Engage radically - New McKinsey report confirms stakeholder engagement is an important factor in CSR

A recent report by McKinsey & Company, a management consulting firm, argues that a thorough stakeholder engagement process is vital to the success of a company. Today corporations are facing a diverse array of stakeholders - from government to consumers - that expect industry to help solve major economic, environmental and social problems. Unfortunately, traditional CSR programs are failing to deliver and pressure from stakeholders, especially among activists, is increasing. Companies that are ahead of the curve are starting to realize that engaging external stakeholders is a key component to long-term success.

As stakeholder engagement specialists, our staff at Future 500 couldn’t agree more with the findings of the McKinsey report. We believe that companies that engage stakeholders, especially the most radical ones, will decrease risk, increase brand reputation and (most importantly) positively contribute to the societies in which they operate.

Building relationships between adversarial stakeholders is a complex and nuanced process and, as McKinsey states, “cannot be separated from everyday business; it must be part and parcel of everyday business”. Companies that have been targets of Name, Blame, and Shame campaigns are learning this approach, albeit sometimes the hard way. Moving from siloed to integrated, from tactical to strategic and from haphazard to planned, helps companies tremendously when engaging even the most strident stakeholders.

McKinsey offers some great recommendations to getting on track:

1. Define what your company contributes to society

Think beyond services and products and emphasize the benefits to society (jobs, taxes, etc). Recognize that you can only create long-term value to your shareholders by delivering value to society as a whole.

2. Know your stakeholders…

… as rigorously as your customers. The report found a strong correlation between an in-depth understanding of stakeholders and successful engagement. Companies can gain such a level of knowledge only through personal conversations with stakeholders, (external) expert analysis, and specialist monitoring of the Internet and social media. A thorough stakeholder analysis not only summarizes stakeholder issues and interests but also identifies challenges and opportunities before they arise.

3. Apply

McKinsey recommends that companies develop their stakeholder engagement skills through a mixture of on-the-job experience and formal training for employees. We’ve found that training staff across departments, not just CSR, helps to create broad internal buy-in, empowers staff to be proactive and helps to demystify the engagement process. After all, employees are also stakeholders.

Results and Results alone

Corporations naturally want to see bottom line results when committing resources to a project. Internal advocates sometimes face difficulty when communicating quantifiable results; the financial benefits of engaging stakeholders are often indirect and far in the future or can be quantified only against an unobserved counterfactual. On top of that, according to McKinsey “stakeholders generally care about results and results alone,” making follow-through and commitment from the company necessary to keep stakeholders productively engaged. We agree that engagement is more an art than a science, but through our dialogues between businesses and NGOs for almost 20 years Future 500 has identified several (quantifiable) benefits:

• Risk reduction: Engaging activist groups early decreases the threat of being a target of a corporate campaign in the future. Companies who have been chosen as the banner brand for a campaign often find themselves dedicating a great deal of resources.  Activist campaigns can run up to five years and can taint a brand over time, especially those that are consumer facing.
• Brand recognition: Nike "became synonymous with slave wages, forced overtime, and arbitrary abuse" in the 1990s according to Nike co-founder Phil Knight. The company managed to turn conflict into collaboration and is now being praised by many NGOs for its zero-waste goal and innovative, sustainable products.
• Customer appreciation: According to a report by Cone Communications 71% of Americans consider the environment when they shop
• Employee morale and recruiting: A study conducted by Net Impact shows that young professionals increasingly consider the social and environmental performance of a company when applying for a job

4. Engage radically

Lastly, to be successful companies have to understand that stakeholder engagement is an ongoing process that requires you to sit down with stakeholders early and often.

“Gaining stakeholder trust is not something that you achieve once and for all. You can lose it very quickly.” (Helge Lund, Statoil)

Don’t treat stakeholder engagement as a “propaganda exercise” and think that you have to “explain the brand.” Often NGOs just want a platform to air their concerns and feel they are genuinely being heard – It’s about the process, not necessarily the solution.  “A 70 (listening) – 30 (talking) approach is a good rule of thumb”, says Senior Director of Stakeholder Engagement, Danna Pfahl.

NGOs and companies bring highly specialized, nuanced expertise and perspectives on solving problems. The best companies and NGOs recognize and welcome this sharing of perspectives, as it can often lead to the best outcomes for both when they choose to see past conflict to constructively engage.

The recommendations by the McKinsey report will help companies set a clear path forward when implementing stakeholder engagement programs. We strongly agree that engagement with external (and internal) stakeholders is vital to solve the most pressing issues society faces today. Corporations are uniquely positioned to make significant impacts and stakeholders, especially NGOs, can provide feedback and create on the ground checks and balances.