Corporate Stakeholder Engagement, Metrics, and Reporting:

Maximizing Return to Stakeholders at the World’s Leading Companies

Newsletter October 2004, Volume 1, Number 3

 

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This Month’s Article:
The Stakeholder Imperative
copyright 2004 The Future 500

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By Cate Gable
Director, Conferences and Training
 and
Bill Shireman
President and CEO

Published in Environmental Quality Management, Winter 2004

Part One: The Stakeholder Imperative

Emergence of a New Business Environment

Today’s companies serve not just shareholders but an increasing array of ‘stakeholders’ including employees, customers, community groups, governmental regulators and environmental advocacy groups. The concerns of these stakeholders are not just financial; they span the so-called triple bottom line of financial, social, and environmental objectives.

Though these interests are often at odds, in the long term they are mutually dependent. Business needs a healthy, secure society and a bountiful environment within which to operate. Healthy societies need businesses to provide goods and services. And the natural world is best protected when businesses and societies are healthy. In simple terms, this describes a system that is ‘sustainable’ – that is, the resources needed to meet the interests and needs of all parties are protected and renewed in order to allow the cycle to continue.

Triple bottom line thinking aims to align the interests of the economy, society, and environment so that any action that benefits one, benefits the others. For corporations to capitalize on the positive potential of a triple bottom line analysis, a thorough understanding of stakeholders is crucial.

We have developed a conceptual framework and methodology for identifying and engaging stakeholders that will allow corporations to thrive in this challenging business environment. Though many companies see this approach as creating barriers to doing business, brand leaders are realizing the power inherent in stakeholder engagement both to catalyze business innovation and to refine competitive strategy.

What are the features of this new environment for business? 

Several salient features of the emerging business environment have elevated the importance of stakeholder engagement, not just for brand-name companies with a valuable reputation, but for their suppliers, and all other companies whose fortunes can be impacted by concerted stakeholder action.  Among the factors driving this change:

• Distrust of corporations, heightened by recent accountability scandals
• Fear of corporate power, elevated by globalization and perceptions about its negative social and environmental impacts
• Stakeholder use of the Internet to mobilize for political and marketplace action

·     Pressure to include externalities in business accounting, and otherwise to consider the triple bottom line

• Supply chain standards imposed by companies with leverage, such as retailers and brand owners, to reduce risk of environmental or social controversy

·        Formal designation of personnel responsible for stakeholder engagement, across such disciplines as public and environmental affairs, corporate communications, and investor relations

·        Growing importance of stakeholder engagement as part of a competitive business strategy

·        Proliferation of corporate social responsibility (CSR) and socially responsible investment (SRI) standards and compliance with key standards as a social license for doing business

·        Growing use of market-based policies, especially in Europe, to internalize negative social and environmental externalities

 

 

Gaining Strategic Marketplace Advantage by Utilizing Stakeholder Engagement: A Case Study

 

Consider the case of polyvinyl chloride, also called PVC or vinyl, one of the most common synthetic materials. Over 14 billion pounds of PVC are produced annually in North America. Approximately 75% of all PVC manufactured is used in construction materials.

 

In the last decade, environmental advocacy groups have been sounding the alarm about the dangers associated with both PVCs component ingredients and the waste produced in its manufacturing. Dioxin, a potent carcinogen, as well as ethylene dichloride and vinyl chloride are unavoidably created in the production of PVC.[i]  PVC materials used in buildings create the phenomenon of ‘off-gassing’—the main contributor to indoor air pollution.

 

Additionally, since most medical paraphernalia—swabs, syringes, gloves, IV tubes, bed pans, etc.—are made of some variety of PVC, hospital or other waste incineration can deliver other silent dangers into the air. Dioxin, hydrogen chloride, and hydrochloric acid is released and created in the process of combustion. (The incineration and collapse of the World Trade Center, for instance, sent a dioxin plume over all of lower Manhattan.)

