Future 500 Newsletter
Corporate Stakeholder Engagement, Metrics, and Reporting:
Aligning corporations and stakeholders to advance global citizenship
Newsletter March 2005, Volume 2, Number 1
Stakeholder Engagement: A Three-Phase Methodology
(Part II)
by Cate Gable and Bill Shireman
Reprinted with permission from Environmental Quality Management, Spring 2005
Stakeholder engagement -- a new terrain for business -- is a process of relationship management that seeks to enhance understanding and alignment between companies and their stakeholders.
In our last article for this journal, we explained the importance of stakeholder issues for today's organizations. In this article, we outline a three-phase stakeholder engagement process.
These phases (and the steps or tasks that comprise each phase) build a sequence of activities that can create the foundation for an effective stakeholder engagement process, guide the business strategic planning agenda, and increase a company’s ability to be robustly competitive in a changing business environment.
Background: The Importance of Stakeholders
As noted in our previous article, today’s companies serve not only shareholders, but an ever widening array of stakeholders -- including employees, customers, community groups, governmental regulators, and environmental advocacy organizations. Their concerns span sustainability's "triple bottom line" of financial, social, and environmental objectives.
Understanding how to operate in this increasingly challenging stakeholder environment will be crucial to companies' business success in coming years.
The Future 500
The three-phase methodology outlined here was developed with, and is utilized by, key members of The Future 500, a not-for-profit network of corporations and professionals that develop and apply tools of stakeholder engagement.
Future 500 companies are members of a network that includes organizations and professionals in the
Overview of the Stakeholder Engagement Process
The three phases of the stakeholder engagement process are the following:
· Phase One -- Internal Preparation. Find the right leader; build/train your team; measure your company’s baseline performance and the public's perceptions of your performance.
· Phase Two -- Stakeholder Mapping and Strategic Planning. Inventory your stakeholders; map stakeholder roles to business objectives; analyze the results; draw the results together into a strategic plan.
· Phase Three -- Stakeholder Engagement. Execute against your stakeholder engagement plan to reach business objectives; measure and monitor results; communicate results appropriately.
For a company’s stakeholder engagement process to truly succeed, each phase must be accomplished and a full commitment to comprehensive action must exist at the highest levels of the organization.
Stakeholder engagement is a process. It is a systems approach to doing business and, because of that, it is transformative rather than merely tactical. The steps that comprise the three phases, and the many overlapping tasks, create (as in any system) a whole that is greater than the sum of the parts.
Phase One: Internal Preparation
The first phase of the stakeholder engagement process involves internal preparation, including building a stakeholder team, and gaining knowledge about your current performance and the public's perceptions of your performance.
Build Your Internal Stakeholder Team
Internal Company Leader
A company’s stakeholder efforts require a carefully selected internal leader, generally at the director level or higher. This leader should be someone who:
- is respected among a broad range of managers,
- has credibility with the company’s management team,
- is not afraid to speak honestly about consequences, and
- is able to deliver bad news or bold recommendations if needed.
In our experience, this leader will be an excellent communicator from one of the following departments: public relations, corporate communications, human resources, corporate affairs, or investor relations.
The best leader for stakeholder initiatives must be a nuanced thinker (not someone who sees the world in black and white) and should be seasoned in conflict resolution and negotiation. He or she should be an agent for change, a change enabler -- not someone who is change-averse or who likes to keep tight control of a situation or simply support the status quo.
It is extremely important that this person understand the business intimately. He or she must have a broad understanding of key issues and controversies, pending litigation, and regulatory constraints, as well as a thorough knowledge of the marketing side -- branding, messaging, vision, and mission.
The chosen leader also must be well connected with key personnel within the firm -- someone who "knows who to know" and how to get things done. Ideally, this leader will report directly to the CEO.
Stakeholder Team
Equally important is the make-up of the stakeholder team. For best results, a team should contain representatives from the major departments within the corporation:
· marketing,
· communications,
· operations,
· environmental and government affairs,
· human resources, and
· investor relations.
