Stakeholder engagement has never come with higher stakes or been more important. Companies need a robust, defensible methodology and tools that can account fully for a shifting business environment in which social and environmental concerns are increasingly prominent.
Although engaging with stakeholders is essential, it is far from easy: As companies perceive increasing reputational pressure, they recognize that they must act, but often sign on to an engagement method without understanding it or clarifying their intent.
Many mistakenly view stakeholder engagement primarily as a public relations or communications exercise. They struggle to relate the engagement to their core business activities and find it difficult to build internal awareness and interest in the process. When the time comes to map stakeholders, they talk only to those they already know or to those who speak/shout the loudest. Even if they succeed in gathering useful insights from stakeholders, they have difficulty determining what actions to take in response.
These fundamental challenges have become considerably more pressing recently.
Challenges to stakeholder management
Exponential growth in internet access and connectivity has shifted the terms and avenues for stakeholder engagement. It has spurred the development of powerful social networks in which unfiltered updates on global events can be shared among millions of users in real time, undercutting and diluting the influence of traditional news media. In this environment, disputes about a company’s operations can be adopted and amplified by international civil society organizations and even by individuals, heightening their visibility and impact. This can afflict companies with whiplash as they try to anticipate and respond to waves of criticism. At the same time, companies are being drawn into taking positions on sensitive political and social issues, from immigration to climate change.
In addition, we have seen the establishment and maturation of internationally accepted sustainability frameworks: The Paris Agreement on Climate, The Sustainable Development Goals, and the UN Guiding Principles on Business and Human Rights are a few examples. These have made sustainable business efforts more consistent and coherent by codifying the goals and intent of sustainability efforts. The frameworks are driving a shift from exclusive consideration of corporate risk to an understanding of corporate impacts on society.
Furthermore, the investor community has become significantly more focused on the need for companies to consider environmental, social, and governance issues (ESG) if they intend to survive and thrive over the longer term. This, in turn, necessitates a strategic shift from an exclusive focus on shareholder value to serving broader stakeholder interests. We are amid an increasingly high stakes debate about the future of the corporation and its nascent shift in focus from shareholder value to stakeholder trust, from risk to impact, and from unrestrained financial growth to sustainable business.
For companies, this necessitates a strategic and structured approach to stakeholder relations.
Getting better at stakeholder engagement
Before developing an engagement strategy, you must first understand what stakeholder engagement means to your company, as well as your goals and level of ambition for this exercise. Although often used as a byword for public relations or reputation management, stakeholder engagement is something else. It requires a shift in corporate mindset and a change from treating stakeholders’ concerns as external risks that need to be managed to considering them serious topics that merit transparent dialogue—and a strategic response.
Stakeholders that choose to engage with companies generally expect this interaction to generate change, which is why it is a mistake to treat engagement as a one-way information dissemination process, rather than as a dialogue. There may not be widespread understanding of this within your company, which may need to develop internal capacity and buy-in before launching engagement activities. The organization should comprehend the business case for stakeholder engagement before committing to a resource intensive exercise.
Our advice: Reach out internally and build a baseline understanding around stakeholder engagement—including the business case. This can help avoid the risk of being unprepared to listen to stakeholder insight or guidance, as well as that of unintended “greenwashing.” It also helps identify internal champions and owners of future engagement activities. These individuals and functions are your internal stakeholders; collaborate with them as you build your overall strategy.
Building a Strategic Vision
With internal alignment and a common understanding of the purpose of stakeholder engagement, you can move on to shape your strategic vision. The first step is to look at your company’s history. Lessons learned from past efforts will inform the current strategy.
Look at your previous engagements and answer the following questions:
- WHAT: Were our previous attempts successful? Did they fulfill our objectives? What performance indicators support this assessment? What mistakes did we make during our past engagements? What did we miss?
- HOW: Were the formats appropriate? Did they address stakeholders’ concerns? Are there ways we can achieve the same objectives by using resources more effectively? What would we do differently?
- WHO: What did we learn about stakeholder expectations? Did we address them? Have we provided feedback to our stakeholders? Is the feedback in an appropriate form? Which internal stakeholders need to be more involved? How?
- WHY: What were the drivers for engagement? Was there a specific context? How might these have evolved over time?
The second step is to understand the motivation behind engagement. Setting a vision will clarify the specific objectives you are trying to achieve in business and sustainability.
Corporations increasingly struggle to respond to the urgency and scale of change in the external environment. For systemic issues such as climate change, inequality, corruption, and discrimination, the purpose of stakeholder engagement must broaden its focus on risk management and reputation-building to include partnership and collaboration.
Building a more rigorous approach
More recently, the emergence of regulation in various parts of the world, such as Corporate Governance Codes, displays an increasing expectation by governments that companies will consider and integrate the perspectives of stakeholders.
Companies will benefit from the structured incorporation of stakeholder perspectives into the management of such strategic challenges as political risk, emerging competitors, and the cumulative impact of foreign direct investment in a new region. Even when it comes to gathering stakeholder insights for a materiality assessment, companies are often finding that their most material issues cannot be addressed unilaterally, via direct action, but must rely on partnerships, collaboration, and efforts to influence policy.
All of this suggests the need for a more ambitious approach to stakeholder engagement. While there is still a place for reactive efforts to monitor emerging conversations or respond to critiques, we believe that further effort is best applied to proactive, ambitious efforts that can result in collaboration and concrete change.
Our advice: Answer the following questions to understand your objectives:
- PRIORITY: What is our priority in engaging stakeholders at this phase? Reacting to external pressures? Developing strategic insights? Protecting our reputation? Seeking innovation and building new products and services? Building relationships in new markets? Mitigating systemic risk?
- SCOPE: What is the scope? Let us consider issues and geography to set boundaries. Given increasing transparency, we should consider both global and local exposure—and the interaction between them.
- WHERE does engagement fit in our organization? Who should be the owners or take responsibility for stakeholder management - (CEO, corporate affairs, business units, etc.)? What is their level of willingness and understanding?
Your strategy should carefully define the boundaries of your stakeholder landscape. In a broad corporate stakeholder engagement process that envisages longer-term relationships, a full stakeholder mapping may be required; this will be addressed below. However, more specific, time-bound engagements may not require a full engagement process because relevant stakeholder groups are already apparent. For example:
- Community engagement exercises need local civil society groups and citizens.
- A mix of mainstream and socially responsible investors may be well-placed to give feedback on your new reporting approach.
- Academics and digital rights experts may be best placed to help you navigate how to handle hate speech on your digital platform.
Finally, how you engage is directly informed by your overall vision and level of ambition, whether the engagement is proactive or reactive, and by the resources available. Most important, you need to determine whether this is to be a one-off event or the start of an ongoing, iterative process.
Next Generation Consultants have assisted numerous corporations across South Africa with stakeholder management and engagement. Our deep understanding of complex settings provides us with an advantage when it comes to material stakeholder engagement strategies and stakeholder management plans
For more information, visit our website or contact us to assist you with your stakeholder management activities – firstname.lastname@example.org