Strategies and techniques for improving relationships in the value chain
Companies globally are exposed to risk simply by engaging with other businesses, communities and governments. Companies are responsible for the products and services they sell. These responsibilities include respecting and protecting people from the negative impact caused by business operations or their products and services. This is not a simple task, especially for larger companies that operate worldwide and that could potentially interact with thousands of stakeholders.
No company can operate in isolation, and companies often need to outsource services/production to increase capacity and reach objectives, goals and targets in order to improve their business or increase profitability.
Working and collaborating with stakeholders has significant risk for companies. Stakeholder engagement aims to improve relationships in order to protect the company and its reputation. The definition of “stakeholder engagement” is not straightforward, as it does not identify roles, responsibilities, risks, limitations, challenges, services or desired behaviours.
Risk factors and stakeholder challenges
The diverse nature and scope of individual businesses mean that different companies are exposed to different risk factors when working with stakeholders. Due to the varied nature of businesses and their sometimes complex, interrelated and extended value chain, the first challenge for any company is to identify, define and analyse stakeholders in their value chain (upstream as well as downstream) to determine stakeholder influence on the business.
Depending on the size, sectors, geographies and industries in which a company operates, it may be necessary to also map the communities that are indirectly impacted by the company. This is a complex exercise and an area many companies fail at, as it requires a deep awareness of the local, social, economic, environmental and political contexts of the areas in which companies operate. Stakeholder engagement should be viewed in an inclusive manner, including all potential stakeholders.
Identify, then prioritise
Once stakeholders are identified, companies need to prioritise stakeholders/groups. Not all stakeholders are equally important, have a direct influence on a company or are directly impacted by its operations. It is important to prioritise and categorise stakeholders across the entire stakeholder spectrum and rank them according to issues, priorities, challenges, influence and impact.
Companies underestimate the fact that governments are one of the most important stakeholders when operating globally. Governments can be very complex stakeholders, as they unavoidably impact companies and create laws and regulations around business operations.
What is regarded as good stakeholder engagement practices?
Stakeholder engagement is a process and a strategy companies use to achieve desired goals and planned outcomes. Engagement can impact companies positively, as the idea is to improve relationships in the value chain. The desired achievements of successful stakeholder engagement will reflect on the overall business activities and successes.
Stakeholder engagement is productive when companies are allowing a two-way dialogue and encourages stakeholders (internal as well as external) to express opinions. Responding to stakeholder ideas to improve business operations and relationships is vital, and a fundamental concept of engagement. When companies are serious about including input from stakeholders, the output of engagement often increases social capital.
Recently developed and promulgated governance and compliance frameworks also require companies to seek out stakeholder opinion and consent as a formal step in corporate reporting and assessments. Companies must identify their stakeholders and explain how they have responded to their expectations and interests in order to comply with the GRI G4 Sustainability Guidelines, and stakeholder input is required to comply with the UN Guiding Principles framework on human rights impact assessments.
In South Africa, particularly with King IV and the New Companies Act, companies also need to report on their stakeholder management strategies, their engagement activities and how stakeholders’ opinions and expectations were considered and integrated into company strategies. Companies need to respond to demands for more disclosure and transparency at a time when reputational risk is increasingly fluid and difficult to manage. Shared value between a company and its stakeholders can be achieved. It requires an inclusive approach, interaction and discussions concerning how relationships and business activities can benefit all parties.
Business leaders can no longer control the timing, content or interpretation of the information that is disclosed about their companies. Transparency, timeliness and accountability are increasingly emerging as fundamental characteristics of effective stakeholder engagement. Properly developed, these approaches can help companies enhance their social licence to operate and help communities become more resilient. The communication and data revolution also presents an opportunity for companies to partner directly with a broader range of stakeholders in planning and decision-making. New social innovation and sentiment analysis tools can be used to increase engagement.
Stakeholder engagement should be structured and supervised to limit risk for companies. Consulting with stakeholders is valuable, as it offers new perspectives and ideas. Initiating conversation shows an interest and can create dialogues regarding possible risk factors and new business opportunities.
Having strategies in place that specify expectations between a company and its stakeholders is not only important for the company – these strategies are equally valuable for stakeholders, as regulations protect and limit risk for all parties involved. Once stakeholders are identified, defined and analysed, companies need to create and implement engagement plans.
Showing commitment is vital to sustain good stakeholder relationships
Demonstrating commitment can be done when inviting and including stakeholders to discuss potential ideas on how to improve company operations. Committing to working closely and indicating that relationships will be valued over time strengthen social dynamics. Working for a common purpose and sharing goals can motivate companies as well as their stakeholders.
A challenging aspect of stakeholder engagement can be to secure commitment. Stakeholders that are unsure whether they must collaborate might not agree on the proposed “way forward”. Companies that show transparency and are accountable for their actions are more likely to sustain good relationships with stakeholders. Companies can engage with communities in a substantive way, creating a form of partnership by providing communities with a voice in business decision-making. Similar types of engagement should become the norm as companies work with communities on issues related to the environment, such as climate change or social justice, for example to improve the quality of life of communities.
Communication is crucial
Regularly communicating and sharing information regarding company strategies, objectives, policies, operations, values and expected outcomes of projects is important to build lasting and trusting relationships. Communicating with stakeholders can be difficult for companies, as stakeholders have different expectations, interests and priorities that will impact relationships. Particularly in the African context, issues that may affect stakeholder engagement include language and literacy barriers, gender bias as well as inclusivity or exclusivity, religious beliefs and accessibility.
Most countries have socially accepted rules regarding relationships between companies and stakeholders. It is important that companies realise that communication and engagement can be context-specific. They should therefore consider a range of engagement tools, methodologies, capacity development and even consider the use of facilitators, experts and translators in those contexts.
Stakeholder engagement is multifaceted
There are many ways a company can engage with its stakeholders. Face-to-face conversations are more likely to result in good relationships, as they are more personal. It is also easier for companies to express gratitude in person, which is especially valuable in the initial phase of new relationships. Depending on the stakeholder and the extension of the collaboration, open houses or site visits might be enough to satisfy stakeholder expectations. A recommended method is to communicate frequently and follow communication plans created by engagement specialists.
The variety (nature, size, scale and scope) of stakeholders indicates that stakeholder engagement should be a central aspect and priority for all management teams. Management and executives must therefore be trained and capacitated in stakeholder engagement. Reporting on company activities is vital in securing stakeholder support. Companies as well as stakeholders are benefitting when communication includes reporting back on stakeholder commitments.
Managing stakeholder expectations during engagement is critical to avoid distrust and uncertainty. It can take a long time and extensive resources to re-establish stakeholder trust. The effectiveness of stakeholder engagement will mainly be determined by a company’s management team. Leadership will impact and influence relationships internally as well as externally. In conclusion, stakeholder expectation management is complex. Rather than applying a prescriptive approach, exploring multiple strategies targeted to meeting diverse stakeholder expectations can make the difference between success and failure.
Next Generation assists companies with end-to-end solutions in stakeholder management, from stakeholder identification, analysis and prioritisation to stakeholder management strategies, stakeholder engagement, due diligence, reporting and developing grievance management processes.