A clear chain of referral to the directors of each represented department should be established in the event of a crisis.
Avoid Raising Expectations to Unrealistic Levels
One strategic error that companies sometimes make is to believe the myth that engaging with stakeholders will make all its problems go away. The reality is that sometimes stakeholder engagement can make matters worse initially, especially if preparation for this new kind of engagement has not been thorough.
If stakeholder engagement increases expectations to unrealistic levels, demands may simply escalate. Or if the wrong set of stakeholders has been engaged, strategic traps and unexpected consequences may derail an otherwise sincere effort.
An example of this phenomenon would be Chairman Bill Ford’s sustainability commitments to environmental leaders. As CEO of Ford Motor Company, his initial bold vision came back to haunt him when he was later forced to backtrack in the face of market realities. In the aftermath, environmentalists mounted a national campaign against Ford based on unmet expectations.
Ford has one of the best environmental records among leading American auto manufacturers. But the stage was set for disappointment. Expectations were raised that were not met. And despite Ford’s high level of corporate responsibility, the company took a beating on environmental issues in the media.
A visionary at the head of a company who understands environmental and social issues is essential for a comprehensive and aggressive stakeholder engagement process, but the leader’s visions can handicap a stakeholder engagement effort if they get out in front of the process.
Get the Proper Training
A company should not undertake a comprehensive stakeholder engagement process without proper training in several key areas:
· stakeholder research,
· effective communications,
· negotiation and conflict resolution,
· risk/crisis management,
· media relations, and
· stakeholder dialogue techniques.
It is worth repeating here that creating an environment for effective stakeholder relations is a system: Every aspect of the system needs to be in place at once.
Expect the Inevitable Missteps
Stakeholder engagement training is extremely important because things will go wrong. No company finds that its entry into stakeholder engagement proceeds without a hitch. Stakeholder engagement is not a hard science. It is a new way of doing business, and missteps will be made.
Perhaps it is useful to think of stakeholder engagement as a new product in development: The process will need to be tweaked, and the design enhanced, as the product/process matures.
No company would consider launching a next-generation product without training its product development team in the latest manufacturing techniques, using materials specifications that have been checked and re-checked, and putting the product itself through beta testing. The same kind of attention to detail is needed to create an effective stakeholder engagement process.
Measure Your Performance and Stakeholder Perceptions of Your Performance
It is important to establish a baseline indicating how your company is currently perceived by its stakeholders. First, however, it is critical to make the distinction between "performance" and "perception."
Performance Versus Perception
Performance is a verifiable fact. It refers to the actions your company has taken with regard to specific policy standards and procedures. For example, a standard might require a policy statement regarding supply chain partners and their selection. Your company either has this particular policy, or it doesn’t. If it does, you simply reference the document, or post it on your website if appropriate. Performance regarding implementation of a particular policy is a matter of internal verification and external communication.
Perception is an external matter. Measuring public perception is a discovery process that seeks to find out how stakeholders with various perspectives, outside of your immediate company, view your performance.
Performance and perception of performance are both aspects of a company’s stakeholder baseline. They often do not align, however. For example, your company may have a procedure on fair labor practices and may actually comply with this procedure. But for purposes of measuring public perception, the key question is: Who knows that you have this procedure in place?
We have seen many cases where companies' performance and the perception of their performance are polar opposites. One Future 500 member enjoys sterling performance as measured against the major corporate social responsibility (CSR) and socially responsible investing (SRI) standards now in use. However, it has had a long-standing cultural value that a company should be “caught doing good” rather than boasting about it. In addition, during one particular time period, the company was the subject of several negative news stories concerning isolated labor issues. As a result, the external perception of this company’s current performance as a corporate good citizen has been well below its actual performance.