 

Because of growing concern about PVC’s potential dangers, reducing its use, particularly in healthcare facilities both in construction and operating supplies, is one of the goals of a variety of emerging healthcare and green building policy documents.[ii]

 

For Kaiser Permanente, a private not-for-profit healthcare provider serving eight million members in 11 states, efforts to replace PVC began with carpets, vinyl composition tile, and particleboard. Carole Antle, co-chair for the U.S. Green Building Council Leadership in Energy and Environmental Design (LEEDä) healthcare committee and Director for Capital Projects at Kaiser, states, “We wanted a cradle-to-cradle assessment of the most polluting, most commonly used hospital products.”[iii]

 

After a comprehensive discovery process, Kaiser identified selected manufacturers to work with on new product and materials R & D.[iv] These material challenges have provided opportunities to source cheaper and greener products. Non-PVC based flooring, though more expensive up-front, has proven to be less expensive over the life of the product as both the labor needed for clean-up and cleaning supplies have provided a cost benefit. In some cases the cost-benefit is immediately apparent. Kaiser found a particleboard without formaldehyde that was below their previous price point.

 

Supply chain collaboration between high-volume healthcare providers, or purchasing co-ops, and savvy manufacturers is a powerful force for change. This collaboration provides early movers—both manufacturers and product purchasers—with strategic marketplace advantage.

 

Collaborations like this one have produced a Dow product called Woodstalk, a formaldehyde-free polyurethane resin particleboard from a harvested wheat straw fiber, a renewable resource.  Dow acknowledges the importance of stakeholder collaboration in their business strategy. “Green building practices such as those defined by the LEEDä rating system have helped to establish the direction for product research.”[v]

 

Alluding to the interaction of Kaiser’s stakeholders, Antle admits, “It helps us when activists get out in front of the issues.”[vi] Activists provide an early-warning system by identifying corporate vulnerabilities, places where the consumer demand for change will emerge. Following on the heels of issues-identification, policies developed by non-profit watchdog organizations or governmental groups establish standards that propel innovation and marketplace reform, and create new product categories.

 

In the case of decreased use of PVC in the healthcare industry, consumers benefit from safer hospitals, healthcare providers benefit from happier customers, and manufacturers benefit from refinements in strategic direction.

 

How can a company best understand this new world of ‘responsibility to stakeholders’ to take advantage of these business opportunities and, at the same time, deflect potential risk?  Does a triple bottom line perspective proffer constraints or opportunities?

 

 

Is ‘Stakeholder Value’ a Myth?

 

It’s all a fad, says Steven Hayward in Forbes. “Like wide ties and polyester suits, the fad of the moment is the ‘triple bottom line.’ Social justice?  Environmentalism?  Let’s judge a company on how well it grinds out profits.” Proving that triple bottom-line thinking is profitable “requires the artful torture of financial data,” Hayward adjures.[vii]

Milton Friedman creates a narrow definition for a socially responsible business and encapsulates the old view of the purpose of business when he states, “The fundamental social responsibility of business is to earn a profit on the capital invested in business.”

 

However, simply ‘grinding out a profit’ does not guarantee long-term business success, especially if the apparent profit masks costs that could later undermine the company or community it serves. The recent accountability cases of Enron, Anderson, WorldCom and others buttressed this view.

 

Friedman states that ‘profit’ serves as a stand-in for the sum total of a company’s impacts, so long as the company operates within the law.  That view had stronger support when most companies were national and most impacts local.  But as the reach of companies becomes transnational, no longer is there a single set of legal standards by which to operate.  Laws, enforcement regimes, forms of government, and social priorities vary greatly across nations.  True or not, stakeholders perceive that companies can play governments against one another, negotiating to find those with the lowest environmental or social standards, or those most willing and able to sell out their local citizens for concentrated economic gain.

 

In reality, when most western companies travel overseas, they tend to bring the high standards of their home countries with them.  But this tendency is hardly universal.  When a company missteps, or is perceived to have done so, the Internet often conveys that information across the globe, often faster than corporate headquarters can even investigate to confirm if the assertion is true. 

 

In addition to laws and regulations, a new set of proliferating quasi-legal, quasi-marketplace standards for corporate social responsibility (CSR) and socially responsible investment  (SRI) are beginning to emerge.

