Impact, dynamics, and differences in multifaceted stakeholder relationships

18th October 2017

Impact, dynamics, and differences in multifaceted stakeholder relationships

18th October 2017

Impact, dynamics, and differences in multifaceted stakeholder relationships

Engaging with diverse stakeholders

Companies sometimes collaborate with several stakeholders in diverse fields because of the nature of their business, the sector in which they operate and the geography of their operations. Interacting with different stakeholders requires specific competencies, skills, knowledge, patience and research on how to engage strategically.

To establish valuable relationships, companies should think about how they will impact and affect stakeholders and how stakeholders will influence and affect the way they do business across their operations. The first step is to map the stakeholders a company collaborates with, and list any other stakeholders that companies impact or that may have an influence on their business.

Detailed knowledge about local operating contexts is important. This insight can be obtained through social baseline and socio-economic surveys, as well as impact and risk studies. Mapping communities and neighbouring surroundings is important and companies must take economic, social, cultural, political and environmental aspects into account when analysing business activities.

Segmenting stakeholders into internal and external stakeholders can be different in terms of how companies influence and impact them, and what consequence this will have for stakeholders. The nature of this impact will determine the responsibility and type of relationships companies have with stakeholders.

Direct or indirect impact, and on which stakeholders?

Companies need to understand which stakeholders they impact directly and indirectly. This can be complex, as it requires a deeper knowledge and understanding of the region/area in which a company operates. It is also important that companies are aware of history, traditions, customs, values and the environment in relation to the people (stakeholders and rightsholders) who live in the area.

The first step in knowing which stakeholders a company impacts is doing research on “rightsholders”. Global research on stakeholder engagement has shown that companies often lack knowledge in terms of defining and understanding the different categories of stakeholders they can impact. “Rightsholders” refers to groups of individuals that claim the right to be recognised by companies, those affected by the company as well as those protected by international covenants regarding human rights.

It is stated in the Guiding principles on business and human rights that a stakeholder is “any individual who may affect or be affected by an organisation’s activities”. This description can come across as rather confusing when companies analyse their activities and list possible stakeholders impacted by business operations. Since the description is open to interpretation, it is up to every company to create engagement strategies which they regard as appropriate for different stakeholders. An affected stakeholder is an individual who has been directly impacted by a company’s services, products or activities.

There can be multiple groups of stakeholders that companies can impact:

  • Internal staff employed by the company, including its contractors
  • Funders, investors and shareholders
  • Board members and management
  • Collaborating partners and clients, including supply chains
  • Community members and business partners, including peers and neighbors
  • National, provincial and local government, as well as political parties
  • Consumers and clients
  • The environment and organisations speaking on behalf of or protecting the environment
  • The media, activist groups, academic institutions, licensing authorities and more

Stakeholder diversity influences on how companies structure their engagements. Depending on the stakeholder, companies need to create an engagement plan accordingly and review existing engagement policies continuously. A recommended approach at the beginning of engagement is to consult with stakeholders to determine their capacity and capability, as well as their willingness to engage before starting the engagement process to avoid any potential risks.

Stakeholder diversity does not imply inclusivity

A diverse range of stakeholder does not mean that companies are embracing inclusiveness in their engagement strategies. True “stakeholder inclusion” entails approaching and treating all stakeholders equally. Human rights-based approaches to stakeholder engagement require that companies are aware of how and when they influence and impact other people and organisations. Affected stakeholders may include not only staff (employees and contractors) and neighbouring communities directly affected by a company’s operations, but also more remote stakeholders affected through business operations in a company’s supply chain, or customers or end-users of a particular product or service who may be even more dispersed.

Increasingly, companies also engage at the broader policy level with expert stakeholders: individuals whose human rights are not themselves affected by a company’s activities, but who can provide insights into identifying and addressing human rights challenges, and with whom it may be important to communicate about overall organisational performance on human rights issues.

