Dave Carroll, a Canadian musician had his $3,500 Taylor Guitar accidentally broken on a United Airlines flight in 2008. He placed a complaint but was informed that it was ineligible for compensation because it had passed the 24-hour timeframe. After nine months of fruitless negotiations, Dave decided to exercise his stakeholder right by sharing his tale through a song; making a video of his experience with the United Airlines. By the time the video went viral, the United Airlines approached Dave, hoping to resolve the problem, but, it was already too late. Altogether, United’s share price fell by 10% – a loss valued at $180 million USD.
Over the years, stakeholder engagement has never seized to be a determinant of the success or failure of any business. The concept of stakeholder deals with two powerful questions, which every business operation must consider: Who has the power to influence? Who is interested in our activities? Typically, stakeholders are persons or groups who are directly or indirectly affected by a business or project, as well as those who may have interests in it or have the ability to influence its outcome either positively or negatively. Within many sectors, the major stakeholders are shareholders, employees, suppliers, customers, competitors, community, regulators and government/governmental agencies.
The interest and influence these individuals or groups have on a project or business however vary, which makes the identification of stakeholders the first step towards engagement. Usually, every business has Internal and external Stakeholders. Internal stakeholders consist of entities within a business such as employees, managers, and the board of directors, investors, vendors, suppliers and all who directly run the business and impact it. External stakeholders are those not present within a business itself but who care about or are affected by its performance such as the consumers, regulators, community and even competitors.
In operating an effective stakeholder engagement, it is important a business designs a map of all stakeholders in order to determine the various levels of engagement. In a typical stakeholder map, levels of engagement often depend on the extent of power available and interest each identified stakeholder has on the business. Stakeholders who appear to have a high degree of influence and who are of high importance to the success of a business or project may need to be actively involved in the running of the business. A business will need to build a good working relationship with such stakeholders to ensure maximum support for the operations of the organisation. Stakeholders of high importance to the success of a business or project, but with low influence will require special initiatives if their interests are to be protected. It is expedient to always anticipate and meet the needs of such stakeholders.
On the other hand, there are stakeholders who only have high influence on a business howbeit low interest. This category usually requires thorough monitoring and good management, whilst those with low influence and low interest must be moderately monitored.
Companies that have grasped the importance of identifying and actively engaging their stakeholders in every aspect of their business operations are able to mitigate and manage risks, improve reputation, garner better relations, identify new opportunities and ultimately, remain in business. Yet, many businesses often make a number of stakeholder engagement mistakes, making it difficult to achieve for such. Here are some of them:
“We already do it”
Virtually every business has some level of stakeholder engagement. Whether it’s a complaints line, PR department, customer service representatives, or a client management team; a business engages with the stakeholders it considers as critical to success. But, it can be too easy to conclude that an existing strategy is good enough, or generating insights that are good, enough for the future. Stakeholder engagement processes need to flex over time and accommodate different forms of engagement.
One time mapping
Although stakeholder identification and mapping are the first steps towards effective stakeholder engagement, it is possible for the interest or power of a stakeholder to change in the course of a business such that a previously high interest-low power stakeholder may suddenly become of high interest and power.
There is therefore a danger that companies underestimate the value of the stakeholder that isn’t currently critical, but who might be with the passing of time. That includes the sort of customer who, when disappointed, was previously not able to garner significant levels of action against the company – one lost customer is usually not that important to business. But now, one upset customer can quickly mobilise support for their cause just as was the case of Dave as earlier illustrated. Hence, a business must remain sensitive and constantly review its engagement process.
Some stakeholders want to be kept in the loop – so regular and clear push messaging can be a really useful way to create trust and engagement, especially if you give them an opportunity to share their thoughts (or your tweets). But some desire much more – active engagement on issues that they care about. If you tell stakeholders that you will listen, then you had better do so, and use the channels of communication that are relevant to the kind of conversation that they want to have.
One size fits all
Since stakeholders have different concerns, companies need to embrace a variety of communication strategies. The same category of stakeholders may have several concerns that are not easily reconciled. For instance, a telecommunications company might achieve some form of success with reducing opposition to construction of its mobile phone towers in rural areas by engaging directly with opponents. Some members of the local population might simply want to be kept informed and reassured about safety concerns, while the NIMBYs (Not In My Back Yard) may need to be convinced by educating them about the limits of radio technology and efficiencies gained by using top-of-the-hill strategies.
Casting the net too narrowly
Businesses need to include all stakeholders that can help or harm the business, not just the top two or three stakeholders. Under archiving in the identification of stakeholders will lead to lost market share, higher input costs and reputation damage. Engaging well with critical stakeholders should be a priority, but once that relatively rudimentary task is done, there is merit and profit in understanding the additional value that could be created by more stakeholder engagement. All stakeholders must be captured in an engagement process as one engagement turned bad can jeopardise the whole engagement process of a business.
A defensive engagement
Most often, interacting with stakeholders when all seems perfect for a business appear to be of low priority and a waste of resources. On the contrary, waiting till a problem exists before setting up an engagement mechanism often doesn’t curb damage when it happens. The absence of an established relationship or channels of communication with relevant stakeholders often puts a business at a disadvantage from the start. For instance, trying to initiate contact with an aggrieved stakeholder can be perceived as being defensive, which may impress a negative image on the business. Hence, no business should wait till there is a problem to engage. Engaging stakeholders from the start, as part of a core business strategy enables a proactive cultivation of relationship that can serve as ‘capital’ during challenging times (International Finance Corporation, 2007).
Stakeholder engagement (especially approaches that avoid box-ticking) is not about CSR, shared value, responsible business or ‘sustainability’ – it is just good business. When approached as an integral part of business operation, it delivers plausible return on investment. Nevertheless, just like any other strategic aspect of business, stakeholder engagement needs to have a deliberate plan with continuous improvement as part of the focus.
IFC (2007), Stakeholder Engagement: A Good Practice Handbook for Companies Doing Business in Emerging Markets: International Finance Corporation
ThistlePraxis (2016), CSR Files: What do stakeholders really want? Edition 19: ThistlePraxis Consulting.