 

There are now more than 20 major CSR and SRI standards in the marketplace, including such leaders as the Global Reporting Initiative (GRI), Dow Jones Sustainability Index (DJSI), Social Accountability 8000, and the Global Compact.  Most companies hope that, like legislation that may vary state-to-state, these will gradually consolidate into a single standard, so companies can comply and move on.

 

While some standardization is likely – GRI is the leading example – the hope for a single standard is about as realistic as the hope that consumers will finally settle on the one car, phone, and soft drink whose features best meet their desires.  CSR and SRI are marketplace phenomena, and they will likely never settle into a single standard that can keep up with marketplace dynamics. 

 

Just as consumers are a company’s best source for current market information, stakeholders are a company’s best source of CSR and SRI standards.  Engaging with stakeholders – whether directly or indirectly – is essential market research, especially for global companies.  It provides nuanced understanding of social movements, enables strategic business decisions that reduce long-term costs, and enables companies to adapt more nimbly and readily to real-time change at the local, national and international levels.  Occassionally, it even enables them to do something truly outstanding for their communities – an outcome which is more motivating to many executives than activists, or economists, often suggest.

 

In a fast-changing global economy, there is an underlying logic to stakeholder engagement which is advancing its practice very quickly.  Companies are compelled to move rapidly to take advantage of new technologies, markets, and opportunities.  This increases risk.  But failing to adapt poses even greater risk.  Stakeholder engagement enhances a company’s adaptive capacity, and also builds its base of social and political support. 

 

This new view of business—that rather than being handicapped by stakeholders, a company can profit by providing ‘stakeholder value’—is promoted by hybrid organizations like The Future 500, a not-for-profit network of corporations and professionals that develop and apply tools of stakeholder engagement.  Using a diverse array tools and principles, a cohesive methodology is emerging.

 

Typically, Future 500 experts help their member companies navigate complex issues focused on by a wide variety of social and environmental advocacy groups.  These include policy groups such as the Sierra Club and Natural Resources Defense Council, market campaigners like Rainforest Action Network (RAN), social investment groups like Domini and Calvert, and small but media-savvy groups like Silicon Valley Toxics Coalition.   Often, increased understanding is all that is required to avoid conflict, especially if stakeholder work is done early.  Sometimes, compromise is required by both the companies and activists, but the payoff is lower risk than fighting over regulation that might impact the company.  Ultimately, the interests of both the companies and their stakeholders are often better met through multi-stakeholder engagement than they could ever be through the more traditional adversarial approach.  Hence, at its core, the Future 500 process of relationship management enhances understanding and alignment between companies and their stakeholders, so the interests of both can be advanced.

 

Future 500 companies are members of a network that includes companies and professionals in the Americas, Asia, and Europe.  Future 500 member companies often work in collaborative roundtables, to share methods, hone skills, and even forge joint business ventures..[viii] 

 

For example, in partnership with the Conference Board, Future 500 companies work together to measure their performance against 17 different CSR and SRI standards, and work jointly to influence standard-setting organizations, who may be more resistant to changes suggested by a single company.  In addition, several of the world’s most valuable brand-name companies – all part of The Future 500 – are working together to share and improve stakeholder engagement methods. 

 

So, the old view of business enterprise argues that triple bottom line focus distracts  business from honing its core competencies ; the new view argues that a business’ core competencies must be integrated with a comprehensive stakeholder identification and engagement process to ensure long-term return on capital investment.

 

 

What Exactly Is a ‘Stakeholder’?

 

From a corporate perspective, a stakeholder is any like-group of individuals who have (or believe they have) a ‘stake’—either positive or negative—in business operations, products, or services.

 

As the above healthcare anecdote illustrates, stakeholders operate within a system or network of stakeholders, interacting with one another both consciously and unconsciously. To begin mapping the system of stakeholders of which any company is a part, we divide stakeholders into five general terrains of operation or functionality:

 

·        Corporate

·        Workplace

·        Community

·        Marketplace

·        Environment

 

We envision these terrains in a three-dimensional sphere such that each terrain is encompassed by the next largest one. This emphasizes the interconnectivity of the terrains, each one dependent on the health and ‘wholeness’ of the one preceding. In reality each terrain is dependent on the healthy function of all terrains as one whole system.

