away from a nomadic lifestyle on the land.
There were regulatory requirements around consultation and benefits but Cameco realized that it had to find a way that local indigenous peoples would benefit directly and substantially. That required a strategic approach.
By late 1999, 450 aboriginal employees, representing about 45% of the site operations workforce, made Cameco one of Canada’s leading industrial employers of aboriginal people.
A northern supplier development program was finding new and innovative ways to engage local people in the industry supply chain. Today northern suppliers, many of them indigenous, are supplying half a billion dollars a year in goods and services.
However, despite the incredible success Cameco was having with stakeholder engagement and benefits in Canada, this wasn’t consistent across the company.
For example, in 1999 its operations in Kyrgyzstan experienced an accident and a cyanide spill. The company’s share price along with its reputation and its operations in Kyrgyzstan took a pummeling. And the impacts of the incidents were compounded exponentially because of poor or non-existent relationships with major groups of stakeholders.
You work a lot in emerging markets; what are the top five mistakes you see companies making in stakeholder engagement, and what does it cost them when they do?
1. Defining stakeholders too narrowly. Too often key groups of stakeholders are missed and this means missed opportunity for companies and stakeholders. And the group that I see missed most often is the international development community
Agencies like the UNDP and development partners like Britain’s Dept for International Development (DfID) and the United States Agency for International Development (USAID), etc. are committed to MDG priorities such as education, health, poverty alleviation and gender issues.
These objectives are shared with community stakeholders, This gives us three key groups that have a common objective and have a natural potential for synergy.
Unfortunately, many companies define their stakeholders too narrowly and miss these collaboration opportunities.
When they do, their stakeholders and their shareholders both pay the price.
2. No balance between defense (compliance) and offense (strategic opportunities). As I explained earlier, it is not easy to maintain a balanced approach to compliance and identifying and developing strategic opportunities for stakeholder engagement and value creation.
But this is important. Compliance can feel secure and easy to focus on and report, but alone it simply isn’t enough.
Beware the temptation of security. Basing your security on compliance isn’t secure if your goal is effective stakeholder engagement and shareholder value.
3. Going defensive too quickly. Community/stakeholder meetings, especially in the early stages of a project, often seem to start negatively with people lining up to voice displeasure and concern over one thing or another.
For company representatives, especially senior executives, there is often a tendency to ‘correct facts’ and provide balance and perspective when faced with seemingly endless negative comments.
Don’t! This is a big mistake!
I’ve been in hundreds of community meetings and the negative comments and complaints at the beginning are often more about local community politics and posturing than they are about anything the company has done or is doing.
This isn’t to say that there aren’t often real and meaningful grievances and issues, just that the best approach in the early stages of a community meeting is to simply listen.
I’ve found that by sitting and listening, the complaints and feelings and issues can come out and, generally, the energy will eventually shift and a constructive dialogue can develop.
Of course, it doesn’t happen this way all the time, but in general it is best to simply listen and hear in the early stages of a meeting and see where things go.
4. Concealing self-interest. Let’s be clear. Companies engage with stakeholders and strive to create local value and benefits for them because the company sees that as being in their own self-interest. If they didn’t, why would they spend the time and money?
Too often companies will try to position their engagement and CSR work as being more about the interests of local stakeholders and because the company is ‘good’.
Balderdash. Companies have a self-interest and hiding it or being cute about their motivation is a big mistake.
This can not only create an awkward donor/recipient type of relationship and undermine a company’s credibility, but can also lead to questions on the sustainability of the company’s efforts.
If the company is only doing it because it is good for local stakeholders then it might seem like an easy target for cutting from the budget if financial challenges arise.
Far better to openly acknowledge self-interest and fully engage stakeholders in the search for those areas where both shareholder and stakeholder interests can come together.
5. Communication. Too much, too little, too promotional, too simplistic. And often not disseminated in a way that will reach the intended audiences.
On the flip side, communication is an integral part of an effective stakeholder engagement process. This article is about mistakes so I won’t go into what makes an effective communications program.
But, doing communications right can add value for both shareholders and society.
Thanks Toby for giving me the opportunity to respond to these questions. It has been fun and interesting for me. I’ve thought of a few other topics to cover so stay tuned for more CSR Thoughtpieces.
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