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July 19, 2009

Building Trust: Stakeholder Engagement Matters

This week, Environmental Leader is presenting a five part series By Jonathan Ballantine entitled “Building Trust in Corporate Responsibility.”

Here is part one – Stakeholder Engagement Matters.

In the past few years corporate responsibility has undergone a major surgical face lift and is no longer seen as a fluffy element of business or as an exercise in philanthropy.

As part of this transformation NGOs are now seen as partners rather than threats, public relations has become transparency, and philanthropy is simply the cost of doing business. Corporate responsibility has become a hard-nosed business decision that provides tangible evidence to all stakeholders that an organization recognizes the physical, regulatory, reputational and litigation risks created by its operational footprint.

Stakeholder engagement is the foundation of corporate (social) responsibility. If you are effective in your stakeholder engagement, you will open up new ways to improve your organization’s performance and reputation.

Following a series of interviews with senior practitioners at leading organizations in preparation for this feature story, there is a clear message that stakeholder engagement should be taken seriously to survive, if not thrive, in the current economic climate.

Stakeholder engagement is essential to business strategy and success since it provides important information about the evolving expectations of many of the actors who matter to the future of a company. ¨For a company like Anglo American, with large scale, immovable, long-life assets, predominantly in developing countries, stakeholder engagement is essential,” remarked Edward Bickham, Vice President of Corporate Responsibility.

This view is shared by stakeholders themselves. Dax Lovegrove of World Wildlife Federation believes committed organizations who genuinely engage in two-way communication with their stakeholders are “future proofing” their business.  Dax in his role as Head of Business and Industry Relations helps organizations to understand the wider impacts, right across the supply chain.  He  encourages organizations to participate.

Peter White, Director for Global Sustainability at Proctor & Gamble echoed Lovegrove’s comment on how effective stakeholder engagement is at the heart of future sustainable growth.

“ We want to help shape the future – now and for generations to come – by collaborating with local, regional and global stakeholders,” he said.  “By working together through multi-stakeholder initiatives we firmly believe we can make a bigger difference together than we can individually”, he added.

Of course, many organizations interact with their customers, employees, suppliers and investors every day – usually unplanned and in rather informal ways.  However, over the last five years there has been a shift for organizations to carry out systematic stakeholder engagement, to help understand the perceptions and expectations of stakeholders and create open dialogue with them. Two-way dialogue with key stakeholders on current or emerging issues is important in identifying risk and in developing responsible business strategy, providing organizations with valuable insights that enable them to determine whether perception really does match reality.

In an interview for this feature James Hagan, Manager of Corporate Environment, Health, Safety and Sustainability of GSK explains carefully how the firm’s new CEO Andrew Witty has made ¨Building Trust¨ one of his five strategic goals.  GSK, which has been carrying out stakeholder engagement since the late 90s, advises companies not to view stakeholder engagement as an ¨exercise¨ or as a ¨tick in the box¨.

White supports Hagan’s view that stakeholder engagement must be built into the business and should not be viewed as a ¨bolt on.”  “By approaching it as a two-way conversation enabling you to get vital feedback on business performance, it can shape the future success of your company,” White added.

Earlier this month GSK announced plans to cut the prices of its leading medicines in emerging markets, an exercise that over time will build trust and prove beneficial to the bottom line.

The reverse often holds true … a perfect illustration on the consequences of stakeholder misalignment is the demise of GM, for which, in part, can be attributed to a lack of understanding with one of its core stakeholder groups – its customers.  The first signs of trouble came in the spring of 2008 when fuel prices were spiraling upwards.  With a ¨super size¨ production business model with vehicles such as the Hummer and SUVs, consumers were forced to turn their backs on these gas-guzzlers.  This, coupled together with an increasing awareness on climate change, has played into the hands of Asian manufacturers like Toyota and Honda for hybrid cars and knocked out every hope of GM (and perhaps every U.S. car manufacturer) to sell its products.

Stakeholder information makes organizations better understand what actions to take and what priorities to make. Will Swope, Vice President of Sustainability at Intel remarked, “Stakeholder engagement helps us identify our most relevant sustainability issues and help us prioritize our challenges and opportunities.”

The overall consensus from interviewed practitioners was of the inseparability of stakeholder engagement in building trust, and that through the adoption of a collaborative / cooperative relationship with stakeholders, organizations can more easily distinguish challenges, opportunities and weaknesses related to its vision.

Jonathan Ballantine is a European-based business engagement specialist – advising private sector firms, business consultants and NGOs on corporate responsibility issues, including brokering collaborative partnerships between business and NGOs, stakeholder engagement and outreach communications.

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