On the other hand, if the perception of a company’s performance is quite high among members of the public or in the media, while measurements of its actual performance are low, then the company likely has risk management problems that may be exposed when a robust stakeholder dialogue begins.
These kinds of perception-performance gaps are an indication that work must be done internally before a full-fledged stakeholder engagement process can begin in earnest. These examples also illustrate why it is important to measure both performance and perception.
Negative Perceptions Can Do Damage -- Even If They Are Inaccurate
Another myth of stakeholder engagement is, “If bad news isn’t true, it can’t hurt us.” This is quite false, of course. Bad news, if not countered aggressively and quickly with counter-posing examples, can be detrimental to a company brand for a long time. Bad news is hard to clear up, and takes much longer to fade from the consumer’s memory than does good news.
Ford is still suffering from its mishap with over-stated environmental aspirations. And Nike, despite years of instituting new policies and procedures in its overseas plants, may never hear the end of the attacks on its labor practices. Exxon's
So, given the importance of both performance and the perceptions of that performance, how does a company go about measuring these things?
Corporate Performance Standards
Performance can be measured in a variety of ways. Because this is an evolving field, there currently is a proliferation of standards for corporate performance that have been put forth by organizations promoting CSR and SRI. The major organizations and standards include:
New York Stock Exchange (NYSE) section 303A, corporate governance standards
· Goldman Sachs best practices recommendations
· Malcolm Baldrige National Quality Award
· Global Reporting Initiative (GRI)
· Social Accountability 8000 (SA 8000)
·
· International Chamber of Commerce (ICC)
· Business Council for Sustainable Development and Corporate Governance Principles
· Dow Jones Sustainability Index
· FTSE4Good Index Series
· Global Sullivan Principles
· Domini Social Investments
· Calvert Group
· UN Global Compact
· Coalition of Environmentally Responsible Economies (CERES)
· Caux Round Table
· Smart Growth Network
· Other indices and organizations such as the AA1000 Framework, Business in the Community (BITC), the Interfaith Center on Corporate Responsibility (ICCR), the Organisation for Economic Co-operation and Development (OECD), and Innovest
With this array of standards (including some that change yearly), a company can quite quickly experience what we call "survey fatigue." Each survey, comprehensively completed, can cost a company ,000 to ,000. This can quickly sap a CSR official's entire annual budget.
CAP Gap Audit™ Tool
To remedy the problem of CSR/SRI survey fatigue, The Future 500 has developed a tool known as the Corporate Accountability Practice (CAP) Gap Audit™. The CAP Gap Audit™ is a "meta-tool" that uses an Excel-based software platform to consolidate the criteria of the 17 leading standards into one easy-to-use 195-point survey that ranks corporate governance, accountability, quality, social responsibility, and environmental sustainability. (We plan to discuss the CSR/SRI environment and the Future 500 approach to these standards in more detail in a future issue of this journal.)
Choosing a Performance Measurement Method
To measure performance, a company can either choose a particular standard to follow, or create a hybrid standard for its own internal use, or employ an audit tool such as CAP Gap™ that rates a company against a range of standards. Measuring with one of these methods can give a company a baseline performance indicator on its CSR/SRI health.
Measuring Perceptions of Performance: Selecting Opinion Leaders
In the Future 500 methodology, measuring perceptions of performance begins by selecting key opinion leaders in each of the five stakeholder categories (see Exhibit 1 for a graphic depicting these categories):
· Corporate Governance: Shareholders (traditional, institutional, and socially responsible)
· Workplace: Executives, employees, contractors, and supply chain partners
· Community: Local government representatives, neighbors, and local entrepreneurs
· Marketplace: Competitors, other suppliers, and consumers
· Environment: Advocacy leaders for natural resources and systems
Measuring Perceptions of Performance: Surveying Opinion Leaders
Once the opinion leaders have been selected, they are surveyed on a series of questions. The survey is devised to generate numeric responses to queries touching upon overall company reputation, trust, and performance in key areas.
