Managing stakeholders for risk mitigation only is a short-sighted approach. Smart companies engage

 

Managing stakeholders for risk mitigation only is a short-sighted approach. Smart companies engage

Stakeholder dialogue is becoming an integral part of corporate responsibility programmes. But getting a real value out of dealings with stakeholders remains a challenge for most companies. Focusing more on risk mitigation and less on a genuine, inclusive, interactive and open engagement with external stakeholders could be why many companies do not get the best out of their engagement.

Stakeholder Engagement: a roadmap to meaningful engagement, a new guide published by Cranfield University’s Doughty centre for corporate responsibility in the UK, argues that companies can reap business benefits by understanding the true needs of external stakeholders and then making changes to cater to those needs.

Neil Jeffery, author of the guide, says: “While there are plenty of tools available for prioritisation of issues from the companies’ perspective, there were none to help companies understand stakeholders’ priorities.” He says this guide aims at giving companies the tools they need to understand stakeholders’ needs.

Jeffery says that often stakeholder dialogue becomes difficult when companies are not able to understand what stakeholders want and need, and what drives them.

The guide advocates “meaningful stakeholder engagement” as opposed to a crisis management or stakeholder management approach (see below). David Grayson, director of the Doughty centre, says that when many companies talk about stakeholder engagement, they actually mean stakeholder management.

Management v engagement

Companies practising stakeholder management are preoccupied with what they want to tell stakeholders. Stakeholder engagement, on the other hand, is about what stakeholders want to say to companies, Grayson says. And as a result of what stakeholders say, the company might need to change the way it does business.

Understanding the distinction between stakeholder management and an interactive and meaningful engagement is the first critical step for companies that want to have a successful engagement process, Grayson argues.

He says companies looking to engage effectively also need to understand that external stakeholders, particularly community groups and NGOs, have a very different way of operating from businesses. For example, lengthy consensus-building is an important part of the decision-making process for many NGOs while companies may be used to making quick decisions.

Many companies may not even have the necessary skills to engage successfully with external stakeholders. “There should not be any shame or embarrassment in recognising that stakeholder engagement does require new skills and capacity building,” Grayson says.

Lack of preparation is a common mistake companies make that leads to unproductive engagement. Grayson says that sometimes companies enter a dialogue with assumptions about what the stakeholders think, feel and do, which might not be accurate.

Malini Mehra, chief executive of Centre for Social Markets, an India-based non-profit group with offices in the UK and US, who sits on the stakeholder panels of BHP Billiton, Unilever and Fortis, says companies should be clear about what they want to know and why. Mehra says: “I’d much rather respond to three direct questions that tell me what the company is after than 20 roundabout questions where I’m left guessing their agenda. This can improve transparency and promote trust.”

Inability to look beyond the company agenda also weakens the engagement process. Jeffery says: “There is a tendency among companies to address issues that are potentially of interest to themselves rather than of interest to the stakeholders.”

Consistent message

Lack of consistency on the part of company executives participating in the dialogue is another common problem. The engagement loses its credibility if stakeholders keep seeing different faces, do not get a consistent message and have to explain everything repeatedly to new executives, Grayson says.

In order to build credibility, companies also need to demonstrate that the top management is involved in the process. Grayson says it is a mistake to send only a corporate social responsibility manager or stakeholder engagement specialist. “If NGOs don’t see operational managers of the company who are responsible for the issues stakeholders are trying to discuss, then they can doubt the seriousness of the company in resolving issues,” he warns.

The company also needs to demonstrate that the stakeholder feedback is being used to guide business decisions. Edward Bickham, former vice-president of Anglo American, says there is no point having very nice people engaging stakeholders if it appears that it is not having any impact on the way the business is run. Bickham was responsible for launching Anglo American’s Socio Economic Assessment Toolbox (Seat) stakeholder engagement programme in 1989.

Regular communication and feedback to stakeholders is necessary, letting them know the outcome of a stakeholder discussion. “There is nothing more frustrating for stakeholders than the context and outcome of the engagement being unclear, and they may then feel they are being used,” Bickham says.

While engaging effectively with external stakeholders is crucial, equally important is for the corporate responsibility team to engage internal stakeholders such as business unit managers.

Corporate responsibility managers often face challenges in transferring the knowledge gained from stakeholder engagement to other business units for making better decisions.

Mismatch alert

Neil Jeffery says there may even be misalignment between the expectations of the engagement process from corporate responsibility and business units, which could hinder the development of meaningful relations between the organisation and stakeholders. His guide suggests that where there is mismatch between corporate responsibility departments and business units then the corporate responsibility department can act as a “false reality” for stakeholders, which does not reflect the real expectations, needs and objectives of the business.

Successful engagement with external stakeholders needs people credibly connected to other business functions and senior in the organisation, Bickham says. He argues that they need to understand the business’s core strategy, and know the issues on which the company should be engaging with stakeholders. “They need to bring the inputs back to business colleagues, interpret those to them and help them to convert those into strategy.”

Jeffery says that sometimes the motives of business units and corporate responsibility departments in the same organisation might be different. For example, employees from business units typically have a strong focus on achieving practical objectives such as meeting deadlines, designing new products, installing physical infrastructure and implementing business plans. Naturally, they tend to focus on how stakeholders can help them achieve these goals.

