Leading companies are taking stakeholder engagement to a new level by setting up stakeholder advisory boards to develop sustainable business strategies
Stakeholder engagement has come a long way from the days when companies would talk to the public only in a crisis. Engagement is now viewed by many companies as a powerful tool to develop sound business strategies. So powerful in fact that they are now setting up formal stakeholder advisory panels, bringing together external stakeholders and experts to advise on complex social and environmental issues.
Typically, companies use stakeholder panels to identify problems, give advice on developing strategies, and give feedback on performance. A range of panels have emerged. Some provide advice on a specific issue facing the company such as climate change. Others provide assurance by reviewing a company’s annual corporate responsibility report. The most effective have evolved into a sophisticated mechanism to feed into the host company’s sustainability strategy.
Companies that have established formal stakeholder advisory panels include Camelot, BT, BP, Shell, Burger King, Coca-Cola, GSK, GE, BHP Billiton, Fortis, Lafarge, Dow Chemical, Reuters, Unilever and, most recently, Nestlé.
Jeannette Oelschlaegel is a partner at London-based not-for-profit sustainability organisation AccountAbility, who co-authored Critical Friends, a 2007 research report on stakeholder panels. She says stakeholder panels emerged about five years ago as companies got better at talking with their critics, and are becoming an established part of companies’ governance systems. “With the emergence of stakeholder panels, companies are now focusing on two or three issues that are really material to business instead of engaging on full business,” Oelschlaegel says.
Formal stakeholder panels are helping companies to move from costly confrontation to collaboration with critics. “Companies have realised that NGOs that are just being critics could become critical friends,” says Brendan May, managing director of Planet 2050, the corporate responsibility arm of London public relations firm Weber Shandwick. “Executives can have them influencing business from within by being in a contained conversation rather than be at their mercy when they attack from outside.”
Trusted stakeholder panels are thought to offer companies valuable insights for managing market uncertainties. Malini Mehra, chief executive of the Centre for Social Markets, an India-based non-profit group with offices in the UK and US, who sits on the advisory panels of BHP Billiton, Unilever and Fortis, says: “A formal advisory panel provides a reliable sounding board of external challengers with whom the company develops a relationship of trust and who can help it navigate often uncertain territory. A panel helps companies to anticipate and manage risks and avail themselves of opportunities.”
Mark Goyder, director of London-based sustainability thinktank Tomorrow’s Company, who sits on the advisory panels of BT and Camelot, agrees, saying: “Companies benefit from the external challenge provided by the panel.” He says that, for example, after setting up its leadership panel, BT moved radically from the position of corporate responsibility being important to redefining its products to support sustainable economic growth.
On climate change, BT moved from measuring impact to thinking about how it could generate renewable energy on site, creating value for the company as well as for society. “The external challenge helped them to innovate and institutionalise solutions to the satisfaction of the stakeholder panel,” Goyder says.
GSK opens up
Pharmaceutical giant GlaxoSmithKline set up an environment, health and safety, and sustainability panel in 2005 facilitated by the Environment Council, a non-profit organisation in the UK. The 13 members on the panel represent customers, suppliers, regulators, public interest groups and investors. The panel meets twice a year to debate a range of issues including GSK’s position on nanotechnology, climate change, process safety, green chemistry and improving manufacturing efficiency.
GSK’s vice-president for environment, health and safety, and sustainability (EHSS), James Hagan, who was instrumental in setting up the panel, says: “I have seen other companies that have ignored external stakeholders at their peril. One of the last things we wanted to do was to act because we have to respond to a crisis. We thought we would be doing ourselves a service by being a bit more open to outside views. We recognised that a broader input from external stakeholders will give us a much better opportunity to guide and direct our EHSS programmes and prioritise them as appropriate.”
GSK also has an internal sustainability council. The council uses the EHSS panel’s advice in determining the direction the company should take and when prioritising programmes, Hagan says. The council’s programmes are shared with the panel where external stakeholders can see whether or not their views have been taken on board, he adds. GSK regularly reports on its engagement with the panel on the company website, including the panel’s critical comments.
Hagan says that proposals from the external stakeholder panel may not always be successful. But the proposals are being submitted to the highest levels in the organisation. He adds: “At the same time, they have started to see that their ideas are being translated into programmes. It’s one of the ways to keep the stakeholder panel engaged and enthusiastic when they see the results of their efforts.”
An early adopter of formalised stakeholder panels, Camelot, the operator of the UK national lottery, established an independent advisory panel for corporate responsibility in 1998. The panel is chaired by Gerry Acher, non-executive deputy chairman of Camelot. The company’s chief executive or an executive director attends the panel’s quarterly meetings. Camelot executives are not present at the start of the meeting, allowing panel members to have a frank discussion about the agenda.
“Through this initiative we have built very strong and very long-lasting relationships with the stakeholders over the years. We have learnt a lot more as a business about any concerns stakeholders might have,” says Anne Pattberg, head of corporate responsibility at Camelot.
“We have benefited from discussions with special interest groups, particularly in relation to game design,” she says. Based on stakeholder feedback, the company commissioned Nottingham Trent University to develop a new tool that helps assess whether there was any element in the structure of games that might encourage problem gambling.
The advisory panel works closely with Camelot’s corporate responsibility board, which is made up of the heads of each business function and chaired by the chief executive. The advisory panel also reports to the company’s operating board, which was established in 2007.