The numeric scores are compiled and mapped into a four-quadrant matrix that indicates the opinion leaders' ability to impact the business (from low to high) and their perceptions of the company (from positive to negative). See Exhibit 2 for a depiction of the matrix.
Completion of Phase One
The metrics for both performance and perception of performance create a baseline that future stakeholder engagement activities will be measured against.
Once the internal foundational work is completed -- the stakeholder team leader chosen, the team members selected and trained, and baseline measurements of performance and perceptions of performance completed -- the stakeholder analysis and planning phase can begin.
Phase Two: Stakeholder Mapping and Strategic Planning
The company now is ready to work toward a strategic plan for stakeholder engagement.
This is where companies often get into trouble. The reason is not so much poor planning. Rather, it frequently is a lack of any planning at all. Too often, company stakeholder engagement processes are ad hoc. Companies learn their lessons in real time. And this is a problem.
It is useful to begin the planning process with a map of the company's stakeholder relationships. Until recently, stakeholder mapping was an esoteric process with questionable utility. Most stakeholder maps were complex diagrams that showed a confusing array of stakeholders, with lines connecting them in a chart that resembled a food web in a complex ecosystem. Such maps are interesting academic exercises and can lead to fascinating insights, but they make poor planning tools.
Stakeholder Mapping and Planning in Eight Steps
Through shared experiences, Future 500 companies have now developed a systematic eight-step approach to mapping and planning that is clearly tied to company business objectives and stakeholder engagement methodology. It is a core tool for effective stakeholder engagement planning.
This stakeholder mapping approach diagrams the relationships between a company and its stakeholders, and helps drive program planning and implementation in order to advance the company’s business objectives by also advancing its stakeholders’ interests. The map can be generated using simple software that captures the eight-step process.
Step 1: Set Clear Business Objectives
The most important action at this stage is to outline clearly the company’s status-quo situation and its business objectives so that these can be layered on top of the stakeholder research and analysis.
It is this crucial step that begins the process of building a stakeholder engagement plan that responds to key business goals, something that is all too often left out of "fuzzier" stakeholder engagement procedures. Identifying business objectives adds an element of critical focus to the planning process and allows a company to select the right stakeholders and strategies for its stakeholder engagement program.
Some mapping processes focus on stakeholders, but leave out the business needs that are critical to the success of a stakeholder engagement program. If the business does not survive, the systems it supports --community and environmental health initiatives, local employment opportunities, goods and services provided to customers -- cannot be sustained. The modes and strategies of stakeholder engagement ultimately must support key business objectives.
A business cannot sustain society if it does not sustain itself. A sustainability program that runs counter to the company’s interests, or which does not advance them enough relative to the costs involved, will be dropped the next time the company faces tough economic times. Sustainability programs must themselves be sustainable because they are too important to lose.
Step 2: Inventory Your Stakeholders
The research the company has completed up to this point will indicate the organization's baseline in terms of performance, perceptions of performance, and business objectives and direction (where the company wants to go).
To enable practical planning, the Future 500 mapping process begins by defining the stakeholder universe, the geographic scope of stakeholders, and the type of stakeholders to target: Is the stakeholder universe local, national, or international? What types of stakeholders should be included? Those focused on policy? Direct action? Those with a large national membership or only local affiliates?
Once the stakeholder universe is defined, the company compiles a list of stakeholders that it believes can positively or negatively affect attainment of the company’s goals and objectives. The Future 500 then supplements this list by accessing as many as seven private and public databases containing thousands of stakeholder groups, each profiling a particular mix of stakeholder types and information. Typically, a list of about 200 to 300 stakeholders relevant to a particular company’s business is established.
Each stakeholder is then further categorized into three sectors of influence -- technology, policy, and marketplace.
· Technology stakeholders either support the company's technology (in the role of, for instance, suppliers) or compete with it (as substitute technologies).
