Understanding Stakeholder Engagement

The phrase 'stakeholder engagement' has been a bit trendy to banter about for the past couple of years, but increasingly, many CEOs and directors are finding that they don't understand what it really is and why it matters for their business. Stakeholders are normally defined as groups who impact and/or are impacted by the company and its activities, and in the past few years the definition has expanded to include social activists, communities, NGOs, suppliers and other special interest groups.

The increasing availability of information though the web and social media sites means stakeholders have a better understanding of business than ever before. They are demanding more transparency, and many want not only to be informed of a company's activities and performance, but also to be involved in setting social and environmental performance objectives. Effective engagement of these various stakeholders is often cited as a key component of a company's overall environmental or sustainability strategy.

Not only is stakeholder engagement a key part of corporate responsibility, but many companies agree that effectively engaging stakeholders is important to ensure that the business understands others' expectations of it and is able to manage those expectations accordingly. From a financial director's perspective, however, good stakeholder engagement can also mean and more profitable business, as US keynote speaker Mark Shumann, international chairperson of the IABC and managing principal of Towers Perrin (US) explains: "Every leading indicator of financial performance rises in tandem with an increase in engagement. This is because more engaged employees care more about the quality they deliver and the innovation they bring to their role. If you multiply what they think by how they feel, by what they do as a result, you get to financial results."

The biggest issue for FDs when it comes to supporting stakeholder engagement is convincing the board of the impact of any programmes or initiatives on the bottom line. FDs can find themselves frequently at loggerheads with marketing and customer insight departments over the actual cost of delivering these programmes for increasing stakeholder engagement, often when there is no guarantee that that particular course of action will indeed deliver the predicted results. It does require a shift in thinking for many in this role, and an appreciation of the how the world of business is evolving and the new role that stakeholders play in influencing brand sentiment.

The online world is also playing an increasingly bigger role in facilitating customer dialogue, and so there are likely to be new ideas, concepts and strategies being brought to the table that focus on new media. It will be the role of the FD to embrace these new concepts and find a way to help other departments learn how to present these ideas more viably to the board.

There are some key elements of the approach companies can take to ensure the most appropriate strategy is chosen and you need to start by asking three important questions:

1. What are the objectives for engaging with different interest groups?
2. How can progress be measured?
3. What are the risks (and costs) to the brand if this isn't done?

As corporate responsibility becomes more ingrained in the processes of the business, so stakeholder engagement will play an increasingly important part in shaping the future direction of the business. Organisations need to identify their key stakeholders and their issues, engage with them in a way that encourages them to respond and then react in a way that satisfies their needs and requirements. Effective stakeholder engagement will be at the core of all businesses that survive the current economic climate, and those who fail to embrace it do so at their peril. This shift is inevitable and the challenge for FDs will be how they can help move the business to this new model of stakeholder management sooner rather than later.

Some keys to successful stakeholder dialogue

• Start thinking about the longer-term engagement process early and consult stakeholders on how or if they want continued communication.
• Be aware of and manage expectations: yours and theirs.
• Be realistic: do not start what you cannot finish.
• Focus on quality not quantity; participants should be invited on the basis of credibility and ability to be thought provoking.
• Keep the dialogue to specific interests and values.
• Acknowledge genuine differences - everyone should make an effort to share perspectives, listen and learn.
• Be prepared to be as open and transparent as possible.
• Be flexible and open based on stakeholder wishes.

It is important to remember that there is no 'one size fits all approach' to stakeholder engagement. Not all parties will agree all of the time and there are many formats for obtaining dialogue, which may include online, surveys, single issue consultations, workshops, focus groups etc. For many FDs the options may seem just too diverse, and so the challenge will be to find ways to help other departments streamline their preferred options for stakeholder engagement in a way that helps the FD to present the board with those that provide greatest benefit to the organisation.