Nestlé became another company to introduce a stakeholder panel when it announced in April the launch of its creating shared value advisory board, a high-profile 13-member panel that boasts big names such as Michael Porter, the Harvard academic, and CK Prahlad, author of The Fortune at the Bottom of the Pyramid. “The creating shared value advisory board has been created as a vehicle for Nestlé to engage with the leading experts in the key areas of corporate strategy, water, nutrition and rural development,” says Nestlé spokesman Ferhat Soygenis.
The members of the board will meet twice a year. They will advise and make recommendations to Nestlé’s chief executive, chairman and board of directors.
Nestlé’s decision to include big names in the panel instead of stakeholders on the ground points to an interesting development. HSBC has taken this approach by hiring Sir Nicholas Stern to advise the bank on climate change. Swiss bank UBS has hired Sir David King, former chief scientific adviser to the UK government, in a similar role.
Big names bring publicity, but some working in sustainability doubt whether high-profile figures are needed to ensure companies get sound advice. One observer says: “The problem with huge names is whether they are realistically going to get involved in the day-to-day challenges of business or be able to meet very often.” In this view, a good panel is one where “people can get their arms around the business and help”.
Nestlé is confident its advisory board will deliver. “The members of the creating shared value advisory board are very committed and are all very motivated to help Nestlé achieve its goals of creating shared value for everyone who is touched by the company’s work,” says Soygenis.
As more companies move to establish formal stakeholder panels to help manage complex social and environmental issues, they also have a challenging task to demonstrate that the panels are independent, credible and representative of stakeholders. Their structure, governance, transparency, reporting and communication, disclosures and measuring success are equally important issues that companies need to examine carefully.
A well-defined governance structure, as in the case of Camelot, and willingness to disclose panel’s advice, as in the case of GSK, are crucial to the success of advisory panels, say experts. Companies’ inability to demonstrate that the panel’s advice is being taken on board can be disastrous. “There is a risk if you put together a panel of good people and don’t take its advice. That can make the panel members disillusioned and feel compromised,” says May.
Goyder says one of the key tests is to see who turns up at the external panel meeting from the company. “If the chief executive turns up, it’s fantastic. If the top management is receiving second-hand information from the panel, that’s bad news.” Another test is how well the company is prepared to bring these issues together in a way that mobilises the management into action, he says.
Mehra cites BHP Billiton as a good example. The mining giant established a forum on corporate responsibility a few years ago to seek stakeholders’ advice. The forum is chaired by the chief executive so the panel directly communicates with the top management. “BHP Billiton has had a practice of site visits for the forum members, where panel members go to different locations and engage with local workers, communities and management to get a first-hand experience of the operations and their impacts and have an opportunity to take impressions directly to the top of the company,” Mehra says.
Recruiting the right members is important to ensure a panel’s credibility. “Don’t pick people who are likely to be a rubber stamp for your practices. Take people who are agenda setters and allow them to drive your practices to ever higher levels of responsibility,” May advises. A panel should have licence to publish an annual review or a side-report giving its own version of how the company has tackled various issues that the panel was asked to advise on, he suggests.
Companies should consider some kind of annual appraisal or review where each panel member is asked on a confidential basis what they thought was good and what was bad in the company’s sustainability practices, Goyder says.
Camelot’s Pattberg adds: “Apart from building credibility of their panels, companies need to continuously reassess the engagement process and think how they can innovate and improve. You never have a perfect system in place for more than a couple of years. There will also be new issues cropping up which may become more pressing. If you are not able to innovate, stakeholders will get tired of you.”
Oelschlaegel agrees, saying: “If you see a panel over the years maturing … integrating deeper into the company governance system, starting to work with the company beyond the original mandate, then that is a great panel.”
Early adopter companies have shown that formal stakeholder panels can help make better decisions on social and environmental issues and develop more robust sustainability strategies. This will likely encourage more companies to set up similar panels. However, their success will depend on how companies go about creating the right governance structure, recruiting the right members, ensuring buy-in by internal stakeholders, encouraging an open and honest dialogue, building trust and communicating and reporting on the dialogue.
Early adopters of stakeholder advisory panels
- Camelot: advisory panel for corporate responsibility since 1998;
- BT: leadership panel since 2001;
- BP: Tangguh independent advisory panel since 2002;
- Burger King: animal welfare advisory panel since 2001, and nutritional advisory panel since 2008;
- Coca-Cola: India environment advisory council since 2003, and corporate responsibility and sustainability advisory council since 2005;
- GlaxoSmithKline: environment, health and safety and sustainability stakeholder panel since 2005;
- Royal Dutch Shell: external review committee since 2005;
- Fortis: CSR advisory panel since 2007; and
- Nestlé: creating shared value advisory board since April 2009.
Sources: Company websites and reports
How to set up an effective stakeholder panel
- be clear about the purpose and focus;
- make connections to other processes within the company; and
- secure internal support.
2. Set the rules:
- define the panel mandate and set ground rules.
- panel members should be able to reflect the concerns of major stakeholders.
4. Support the panel:
- help panellists to gain a better understanding of company strategies;
- build trust; and
- follow through on commitments to respond.
5. Measure success:
- regularly review the panel’s progress.
Source: Critical Friends: The Emerging Role of Stakeholder Panels in Corporate Governance, Reporting and Assurance, published by AccountAbility and Utopies in 2007. www.accountability21.net