In contrast, corporate responsibility teams tend to be more focused on longer-term and less tangible benefits, such as reputation gain and licence to operate for the organisation.

The Doughty centre guide suggests that in order to overcome this mismatch, companies should prioritise the integration of the understanding, utilisation and development of stakeholder relations into business operations.

A clear commitment by top management is also critical for the success of stakeholder engagement and to get buy-in from business unit managers. Bickham says the stakeholder engagement process needs to be backed by a senior executive with a clear mandate.

At Anglo American, the senior management is engaged by the stakeholder engagement team before and after collecting the input from stakeholders. The team also has the mandate to involve relevant business units in the process.

Bickham says it is valuable for senior managers to be involved in relevant forums and in engagement with relevant stakeholders. “Some stakeholders are experts and the company should have technical experts who are able to engage with them at the same level of expertise.”

While it is critical to understand stakeholders’ wants and needs, equally important is articulating a company’s own wants and needs, according to the Doughty centre’s guide.

“Stakeholder interaction is a process of negotiation to see how to optimise wants and needs both ways,” Grayson says. This can then have wider acceptance within the company and facilitate transfer of knowledge gained from the engagement to business units.

Share knowledge

Mehra says one of the best ways is to hold regular knowledge-sharing presentations or workshops, tailored to the needs of the department. “If it’s the finance department, talk about the bottom line; if it’s human resources, talk about recruitment opportunities; if it’s health and safety, reflect those issues.” The key is to translate the information into the right agenda, addressing why people should care about it, instead of assuming that they should.

Stakeholder engagement and other aspects of managing responsibly should be part of the company’s knowledge-management system. “Make it part of the management development and people development process,” Grayson says. Engaging stakeholders and managing a business responsibly should be among the skills companies develop in employees, he believes.

Bickham says capacity-building was one of the motivations for launching the Seat process. Anglo American has been regularly conducting workshops to train its managers and NGOs on how to make the most of Seat. In 2007, more than 200 managers and NGO representatives attended these workshops.

Grayson suggests companies consider encouraging their managers to be more active in society to learn how to engage effectively with stakeholders. For example, managers sitting on the boards of non-profit organisations can learn how NGOs engage in a dialogue and bring that knowledge back to the company to do better in its own stakeholder engagement.

Companies that adopt a more thoughtful approach to stakeholder engagement and build organisational competencies to have meaningful engagement are more likely to be prepared to respond to changes in the wider society that potentially affect a company’s performance.

Knowledge gained from stakeholder engagement may even help companies to innovate products and services that better meet the expectations of society, and hence are sustainable.

However, if an engagement process is poorly managed, it has the potential to undermine stakeholder relations, resulting in mistrust and tension, as well as making future successful relations much more difficult.

Source: Stakeholder Engagement: a roadmap to meaningful engagement, Doughty centre for corporate responsibility, Cranfield University

How to engage with stakeholders

• Plan: identify your basic objectives and stakeholders.
• Understand your stakeholders: know their needs and wants.
• Internal preparation: make business case, find internal advocates, find common grounds with stakeholders.
• Build trust.
• Consultation: respond to stakeholder expectations, provide needed information, contextualise and be realistic.
• Respond and implement: decide on a course of action on each issue agreed upon.
• Monitor, evaluate, document and report back to stakeholders.

Source: Stakeholder engagement: a roadmap to meaningful engagement, Doughty Centre for Corporate Responsibility, Cranfield University

Desirable company characteristics

Successful stakeholder engagement companies should:

• be flexible;
• allow time to build trust;
• be open;
• be realistic;
• demonstrate clarity of purpose;
• involve stakeholders in the planning of the process;
• field the best people;
• be prepared for change;
• engage key stakeholders including difficult stakeholders; and
• acquire individual and organisational skills.

Source: Stakeholder Engagement: a roadmap to meaningful engagement, Doughty centre for corporate responsibility, Cranfield University

Take a seat

UK-based multinational mining giant Anglo American’s stakeholder engagement model was deemed industry best practice by Business for Social Responsibility – a US-based corporate responsibility advocacy group – in an independent assessment in 2007.

Anglo American developed a stakeholder engagement model – Seat (Socio-Economic Assessment Toolbox) – based on comprehensive local stakeholder engagement and assessment of the company’s direct and indirect impacts. Launched in 2003, Seat has been implemented at 60 Anglo American sites in 16 countries.

Anglo American has also made the Seat tool available on its website for use by other companies.

The company says the use of Seat has resulted in the launch of a wide range of community initiatives in education, training, local enterprise development, housing, transport, recruitment and HIV/Aids.

In 1989, stakeholder feedback in South Africa prompted the company to launch a scheme to develop local entrepreneurs who had no access to bank loans. The company scheme included providing investment, and managerial, legal and technical know-how.

Source: Anglo American

Anglo American’s stakeholder engagement process

• Profiling a company’s operations and the host community.
• Identifying and engaging with key stakeholders.
• Assessing the impacts of company operations – both positive and negative – and the community’s key socio-economic development needs.
• Developing a management plan to mitigate any negative aspects of the company’s presence and to make the most of the benefits company operations bring.
• Working with stakeholders and communities to help address some of the broader development challenges they would face even without the company’s presence.
• Producing a report with stakeholders to form the basis for ongoing engagement with and support for the community.

Source: Anglo American’s Socio Economic Assessment Toolbox