 

We start from the corporate center of the sphere. The heart of any corporation is its mission and values, its policies and procedures for doing business, and its value proposition—i.e. what product or service is being creating. A company’s cultural values and ways of doing business are created in this terrain. A company’s culture emanates from this center and little can be done to transform activities in outer layers if there is no alignment with what exists at the heart of the stakeholder framework. Primary stakeholders in this terrain include the executive management team, the board of directors, and all shareholders.

 

The workplace is the stakeholder terrain of employees and their families, all policies concerning them and benefits that accrue to them. This ring includes employees’ feelings about their company and their commitment to their place of employment.  A company’s cultural values and attitudes are passed on and exist in this terrain.

 

Community represents the actual physical location of the place of employment, the footprint of the physical plant and its impact on the community around it. Local politics, ordinances, public affairs and the relations with a company’s physical neighbors and local government officials are part of this ring of stakeholders and stakeholder activities.

 

Marketplace is the arena of a company’s product or service; its supply chain; production processes; distribution; competitors; alliances and partnerships, local, national and international; and all industry requirements and regulations. The quality of the product is part of this circle; and the attitude or beliefs consumers have about this product. Also included are the inherent dangers for the whole ‘product category.’ Shifting values in the arena of food products, for example, would be included here—like the growing awareness of parents about the dangers of sugar consumption for children; the caution about beef purchases; or the booming demand for organic foods.

 

The environment comprises the outer sphere in our model yet provides the underlying support for and encompasses all other terrains. The environmental terrain therefore influences and affects all others. By environment we include all natural macro and micro systems and the quality of those systems: soil fertility and micro organisms; pollination; water quality and availability; air quality; availability of natural resources—minerals, timber, flora and fauna, fisheries. In short, the environmental terrain includes any natural aspect of our planet that supports life or that is a requirement for life. Stakeholders in this terrain are comprised of all the advocacy groups that represent or speak for the natural processes of the earth, its systems, materials, and habitats.

 

Each one of these five terrains define a stakeholder territory and represent a grouping of stakeholders. Stakeholders from all five terrains together interact to produce a ‘family or network’ of stakeholders that reflect the real marketplace for any single company.

 

In the old view of business—companies must serve shareholders first because they provide the capital essential to start and develop the company. But without satisfied customers, shareholders won’t receive a sufficient return on their investment. Without satisfied employees, product quality will suffer, customers will flee, and shareholders won’t receive their return. If the community isn’t served, controls will be imposed on the company from the outside, costs will rise, customers will complain, and shareholders won’t see their return. If interest groups aren’t served, lawsuits, regulations, and publicity will drive down support from customers, employees, and the community; and shareholder return will suffer.

 

Thus, the real marketplace in the current environment is the interaction of stakeholders from all five terrains.

  

What drives change within this network of stakeholders for any particular company is feedback. In the free market, in nature, and in every living system, feedback is the catalyst that drives innovation and improvement through adaptation. Companies savvy to these new requirements for business know they must serve not just shareholders but an increasing array of stakeholders by listening and adapting to stakeholder feedback.

 

Companies that fail to get feedback from all voices in their stakeholder network will fail to adapt. For Future 500, stakeholder engagement means gaining feedback from every stakeholder category in a company’s marketplace. This feedback drives adaptation, innovation, and improvement that builds support from employees, customers, and communities, and drives returns to shareholders. The process of identifying the correct network of stakeholders for a given company, gathering feedback from these stakeholders, and creating strategic engagement activities is the subject of the second part of our article.

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Quick Links

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The Future 500 provides powerful tools in Corporate Stakeholder Engagement, Metrics, and Reporting.  Here are quick links to our most popular offerings, to Maximize Return to Stakeholders at the World’s Leading Companies:

To End “Survey Fatigue” and “Headline Headache” – The CAP Gap Audit

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Member News

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Cargill Dow's Nature-based Packaging Ringing Up Retail Sales "Fresh Packaging" Boosting
Grocers' Sales of Perishables and Prepared Foods

"Fresh-in-natural" marketing is boosting perimeter sales for a new crop of retailers using
NatureWorks(tm) PLA packaging in their fresh food aisles.
 
