What is stakeholde engagement?

Global Historical Context

Whether they like it or not, companies are part of an ecosystem and, increasingly, will not be able to survive unless they acknowledge that they are interdependent with other « species » of this ecosystem; and unless they are willing to cooperate with them. In a social and environmental context that will become even more complex in the next decades, corporations, and human organizations more generally speaking (including state-owned companies, public authorities and governments), will need to open up, way beyond what they can imagine today, in order to solve the new problems they will be confronted with.
It is true, though, that in many ways, stakeholder engagement is not a new practice. Successful businesses have always needed to understand and respond to the opportunities and risks posed by employees, customers, suppliers and host communities. Interaction and dialogue with stakeholders is something most companies already do through diverse processes located within marketing, public affairs, investor relations and day-to-day management. What is new is the focus and strategic importance now being given to stakeholder engagement, in the particular context of corporate sustainability, for several reasons:
  • Companies facing diverse and sometimes difficult markets, increasing scrutiny and rapidly evolving demands recognise that engaging more effectively with stakeholders pays off in knowledge, innovations in products, processes and strategy, reputation, relationships and 'license to operate'.
  • Furthermore, as social and environmental issues traditionally seen as outside of the business remit are becoming critical factors to long-term business success, companies are seeking new ways of engaging with stakeholders to respond to these challenges.
  • Historical means of formal engagement such as investor road-shows, site-specific consultations and employee dialogue and negotiation have long been institutionalized through policies, agreements and regulation. But these mechanisms have struggled to respond to evolving challenges: as new groups of stakeholders demand to have their say, and as more familiar stakeholders seek to influence decisions not previously considered material to them, experimental approaches to engagement are emerging.
The current landscape of stakeholder engagement is therefore a bewildering display of diversity. Engagement ranges from online surveys to on-going partnerships, covering particular issues and sites, the quality and scope of annual corporate reporting or the future direction of overall business strategy.
It can operate on different rungs of the 'ladder of participation' from gathering information, to consulting, to involving stakeholders directly in decision-making. Different approaches to engagement have been developed to meet different needs and constraints. There is increasing agreement that an inclusive approach to stakeholders is critical, not just to credibly meet their demands to be heard, but also to drive learning, innovation and performance within business. It is clear that for businesses to make sound decisions they need to heed to the signals that their stakeholders are giving them on issues which can materially affect the business. They therefore need processes that ensure that emerging social issues are discussed at the highest levels as of corporate governance well before they become problems. Important instruments such as The OECD Principles on Corporate Governance, AA1000 Stakeholder Engagement Standard, the Global Reporting Initiative G3 Guidelines or more recently ISO 26000, all emphasize the core principle of inclusivity: organizations should identify, listen to and account to stakeholders in taking decisions.
This being said, most companies today are still focused on getting their message out and "controlling" what is said about them, rather than on candidly harnessing what they get back from their stakeholders to solve the enormous challenges ahead of them. But stakeholder information and communication is slowly evolving to stakeholder engagement, to cooperation with stakeholders and in rare occasions to the involvement of stakeholders in innovation projects or more formal corporate governance. In the years and decades ahead, this new paradigm of open and collaborative work on sustainability will undoubtedly be key to build corporate resilience – a healthier approach to economic adaptation than survival of the fittest. Indeed, all companies and organizations will need to improve their capability to cope with emerging issues, economic downturns and disruptive competition.

About this project

This online platform aims at mapping and tracking the diversity of corporate practices related to stakeholder engagement, in all its already traditional but also in its most innovative forms. It builds on "Critical Friends", a report that Utopies co-produced in 2007, with AccountAbility, on stakeholder panels: at that time, stakeholder panels (link: what are stakeholder panels - glossary) were seen as an increasingly important means of stakeholder engagement, helping companies advance beyond a defensive or compliance approach to social and environmental issues to one of understanding strategic opportunities and risks. Based on research and case studies, the report explored how panels help companies and their stakeholders step off the 'more information' treadmill onto a 'more trust' pathway - turning distrustful opponents into critical friends.
Since then, companies worldwide have continued to use panels and to explore the many possibilities of stakeholder engagement to help them understand and respond to emerging social and environmental issues, as well as to increase the credibility and the pace of their sustainability approach. This approach has spread in various countries, including emerging ones like Brazil (which has a specific focus on this platform, with dedicated case studies and context paper). In the meantime, certification bodies, in their efforts to standardize corporate responsibility with the launch of ISO 26000 in 2010, have confirmed the importance of stakeholder engagement in defining and implementing a sustainability business strategy. Interestingly too, some companies like Marks & Spencer or GE, embarked on a transition from corporate responsibility to sustainable business, have pioneered new forms of stakeholder engagement to get advice on how to deal with the challenges and dilemmas of such a transition.

