In a world that is increasingly connected, businesses need to rethink how they manage relationships – the social capital that drives long-term sustainability. While stakeholder engagement is advocated as an essential process, and endorsed by all leading sustainability and governance codes and standards, it is often poorly implemented as a strategic business tool. In the second EY Trialogue sustainability forum, panellists and attendees discussed why this is so and how companies can work towards better business outcomes while building stronger relationships with key stakeholders.
- Steven Lenahan, Consultant – sustainability in mining
- Shaun van Biljon, Vodacom investor relations
- Ralph Hamman, Professor – UCT Graduate School of Business
- Tshepo Ramodibe, Vodacom corporate affairs
What is driving the business case for stakeholder engagement?
Steven Lenahan suggested that positive relationships with key stakeholders are founded on a combination of interests, power and trust. “Consider the example of two drivers passing each other on a road,” he said. “Each has the power to drive on the wrong side of the road; however both have an interest in staying alive and therefore stick to their respective sides. Implicit in most drivers’ use of the road is a trust that they will keep to the correct side of the road and therefore help themselves and others to arrive safely at their destinations.” Similarly, all parties in an engagement may have different agendas and means to impact each other. Yet from a foundation of trust, it is possible for each to meet their objectives in a mutually-beneficial way.
Companies that under-appreciate any of these elements face negative consequences. These range in nature and severity, from reputational knocks to issues impacting their license to operate. Many of these can impact a company’s very sustainability.
Stakeholder engagement has evolved substantially of late. Shaun van Biljon shared his experience with Vodacom: “Small stakeholders have a bigger voice than ever before, thanks to the rise of social media.” The engagement dynamics are also changing. Van Biljon noted that increased connectivity means that issues can ‘catch fire’ in a matter of hours, making it necessary for corporates to respond quickly. In this faster, inter-connected environment, corporates are finding that investing in proactive engagement and relationship-building can substantially reduce the pressure and tension of ‘firefighting.’
How good are we, as South African companies, at engaging our stakeholders?
South African corporates have been slow to understand how their stakeholders are material to their short- and long-term business success.
The extractive industry is often seen as most advanced in its approach to stakeholder engagement, but this comes as no surprise. Ralph Hamman noted that with geography- and asset-specific operations, the mines can’t run away if they don’t get along with their surrounding communities. “It’s a regulated, high-stakes, low-trust game requiring a significant commitment to building relationships with key stakeholders,” Hamman remarked. “But many of these same conditions exist in other sectors – they just don’t realise it.” Internet companies, for example, were previously seen as ‘clean’ and above controversy. With issues around privacy rights rising on the public agenda, the same companies have quickly become the largest supporter of lobbyists in Washington and Brussels.
Ultimately, stakeholder engagement is an under-appreciated yet critical factor in all sectors. The scope of issues is broadening and the scope of engagement therefore needs to expand, too. Learning to manage those issues will be instrumental to survival.
As Companies increasingly take note of stakeholder relationships, are they responding through active engagement or by working around the edges?
Many companies are adopting a purely reactive posture; however waiting until stakeholders are at your gate with pitchforks can be a damaging approach. Tshepo Ramodibe noted that others are proactively building stakeholder input into its ongoing business activities and structures. He said, “With stakeholder engagement making its way to board rooms and exco agendas, leadership is more informed now than ever before.” The advent of social and ethics committee – a requirement of the new Companies Act – is also playing a role in the increased executive involvement.
But executive involvement alone isn’t enough. Lenahan emphasised the importance of day-to-day interaction with the community at an operational level. “As the front line between key stakeholders and the business, operational management needs to be equipped and incentivised to nurture important relationships,” he said. While this is already happening in some instances – such as procurement staff engaging with sustainability and transformation issues in the supply chain – it is likely to form the next stage of stakeholder engagement evolution.
Is there a role for external service providers in the stakeholder engagement space?
While companies need to ensure they form and maintain direct working relationships with their stakeholders, third parties can play a valuable role in the process. Provided there are no vested interests, service providers can bring important process skills and dialogue techniques into the engagement. They can also help to set an enforce ground rules for the process.
How can companies evolve from transactional engagements (defending a position to achieve an agenda) to transformational relationships (building trust and co-creating solutions)?
Hamman explained that most of us are hard-wired to approach an engagement presuming that we’re negotiating for a piece of a pie: “In essence, if you get more, I get less. However; this bias can prevent parties from considering ways to grow the pie.” He suggested that moving towards transformational relationships requires stakeholders and companies alike to think in terms of ‘growing pies’ rather than ‘distributing fixed pies’. Integrated negotiation also requires consideration of underlying interests rather than surface-level bargaining priorities. Finally, identifying areas of mutual gain takes creativity and the ability to identifying new solutions.”
What additional lessons / insights emerged from the discussion?
- Never presume peoples’ motivations or interests. Hamman recounted the story of a woman living next to a hilltop slated to become a quarry. To his surprise, she was thrilled for the development and hoped that the removal of the hill would improve her cell phone reception.
- ‘Nobody wants to be a cog in the wheel of corporate machinery.’ As Hamman reminded us, nothing halts constructive engagement faster than the sense that you’re being used as a means to an end or as a part of someone else’s agenda. It’s stakeholder engagement, not stakeholder management.
- Engagement rarely follows a linear course. Companies applying strict timelines and requirements allow no room for surprises or compromise. Panellists encouraged companies to approach engagements with a degree of flexibility and open-mindedness.
- Establish necessary institutions and platforms for dialogue. In the 1970s and 80s the South African mining sector experienced appalling violence. The industry and unions recognised that in order to overcome the violence, it was necessary to talk to each other. The parties resolved their disagreements through institutionalised engagement, documented agreements and by holding each other accountable when the agreements were not upheld.