Resources on Stakeholder Engagement

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STAKEHOLDER ENGAGEMENT

It is believed that the term “stakeholder” in relation to organizations has been used since the 1930s, when it was first suggested that businesses had at least four major groups of stakeholders: shareowners, employees, customers and the general public. Decades later, as interest in corporate social responsibility (“CSR”) has increased, one of the foundational elements of the CSR movement has been “stakeholder theory”, which is based on the premise that an organization’s survival and success hinges on its ability to generate sufficient wealth, value, or satisfaction for all of its primary stakeholders, not just its shareholders. Stakeholder theory is based on the premise that businesses operate in an ecosystem of various stakeholders, each of which contribute to the sustainability of the business and the ability of the firm to create value for any stakeholder group. For example, while shareholder primacy has been a guiding principle for decades, it has become clear that sustainable shareholder value cannot be achieved without strong and constructive relationships with other stakeholders (e.g., customers, supplier, employees, communities etc.), relationships that must be forged through engagement to achieve alignment throughout the ecosystem on goals and strategy.

It is generally acknowledged that an organization’s primary stakeholders, those key to the organization’s survival, include owners, investors and shareholders, employees (managers and non-managers) and workers throughout the supply chain (and their elected representatives, if any), customers and clients, suppliers, vendors, distributors, contractors and other key business partners (e.g., lenders and insurers). However, other stakeholders can also be very important to a company: governments (local, provincial and national) and intergovernmental bodies, which provide the licenses for businesses to operate and establish, interpret and enforce the laws and regulations under which businesses must conduct their affairs; the community, which includes local government, the natural and physical environments and the quality of life provided to residents in the areas where the company conducts its business; special interest groups, which include industry and trade associations, political action committees, social activists, cooperatives, professional associations and consumer interest groups; creditors; for- and non-profit partners (i.e., “strategic partners” such as universities and research institutes) that provide support and collaboration on development of new technologies, products and processes; the “media”; competitors; and non-governmental organizations, international organizations and other affected by the activities of the business.

Foundation to strong stakeholder relationships is stakeholder engagement, which includes the formal and informal ways of staying connected to the parties who have an actual or potential interest in or effect on a company’s business (i.e., the company’s “stakeholders”). Engagement implies understanding the views and concerns of stakeholders and taking them into consideration, being accountable to them when accountability is called for, and using the information gleaned from them to drive innovation. Stakeholder engagement is related to the fundamental principle of CSR that calls for companies to acknowledge that their businesses do not and cannot exist in isolation. Stakeholder engagement is more than just listening, although that is obviously very important, but extends to forging working alliances with stakeholders to pursue and achieve mutually agreed results. Companies that fail to pay attention to the concerns and opinions of their stakeholders can suddenly find themselves confronted with an array of problems that go to the very heart of their businesses. When companies are unresponsive to their customers, they begin to lose business and revenues tumble. Companies that do not pay attention to the needs of their employees are unable to recruit and retain the talent necessary to remain competitive. In addition, failing to explain strategies and financial performance to investors jeopardizes the availability of capital.