Figure #1

In the same way as sustainability is increasingly being integrated in many companies' core businesses (figure#2), stakeholder engagement practices have shifted from just mapping and listening to stakeholders, to sharing the company's CSR strategy (even on sensitive issues), and now to collaborating and co-creating with stakeholders (figure#3). These new engagement practices are adapted to each company's needs as they seek to increase the level of involvement of their stakeholders even as it relates to the company's innovation, supply chain, human resources practices. As a result, through such relationships, companies are bound to become more open towards their stakeholders by way of revealing sensitive R&D or commercial information.
What is evident with this new trend is the variation of practices and that have recently emerged (which we intend to keep track of!). Every engagement method has it benefits and shortcomings as such, there is no generic ranking of practices in engaging stakeholders. What is important is identifying / designing tailor-made stakeholder engagement methods that will be instrumental towards improving each company's corporate responsibility strategy (for additional information click on Tools and Cases studies).

Figure #2

Figure #3

Historic and emerging trends in Stakeholder Engagement

The emergence of multiple engagement methods has laterally impacted the breadth of stakeholder relationships (figure#4). Companies define their stakeholder engagement strategy by balancing their global vs local issues, their strategy vs operational concerns and their broad perspective vs their issue-specific focus. They also need to pre-define the adequate level of exposure/confidentiality, as well as their willingness to use new technologies vs classical meeting room round tables or one-to-one meetings.

