One of the interesting business transformation in recent times is the shift from shareholder consciousness to stakeholder consciousness, competition to collaboration, and from profit greed to shared value. With the new shift, firms are now building long-term profitability and existence that is hinged on cohesion across key stakeholders. Such relationship is possible through ‘stakeholder engagement’ – a process by which a company communicates with and learn from host communities, customers, employees, regulators, competitors and other key stakeholders that can either positively or negatively affect or be affected by business activities.
In our previous review of business sustainability, “Can Businesses Really Exist Without Causing Harm?”, we mentioned that stakeholder engagement is one of the strategic practices for ‘business sustainability’ – a “process by which firms manage their triple bottom line, such as their financial, social, and environmental risks, obligations, and opportunities”. Remember that major business stakeholders such as host communities, employees, customers, competitors, policymakers or regulators also represent a segment of a company’s most important assets and have great impacts on brand reputation and success. Responsible and ethical businesses take the bold step that engages the stakeholders to gain knowledge of the impacts of their activities on the physical environment, health of the host communities, employees, customers, and the general economy of the region in which they operate. They are also leveraging on systematic engagement to gain knowledge and benefit from potential opportunities from stakeholders.
Sincerely, many are yet to see the benefits of stakeholder engagement. Several challenges like lack of sufficient time to engage stakeholders, stakeholder’s pressure to impose ideas on companies and more, have caused some to shy away from stakeholders. This then results to a vital question: is stakeholder engagement a compulsory business practice or not?
Several national and international labour and environmental laws such as Nigerian Labour Act, International Labour Organisation (ILO) and more have implemented ethical standards that enable corporate governance to be accountable and transparent. To fulfil the requirements of the abovementioned regulations imply that concerned stakeholders such as tax office, regulators, shareholders, environmental agencies and more need to be engaged or informed about the activities of the business. By this, we can infer that stakeholder engagement is no longer optional but mandatory in certain conditions.
Another point worth consideration is the fact that the true essence of business is to create shared value, adding values not only to the shareholders but also to the customers, employees, ecosystem and the government or general economy. This means that businesses have legal, economic, ethical, and philanthropic obligation to different stakeholders. The need for engagement with concerned stakeholders, therefore, arises as means by which responsible companies show a sense of accountability towards their obligations.
While ethical corporate governance requires companies to engage their shareholders in annual meetings for accountability, companies should also engage other stakeholders to understand how their activities have affected the stakeholder groups such as communities and employees, understand what customers really need and to gain knowledge of the most current government or industrial regulations. Businesses that fail to engage their stakeholders, will also become a victim of regulators sanctions or fail to keep up to date in proving what the customers want, leading to business failure.
The best way companies can live in peace and earn the trust of their host communities and other stakeholders is not by closing down communication channels and deploying security agents to enforce their operations, but by initiating dialogue that enhances mutual learning with stakeholders and setting a stage for innovative problem solving. A responsible business should have a ‘human face’ and be open to easy communication with stakeholders.
What Are the Benefits of Stakeholders Engagement?
The essence of stakeholder engagement is not limited to finding the impacts of business activities on people, environment, and economy. It also aims to identify business opportunities from stakeholders; finding common ground to convert business threats into opportunities or to manage them effectively. In this way, engagement with industry peers results in collaboration, instead of competition, a pool of ideas and resources to co-create solutions for business success.
With stakeholder engagement, businesses have begun to create better communication and build trust that result in peaceful cohesion with communities, customer loyalty, retention of most talented staff, leveraging on stakeholder expertise for higher quality decision making and to avoid sanctions from regulators. In this way, traitors become allies that help companies to enlist new resources, improve overall business health and become successful.
Firms that proactively engage the community and regulators often find it easier in pushing forward with new projects because they have secured the social license to operate. They often develop the most innovative products and processes because of the need to balance conflicting points of views, forcing them to think outside the box for new solutions. Stakeholder engagement also plays a major role in helping companies to achieve impactful corporate social investments, by understanding the actual needs of the people before proceeding with certain projects.
When companies do not have a stakeholder engagement strategy, what we see is: activist groups intensifying campaigns through various platforms such as social media to blame and shame companies. The reputational costs of the brand attack are often immense, since customers are increasingly demanding for responsible and ethical products and services. Also, seeing one’s company making headlines for not respecting human rights or environmental standards can lead to lower employee morale or difficulties recruiting new talented employees.
Companies should be courageous enough to listen to opposing and critical voices, and ensure that the right stakeholders are identified and engaged. Though, reporting frameworks, such as GRI, require companies to report annually on stakeholder engagement activities; but be sure that engagement happens regularly and as the need arises, not just once a year, so that different opinions and ideas can be obtained and feedback can be provided to meet the expectations of stakeholders’.
- Can Businesses Really Exist Without Causing Harm?
- Why Extractive-Based Nations Fail: Between Resource and Knowledge-Based Economies
- 2018: The Nigeria We Want
- Towards The Bleak Future of Crude Oil: What Nigeria Should Do Now
- Fiscal Sustainability: Between Nigeria’s Debt Plan and the 2018 Budget
- Mainstreaming Street Hawking in a Formal Economy: An Inclusive Approach to Development
- Nigeria’s Economic Growth in 2018 and the Hope of the ‘Common Man’.
- The Reality of Nigeria’s Recession Exit: Between GDP Growth and Sustainable Development
- Financial Inclusion: Are Nigerian Banks Getting it Right?
- AZ Quotes. Anodea Judith
- Benefits of Stakeholder Engagement. Future 500, February 3, 2013
- Benefits and Challenges of Stakeholder Engagement. Reana Rossouw, Next Generation,
- Types of Community Engagement. Sustainability Community, April 7, 2012