Companies should take the following questions into consideration when doing research on stakeholders they are likely to impact:

  • With whom do we need to engage? On which topics/issues do we need to engage?
  • Who will our business operations impact, and in what way? Now and in the future?
  • What possible issues could be raised relating to our operations?
  • How do we engage in the best way? What engagement methodology would be the most appropriate for each stakeholder group? Do we require specialist knowledge and skills to engage in the best possible way?
  • When do we need to engage, and is there a difference between stakeholder groups in terms of engagement expectations?

To protect, respect and enhance human rights, companies need to know beforehand the answers to specific stakeholder issues. A successful engagement strategy is to move away from “a risk to business” and rather focus on “a risk to people” approach. This strategy offers a more comprehensive outlook on and acknowledgement and understanding of stakeholder inclusivity and diversity.

A common mistake many companies make is to list stakeholders that they think will impact and influence the company negatively. This type of strategy is rather shortsighted, as it reflects only an internal view of risk without considering external expectations and views of such stakeholders.

Stakeholders (and their expectations and perceptions) will also differ depending on the political context of a country or region. For instance, in an economic downturn or in fragile states expectations from business increase, as stakeholders are looking for economic or social opportunities such as tender, procurement, employment or social support. Governments may also have increased expectations of business in economic downturns to substitute declining revenue. As such, some stakeholders are more important than others, depending on the sector and geographic area in which the company operates or even the time at which a company engages.

Who are material stakeholders?

Determining “material stakeholders” is vital in terms of structuring how often, with whom and how to engage strategically. Material and key stakeholders are those stakeholders impacted and influenced by company operations to a higher and greater extent. This makes them the primary stakeholders for strategic engagement.

Stakeholders subjected and exposed to less impact and influence are secondary stakeholders and do not require equal engagement. Different companies in various industries will have different primary and secondary stakeholders. It is important to remember that just because a company has secondary stakeholders, this does not imply that they are not important. All stakeholders, whether primary or secondary, will still be impacted and influential, but they can be managed using different engagement approaches.

Trying to realise the correlation and impact/influence that companies will have on diverse stakeholders can become a complex exercise. Using experts and consultants can help ease the burden and limit potential conflict, as well as provide additional and independent insight.

It is important to remember that stakeholders with weaker voices are sometimes forgotten when companies evaluate or identify their key stakeholders. Conversely, some stakeholders are more verbal and may influence the ability of all stakeholders to be treated equally. Balancing stakeholder voices and importance/priority is therefore critical.

No formula or technique covers all

There is no prescribed formula or technique on how to engage with diverse stakeholders. All stakeholder groups will respond differently when companies engage. Stakeholder inclusivity and diversity require that companies research engagement tools and methodologies for different groups, taking into account culture, language, education, traditions and social norms and rules.

Knowing your stakeholder in terms of social traditions and expectations is vital, as it can determine the quality and lifespan of a relationship, to a large extent. The “culture of business” and what is regarded as appropriate behaviour when collaborating or partnering with others can be highly cultural specific.

Low levels of trust between stakeholders and companies are likely to result in stakeholders not sharing expectations, perceptions, opinions or opportunities. Distrust of engagement can impact a company negatively and restoring trust is difficult.

Third-party engagement specialists are often useful in situations regarding conversations relating to:

  • indigenous people
  • language barriers
  • migrant workers
  • gender-specific roles or types of work

Companies must be confident about their engagement, including which issues to address and the best plan going forward. Stakeholder engagement encompasses a broad variety of methodologies, from “pushing” information out to stakeholders to “pulling” information in from stakeholders (“consult”), to engaging in a problem-solving dialogue with stakeholders (“collaborate”), to sharing decision-making power in certain instances (“agree”).

Each of these methods may be valid with specific stakeholders, for specific purposes, on specific issues, or in specific instances. Implementing stakeholder management effectively involves employing all these approaches at various points in time, with the caveat that “pitching” will never be sufficient on its own.

Ultimately, “engaging in the right way”’ means that companies have to identify forums and approaches that enable them to listen and respond to stakeholders in a meaningful way.

Next Generation assists companies with stakeholder management strategies, from stakeholder identification, prioritization and analysis to actual engagement and reporting on engagement.

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