Figure #4

  • Global stakeholder panels: a typically formalised yet evolving "headquarter practice"
At head-office level, many companies (see figure#1) are experiencing a Global Expert stakeholder Panels. This trend has definitely become part of any robust CSR strategy in Europe, USA (and to some extent in Brazil, as well as in other countries). Companies like BT, GE, Lafarge, or Shell have now been experimenting this form of stakeholder engagement for more than 10 years. Some of them are thinking about the ways to reshape their panels in order to keep it alive, others are expecting panels to reach higher levels of impact on governance and decision-making. In any case, even in the very specific stakeholder panels context, the lines are moving. New comers like Danone, Expanscience, Natura, Nextel, Itau,etc…, are benefiting from the experience of historical pioneers and from the knowledge that has been shared on this practice.
  • Local stakeholder engagement: an effective tool to improve licence to operate
Multinational corporations are increasingly developing sophisticated local stakeholder engagement practices, as they are increasingly being confronted with local issues related to very specific social or environmental situations. Local stakeholder engagement practices (BP, Suez Environnement, BP Biofuels, …) are designed to help build the local "licence to operate" for a given field project - by involving local communities into the governance of the project or at least in the initial definition of the project. Ignoring this can be costly: in 2009, a coalition of 140 NGO had succeeded in stopping a deep-sea sands extraction project of Lafarge and Italcimenti… On a contrary note, Shell having involved local communities on its gas pipeline project in Philippines, (Malampaya) estimated that it saved between 50 and 72 millions euros on avoided costs related to project delays and to legal disputes…
In some countries, local stakeholder engagement is mandatory for projects of building infrastructures and works. In France for instance, a 1983 law about the extension of public inquiries and the protection of the environment requires that environmental impact assessments are conducted and that local population is informed and consulted / able to express views and concerns, so as to ensure that the public interest is taken into account.
Some other local stakeholder engagement practices aim at improving companies' indirect CSR performances as it relates to supply chain practices and suppliers relationship management. Such practices generally involve local subsidiaries of multinational companies (Alcoa, Walmart,…) and their local suppliers. The latters are offered tools as well as support assist them with tracking their use and impacts on natural resources (energy, water) while reducing their operational costs. With this in place, companies can, in turn, increase their knowledge on their supply chain while improving on their suppliers' loyalty – a move that can be highly strategic.
  • On-going partnerships, covering particular issues and sites
Some companies have historically chosen to further engage with stakeholders via specific partnerships with high-profile advocacy NGOs in order to draw on their skills, knowledge and networks add to the credibility of their corporate responsibility strategy and stimulate progress on a specific issue or region. Such partnerships include, for example:
  • The environmental NGO WWF has partnered with several companies since 2000, under its 'Climate Savers' programs which negotiate CO2 reduction targets.15 Companies involved include Lafarge, Johnson & Johnson, IBM, Polaroid, Nike, Tetra Pak and AEG. WWF work with the firms to support the implementation of their reduction plans, and emissions are monitored and externally audited each year. Some companies, such as Lafarge have extended the partnership to other environmental issues (biodiversity, toxic pollutants…).
  • The development NGO CARE has co-developed corporate programs with various companies, including Lafarge, EDF, Sanofi-Aventis, Starbucks and Thomas Cook, to help them tackle poverty related issues in their scope of influence such as HIV/AIDS, access to medicine and local economic development in emerging countries. The companies agree upon annual objectives with CARE and are supported in the implementation of their programs through connections to the NGO at field, regional and group-levels.
  • Amnesty International Business Group has partnered with several companies including Casino and ST Microelectronics (in France) to deliver a critical eye on their corporate policies and suppliers audit schemes.
  • Rainforest Alliance has developed specifications, audit schemes and 'sustainability labels' for several companies including Chiquita and Kraft Foods.
Such partnerships also include framework agreements that have emerged since the beginning of the 1980s between multinational corporations and international trade unions to negotiate commitments with the company and co-monitor progress. In 2006, the European Commission identified 91 international voluntary agreements, 48 of which were global. The companies' commitments historically focused on labor rights (inspired by the OECD principles and ILO core standards), but increasingly include more precise and wide ranging commitments on other aspects of corporate responsibility and put the emphasis on co-monitoring, including the release of annual statements on progress.
Employee Volunteerism partnerships are another example. As part of both Human Resources and Corporate Responsibility programmes, such partnerships aim at involving employees in community volunteering actions on topics such as poverty alleviation, environment cleaning days, elderly people support, etc. Axa, Timberland, BT among others, have launched such programs and identify a number of positive outcomes related to employee motivation and loyalty and team-building.
  • Co-innovation: involving stakeholders to develop innovative products, solutions, tools closer to their needs
Companies such as Lego, General Electric, Unilever, Nike, Walmart and M&S design stakeholder engagement practices focused on innovating jointly with their stakeholders to stick to their needs, better understand them and offer customized innovative products / solutions. This kind of practices sometimes require increased transparency between companies and the stakeholders involved as they are given access to R&D sensitive information or confidential production areas in the company.
But co-innovation with stakeholders may also take the form of developing new sustainability-related tools and methodologies aimed at improving assessment and disclosure of sustainability performance, so as to improve the quality of information provided to stakeholders and to help them make informed decisions about the company. We have included in that category several examples of stakeholder engagement/partnership in order to produce industry - or issue-specific - environmental and social frameworks (Caisse Nationale des Caisses d'Epargne, Delphis/EurhoGR, RSPO, Kimberly Process (governments and civil society)).
  • Co-lobbying: useful to address sensitive topics where stand-alone positions are not an option
Some companies join forces with their stakeholders in order to have greater influence on local standards at an international level. Using co-lobbying, oil and gas companies, have created the EITI initiative, which is quite a unique case of a multi-stakeholder and constructive initiative aimed at lobbying governments to create a level playing field for companies operating in the extractive industry and effecting change in areas of policies towards transparency on transactions between the governments and companies in this industry. It is pertinent to note that adopting co-lobbying to pursue the initiative's goal was critical as one company taking such a position alone, would have to risk being excluded from the market.
  • Stakeholder governance: a seldom but inspiring practice that often appears under regulatory pressure
In some specific cases stakeholders other than those representing the interests of investors are given decision-making influence through seats on the Board of Directors: the most well known cases are in Germany, where large corporations should have half of their Supervisory Board composed of employee representatives. Japanese corporate governance presents a similar picture with employee representatives making up between a third and half of many Boards. In economies still strongly influenced by the legacy of state-ownership such as France, employee representation on the Board of Directors is common. State-owned Enterprise (SOE) Boards include representatives of employees and user groups.
Since 1995, a European Directive also makes European Works Council mandatory for companies with at least 1000 employees within the EU and at least 150 employees in each of at least two Member States. These councils composed of elected employees representatives meet at least once a year with the top management. According to the Directive, companies are supposed to consult the council on major business decisions. They have no bargaining role, but can challenge the management for withholding information. In practice, many agreements focus on HSE issues, while excluding from their scope issues that are subjected to collective agreements and negotiation. Whilst implementation of the Directive has been patchy, they have been credited with improving the quality and extent of stakeholder dialogue amongst implementing companies.
Integrating stakeholders into governance and decision-making also happens in some business sectors or in some geographic areas: since the enforcement of the 2003 Borloo laws in France, private Social Housing companies (France Habitation, FSM) are required to have people representing the diversity of their stakeholders sitting on their Boards (including the occupiers or the municipalities).
In the USA, several states like California, Vermont or Maryland have voted the B Corporation (Benefit Corporation) law, designed to give businesses greater freedom to pursue strategies which they believe benefit society as a whole rather than having to concentrate on maximising profits. This effort to change the nature of business by changing corporate law is led by B Lab, a non-profit outfit based in Pennsylvania, who initially launched B Corporation as a voluntary programme (across America, there are now several hundred B Corps). To qualify as a B Corp, a firm must have an explicit social or environmental mission, and a legally binding fiduciary responsibility to take into account the interests of workers, the community, the environment and other stakeholders as well as its shareholders. It must also publish independently verified reports on its social and environmental impact alongside its financial results. Other than that, it can go about business as usual. California's B Corp legislation took effect alongside a new law creating the "flexible purpose company" (FlexC), which allows a firm to adopt a specific social or environmental goal, rather than the broader obligations of a B Corp. Another option in America is the low-profit limited-liability (LC3) company, which can raise money for socially beneficial purposes while making little or no profit. The idea of a legal framework for firms that put profits second is not confined to America. Britain, for example, has since 2005 allowed people to form "community interest companies". Similar laws are brewing in several European countries: they will undoubtedly pave the way for a more formal integration of stakeholder interest in the decision-making process and in the governance of corporations.
Along with sustainability pioneer Patagonia, Give Something Back (an office supplies company with a strong social mission embedded in its DNA) was among the first Californian companies to take advantage of the new law.