Made from 100 percent field corn, NatureWorks PLA offers the interesting brand story of a clear, "nature-based" package for fresh and natural foods.

A number of U.S. and European supermarkets are now capitalizing on the unique appeal of the made-from-corn containers to bring attention to delicatessen, bakery, dairy and produce items.

"NatureWorks PLA is a retail reality - it is on store shelves at several major grocery retailers, and these early adopters are finding the packaging to be an effective marketing tool for generating
department and item sales," said Lisa Owen, global business leader for rigid packaging, Cargill Dow LLC.  "The 'fresh-in-natural' concept speaks to consumers' aspirations to do something better for their families and the environment. Consumers seem to feel good about food inside a natural package, viewing the entire offering as more fresh and wholesome."

Leading the trend toward nature-based packaging is Wild Oats Markets, which last year was the first North American retailer to launch NatureWorks PLA packaging in its Portland, Ore. stores. In the first
three months of the packaging's debut, Wild Oats experienced a 4 percent jump in deli sales.
Customers' tremendous response to the packaging led Wild Oats Markets to expand NatureWorks PLA throughout the fresh market departments of its 77 stores.

This spring, a number of U.S. food retailers began using NatureWorks PLA, which has exponentially increased the retail presence of the nature-based packaging:
 *    Farm Fresh Supermarkets, a SuperValu company with 35 stores in Hampton Roads, Va., offers two-sizes of cold food containers for shoppers to fill up at their salad bars;
 *    Natural foods retailer Earth Fare, which has nine locations throughout the Southeast United States, packages produce, bakery and deli items in NatureWorks PLA;
 *    In the New York City area, specialty retailers Citarella, Garden of Eden Gourmet, Market Basket and Turco's serve up their gourmet "to-go" fare, and fresh produce and baked goods in the containers from corn; 
  *    Ellwood Thompson's Natural Market, Richmond, Va., packages all ofits in-store deli items in NatureWorks PLA. 
 
In addition to these U.S. retail locations, cups made from NatureWorks PLA will be used to serve lemonade this summer at the National Mall in Washington, D.C. The National Mall's foodservice
supplier Guest Services debuted the cups at the grand opening of the World War II Memorial over the
Memorial Day holiday weekend, and expects to use more than 200,000 cups
during the summer season.
 
Retail interest in nature-based packaging is also strong in Europe. For the U.K. and Irish retail markets, packaging manufacturer Europackaging recently introduced a full-line of packaging items from NatureWorks PLA, including a notable product extension - merchandise carrier bags. Europackaging is the first company to offer blown-film bags made of the nature-based material for
both general merchandise and luxury shopping bag applications.

Fresh Selection of Packaging Ideas
Available in both disposable containers and film, NatureWorks PLA is targeted for packaging salads and other cold deli items, sliced meats and cheeses, baked goods like cakes and cookies, and
other fresh foods. In addition, NatureWorks PLA can be used for disposable tableware items such as cups, bowls, cutlery; and film carrier bags.

"In fresh market aisles like the deli and bakery, branded packaging is an important element in creating value-added products that command interest and loyalty from customers. This is where cutting-edge
packaging technology like NatureWorks PLA can give you the advantage. Nature-based packaging is a simple - yet effective - way to take products beyond commodity items, and stand out at the point-of-sale," Owen said.
 
About NatureWorks
The NatureWorks brand is capturing shoppers' attention and loyalty as they seek to provide natural, wholesome and convenient meal solutions for their families. Consumers prefer fresh foods in the 100
percent corn-based packaging because it offers all of the convenience of traditional packaging
while helping reduce environmental impact. For more information about NatureWorks PLA, please visit the Web site www.natureworkspla.com.

NatureWorks and the EcoPLA design are trademarks of Cargill Dow LLC

NEW MEMBER WELCOME

We are pleased to announce Hewlett Packard as our newest Future 500 member.  HP is a leadership company in the area of corporate sustainability.  We look forward to partnering with HP to extend and support their efforts.  Look for exciting projects to come!

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