The complexity of markets and societies as well as economic, social and environmental challenges are putting growing demands on businesses to actively engage with all types of stakeholders. Most business organisations are now acutely aware of the role they have to play in the community, the environment and in society in general, and there is increasing appreciation that the interaction works both ways, with groups and individuals having influences on business activities themselves.
In the UK, the implementation of the Biodiversity Action Plan (UK BAP) in response to the international Convention of Biological Diversity is an example of how many stakeholder groups can become involved in decision making processes. Through the UK Biodiversity Partnership, private individuals, businesses, academic, government and non government representatives are represented on several formal bodies that work to achieve targets for establishing and maintaining BAPs.
2. What are stakeholders?
A stakeholder is any individual or group that is interested in, affected by or is involved in some way with a company – anyone who literally has a ‘stake’ in any of their activities or issues. They can include some or all of: citizens, communities, consumers, private organisations, government agencies, investors, NGOs and academic institutions. Stakeholders do not necessarily own any part of or share in the financial risk of a company.
Stakeholder engagement seeks to create partnerships and encourage constructive dialogue between all parties so that all sides can learn from and listen to each other. This does not necessarily mean that a consensus will be reached, but helps to reduce conflict, strengthen relationships and inform decision making. Involvement of stakeholders as early as possible in the process of planning and decision making is beneficial to avoid problems later down the line. The objectives of stakeholder engagement include:
1. Avoiding conflict through negotiation, mediation and collaborative learning
2. Developing a ‘Shared Vision’ that is agreed by all parties
3. Forming creative solutions that may otherwise have not emerged.
Financial shareholders are persons who literally own shares in a company. They are also stakeholders as they have an interest in the financial wellbeing of the company. Increasingly shareholders are placing demands on companies for greater transparency and accountability on environmental and social issues, becoming involved in engagement activities to help meet their requirements. There is evidence that through active involvement, shareholders will ultimately benefit from increased long-term shareholder value, and therefore increase their share in the wealth of the company.
3. The business case for stakeholder engagement
In today’s society, citizens and consumers are more aware than ever of the activities of the business sector and have developed particular expectations in areas such as business ethics, community issues and environmental concerns.
The way operations of companies affect – positively or negatively – biodiversity is increasingly important to all. Where recognition of the environmental activities and responsibilities of a company is low, interaction with stakeholders can be extremely productive and beneficial to the reputation and workings of a company, as well as ultimately improving their environmental impacts and performance.
Engaging with a broad range of stakeholders offers businesses many opportunities and benefits:
• A multi-directional flow of information can provide companies with valuable feedback on their activities and products.
• Transparency increases the credibility of a firm and their industry as a socially responsible corporate citizen in the eyes of its customers and in its accountability and assessment of conduct.
• Stakeholders can have specific and in depth knowledge and resources that can provide broader perspectives and add value to decisions.
• Association with and participation in communities can contribute to profitability, company image, expense management, employee morale and customer loyalty
• Partnerships can help companies enter new markets, attract potential employees and establish or strengthen company reputation or brand loyalty.
• Engagement allows decision making and responsibilities to be shared, therefore increasing the involvement and commitment of stakeholders.
• Studies have linked good stakeholder relations with enhanced financial performance.
There are of course some challenges to involvement; it is not always easy to engage stakeholders and the process requires time, commitment and willingness to learn by all parties in order to be effective. However, the investment of time and money in a continuous process of dialogue and compromise is ultimately beneficial, and stakeholder involvement is now frequently becoming integrated into long term business strategies.
4. How to identify and engage stakeholders
Stakeholders will be specific to each company, and also to individual projects within a company. It is likely that individuals can simultaneously belong to multiple stakeholder groups, however they generally fall into two main categories:
1. Internal stakeholders (employees)
2. External stakeholders (eg clients, finance sources, local government, NGO’s)
While many stakeholders will probably be obvious to a company, some may be less evident but just as important. Formal methods exist to help businesses identify and assess the relative importance of their stakeholders, which is an important preliminary step towards participation. Different processes of Stakeholder Analysis provide a starting point for involvement by identifying ‘key players’, noting their interests, spotting potential relationships and analysing their capacity to participate.
5. Methods of engagement
Companies that engage with stakeholders do so in different ways and to varying extents. The scope and level of stakeholder involvement may also vary for different projects. This ‘spectrum’ of engagement can range from simply telling stakeholders about the companies activities at one end, to actively obtaining stakeholder input into decision making processes at the other. Stakeholders tend to be more rigid in their opinions when not given early and frequent (or as frequent as is practicable) opportunities to provide input, therefore it may help to predetermine stages at which stakeholders can be consulted.
How can companies engage stakeholders?
• Informal meetings can create a relaxed atmosphere in which small groups of stakeholders can meet company representatives to discuss topics of mutual interest. It is important that stakeholders feel their opinions are going to matter and make a difference, therefore involving senior executives or other senior staff with sufficient authority is important to ensure effective decisions.
• Surveys and questionnaires concentrating on specific issues. These may be directed at local communities or local interest groups to develop mutual understandings and expectations.
• Create opportunities for engagement, for example set up a project in partnership with key stakeholders like communities or NGOs, or if this is not possible, keep them informed via regular newsletters or a website and give them an opportunity to comment through working groups or personal meetings.
• Some sectors have multi-stakeholder forums that companies can join in order to access key stakeholder representatives and participate in organised discussions and dialogue sessions. Partnering with NGOs such as Earthwatch or joining forums such as the Corporate Environmental Responsibility Group (CERG) offers companies opportunities to engage in constructive dialogue with their stakeholders.
Links to further information:
‘Business/NGO Engagement: How to create win-win outcomes’ London, 22-23rd February 2005. A 2-day conference with speakers from a range of companies and NGOs providing examples and techniques of how to form successful partnerships.
The Engaging Stakeholders Program, a not for profit joint venture between SustainAbility and the UN Environment Programme. It aims to provide simple management tools to company leaders and help them to better understand their stakeholders’ needs for communication and accountability and the wider implications for business.
Business for Social Responsibility’s Issue Brief papers on Community Partnerships, Shareholder Engagement and Stakeholder Engagement provide comprehensive overviews of these issues, including the business reasons for each, key developments and company examples.
There are no legal standards for stakeholder engagement, however the AA1000 Voluntary Process Standard for Stakeholder Engagement has been developed by the Institute of Social and Ethical AccountAbility and is concerned with improving accountability and performance through stakeholder engagement and learning.
The World Business Council for Sustainable Development’s ‘Business and Stakeholders’ report outlines the importance of stakeholder dialogues and has links to other sites of interest.
Photo credit: Tree planting, Tim Hall