A focus on stakeholder panels : key drivers and trends

Five years after the original publication of our report on stakeholders panels, while the whole world of stakeholder dialogue is changing, we observe that stakeholder panels have, at the same time, undergone some level of standardization and invention specifically on their purpose and organisation. A few trends have become evident following a retrospective analysis of all the case studies gathered since 2007 and interviewing the people in charge of stakeholder consultation in those companies:
  1. There is an increased professionalism of panellists. The number of panels offering compensation to members have increased significantly since 2007 (Camelot, Expanscience, GE , BT, Danone), along with the level of commitment of panel members (in many cases, members meet several times a year, with a total commitment between two to four days only for meetings, excluding preparation) and some people/organisations are becoming "professional panellists" as they sit on various panels (CARE,WWF, some consumer associations,…);
  2. Geographic diversity of members is important and judged as critical to guarantee diversity of ideas and perspective (Danone, Dow);
  3. Modus operandi, terms of reference, remit of debates tend to converge towards some kind of standardized practice from one company to another. This is probably due to the exchange of best practices between companies, as well as to the influence of a little number of consulting companies supporting them on these topics. It could also be explained by the growing number of companies referring to AA1000 or ISO 26000 (which is highly focused on stakeholder engagement), even if very few companies actually mentioned those tools as standards used for their stakeholder panels.
  4. However, workshops in smaller groups (Suez Environnemen, Expanscience), one-to-one discussions (Camelot), or informal ones (GE) are a growing trend among structured strategy/ leadership panels.
  5. In some cases (BT and GE), sustainability reporting assurance panels have changed into leadership/strategy panels. This is just stressing the fact that the real thing about sustainability reporting has always been to effect strategic change, in three main ways:
    • When producing a report, companies work at identifying and better understanding ESG issues that are material to their business strategy, and this awareness-raising exercise can obviously lead to strategic decisions on some of these issues;
    • Initially, reporting was based on two assumptions, the first one being that if companies started to measure their ESG performance and track evolution over the time, they would be most likely to change their practices and strategy in order to ensure progress;
    • And the second assumption was that through disclosure, which is inherent to reporting, stakeholders would read the reports and change their decisions, thus pushing companies to further change their practices, too.
This is even more true today when deep transformation programmes are launched: companies need strong support/orientation from their stakeholders, and panels are therefore focused on strategic advice (vs reports), as M&S has for its Plan A. This trend may also indicate that reporting has lost some influence as a lever to effect strategic change.
  1. Looking forward to expanding stakeholder dialogue beyond structured panels, some companies (Lego, BT (option), Unilever, Starbucks), are exploring the use of new technologies and web solutions to reach wider stakeholder groups.

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