· Policy stakeholders influence the regulatory environment that supports or impedes the company's business.
· Market stakeholders influence the marketplace to support the company's business (through, e.g., favorable press) or impede it (through activities such as boycott or shareholder action).
Step 3: Set Strategic Priorities
In this step, stakeholders are further categorized and prioritized according to each company business goal or objective.
Stakeholders are designated as “supporters," "neutral/mixed," or "opponents” in relation to the company’s goals and objectives. They also are ranked from low- to high-priority depending on the stakeholder’s potential influence on the company.
A majority of stakeholders usually will be categorized as “neutral/mixed” toward the company because their relationship to it is not clearly supportive or opposed. Most stakeholders also generally are considered to be low priority because the number of stakeholders with a high potential to influence the company typically will be limited.
Step 4: Build Your Stakeholder Database
In this step, each stakeholder is further defined based on the collection of several categories of information, such as:
· stakeholder description
· contact information
· geographic focus (local, national, or international)
It is also important to define how stakeholder groups relate to one another. By doing so, the research team will begin to uncover the “chain of influence."
Some larger non-governmental organization (NGO) foundations fund other, smaller organizations. Often the larger NGO has a more conservative appearance among the mainstream public, while the smaller groups funded by the NGO will be fleet-footed advocacy organizations with a more radical agenda. Sometimes organizations partner with one another to play the roles of "good cop/bad cop" -- sharing information and even goals, but using different, complementary tactics in the marketplace.
Finally, stakeholders should be categorized according to organizational type. While most stakeholder groups likely fall into one of the following categories, others may be hybrids that cut across more than one category:
· Research/Academic
· Litigation
· Policy
· Direct Action
· Shareholder Action
· Corporate
· Media
· Membership-based
· Foundation/Funder
· Professional Network/Alliance
· Government
Step 5: Prepare Stakeholder Maps
At this point, the company will be ready to create stakeholder maps. The initial map that is constructed generally proves effective for brainstorming long lists of stakeholders, and that is how we use it with Future 500 companies.
The primary form of stakeholder map we use charts the path from the status quo to the company’s business objective. Along the path, it diagrams the firm’s priority stakeholders, categorized by the sectors they influence: technology, policy, or the market.
By clicking on any stakeholder listed on the map, additional maps can be created, illustrating the dynamics among various stakeholders. One example where this can prove useful is with respect to the "chain of influence" discussed in step four. Some stakeholders may be major funders or customers. Others may be political allies. Still others may be technology partners or competitors.
Step 6: Select Modes of Engagement
Once stakeholder mapping has been completed and a clear picture of who exists and how they relate to one another has been made, the company can begin strategizing on what kind of engagement is best suited to each of the various stakeholders identified.
Exhibit 3 illustrates possible modes of stakeholder engagement, with sample actions appropriate to each mode. The modes of engagement are listed in order of increasing complexity.
The simplest engagement mode (tracking) requires only the monitoring of various stakeholders, and hence is not particularly time- or cost-intensive. By contrast, the most complex engagement mode (networking) often requires companies to invest significant financial and human resources. One example of a networking organization is the World Business Council on Sustainable Development. Companies contribute significant amounts of money to the Council, and volunteer their senior executives to various Council working groups.
For each stakeholder inventoried, a proper engagement mode is assigned. For example, a company might wish merely to track a group that is opposed to them, rather than collaborate with such a group. Or the company might wish to leverage the expertise of a group or governmental agency, in which case they might partner with them.
The number of stakeholders assigned to each engagement mode should be inversely proportional to the engagement complexity of the mode. For example, a company might track hundreds of stakeholders, but partner with only a few.
Step 7: Prioritize Project Options
With a proper engagement mode assigned to each stakeholder, Future 500 facilitates a brainstorming process to create a list of existing or desired company projects that will encompass each mode. For example, for the “inform” mode, a company might employ several projects, such as an email newsletter, direct mail, or targeted media outreach.