Stakeholder Engagement for SMEs

Many sustainability processes, such as Accountability’s excellent AA1000 Stakeholder Engagement Standard (AA1000SES) are complex and require significant resources to implement them to their full extent. This poses a problem for small and medium enterprises (SMEs), as the resource requirements for implementing the system, could well divert those resources away from the business end of engagement.

Unlike clothing stores, many business systems are designed for the biggest in the business. When smaller businesses try those systems on, they find they are not necessarily designed to scale down. I live in a small city in a small country (New Zealand) that has a smaller GDP than dozens of corporates – so even our largest companies are comparatively small.

Another level of complexity, is that standards such as the AA1000SES are relatively new and still rapidly evolving. The AA1000SES is currently in the final stages of a major revision, so those that use it need to invest in ongoing development in the use of the standard. (Accountability’s revision process in itself is a stunning example of engagement, as the revision takes place online in a wiki, inviting contributions and comments).

So how do we garner the benefits from formalising engagement, while minimising initial costs?

The AA1000SES currently has a four-stage engagement process consisting of 18 steps. And note that this is the heart of the process and does not include the strategic context or assurance processes.

In simplifying the process there is always the possibility of eroding its value, but I believe that it is better to make a start and scale up, rather than wait for all the necessary resources to be available. Surely at the heart of the engagement ethos, is not the need to polish the veneer and look good, but rather to get to a point where we can engage in honest dialogue – and thus attain a better understanding of each other as a sound foundation for business sustainability.

So what are the essentials?

  1. Mapping stakeholders
  2. identifying material issues
  3. creating a draft plan
  4. engaging the engagers and building capability
  5. engaging
  6. reflecting and revising the plan.

Mapping stakeholders can be done with a small cross-section of staff, especially those with deep institutional knowledge and local connections. Ask this group “who are the stakeholders that we impact, or impact on us, we have some moral or legal responsibility for, who are geographically close or are relevant to our strategic intent?” Each of these factors can be scored on a scale of 0 to 3 (low to high relevance), and then ranked by total score. You will find that stakeholders such as staff and owners will be prominent, but some, more external, will also feature. I advocate starting with the top 10 stakeholders and focussing your efforts on them (more about this in the next blog).

Material issues are those issues of concern to your stakeholders. Its good to attempt to quantify these before launching into engagement. Again a mapping process is useful. This time, consider the impact of this issue on both you and your stakeholders, the potential for impact and the potential for positive change (to what extent can you improve with this issue?). What you will find fascinating with this process, is that it forces people to look at the issues from another perspective, sometimes, not easy to do. Again, you will end up with a ranked list. When you eventually engage, you will at least learn about any perceptual gaps between you and your stakeholders. Here is Vodafone’s mapping of material issues from their 2010 Sustainability Report.

Future blogs will deal more with the planning, reflecting and revising, so now lets consider engaging the engagers and building capability. Each stakeholder group is linked to someone who will lead, or at least monitor engagement. For some groups, there will be natural internal candidates, for example, client stakeholders might be linked to sales or manufacturing personnel. Those external stakeholder groups that don’t have a natural internal partner may need to be linked to a staff member charged with engagement.

You will now need to consider how well equipped this core group, and the wider organisation, is equipped to engage. The good news here, is that the skills and knowledge required to support good engagement – leadership, learning, communication and adaptive capacity (change), also support organisational development. The aim is to have all staff as enthused ambassadors for the organisation. Rather than wait for everyone to be totally equipped, at the very least, articulate these values and ensure that they are modelled from the top.

The first round of engagement can test the assumptions from your internal dialogue. Initially it is best to engage with each stakeholder in the method most appropriate for them. Ideally you will learn where you are doing well, and where you can improve, and it is in the latter where exciting opportunities may await. Engagement is an action learning process, so while engagement will be happening in different ways with different stakeholders, work to a consistent timeline for reflection and revising your plans.

Over time, as you complete more cycles of planning, engaging and reflecting, you can gradually align your processes more formally to the AA1000SES –and be a little more like the big boys.

Values revisited

Chances are you have worked in an organisation that has articulated its values, but somehow the process just hasn’t worked. On the other hand, for those of you that work in an organisation that lives its values, you have probably been a part of something truly special.

Rosabeth Moss Kanter’s recent book SuperCorp, is based on her weighty Harvard Business School research project investigating the fortunes of “vanguard” companies – multinational corporations that embed purpose, vision and values. She concludes “their endurance and generally stellar financial performance, despite occasional setbacks and industry downturns, is largely because they nurture their cultures – the values and principles that inform their practices and organizational models”.

So if these complex giants are able to integrate and guide their companies with values, why is the practice not more common? One of the reasons is that culture change is usually gradual and requires an ongoing investment. The business world only became aware of the importance of purpose, vision and values with the release of books such as Tom Peters and Robert Waterman’s In Search of Excellence in 1982 – still relatively recently, in terms of changing generational habits. The importance of these elements were reinforced in a number of books such as Built to Last, by Jim Collins and Jerry Porras a decade later.

By then companies were spending dollars and energy creating missions, vision statements and lists of values. Typically these were generated in boardrooms or executive meetings and were communicated to staff in varying degrees. But when times get hard, as they invariably do, managers revert to the known and that which they can measure, such as money, quality and compliance. Hence over time a general cynicism about commitment to values sets in, as staff perceive they are only given lip service. If a consultant were to approach a company today offering to help with purpose, vision and values, the response would probably be “we’ve done that” – these essentials have largely been relegated to “fad” status.

Creating a values statement is not hard – the challenge is in embedding them into the culture. Edgar Schein’s model of culture (right) reveals how those newly espoused values need to become artifactual, or visible and audible in the workplace, and eventually change the underlying assumptions about what organisational life is all about. No quick fix!

Vanguard examples

Rosabeth Moss Kanter’s book provides some inspiring examples of how values are generated and embedded. Perhaps the most spectacular was the 100 year old company IBM. In 2003 the company invited the global giant’s 350,000 staff in 170 countries to take part in a web chat to refresh their values. Over 140,000 participated in this “values jam”. Eventually the values were distilled down to three:

  • dedication to every client’s success
  • innovation that matters for our company and the world
  • trust and personal responsibility in all relationships.

You can image that in a company of such geographical spread, that managers would vary in the degree that they champion the values, but the intention is that these values guide all activity. CEO Sam Palmisano commented “It wouldn’t do to create values from the top like Watson did; today people are too sophisticated, global and cynical. We want people to connect to the entity in a way that’s relevant to them”.

All of the vanguard companies in Moss Kanter’s project “recently rewrote or strengthened their statements of values in a participative way”. The companies used their core values to guide strategy and innovation. Cemex a leading Mexican company use its values to retain the integrity of the company as it expands globally. Korea’s Shinhan Bank drew on their values to guide a merger with the Chohung bank.

Closer to home – the New Zealand Refining Company

While the experience of global giants can edify and inspire, how are local companies using purpose, vision and values. Recently I have had a close association with the New Zealand Refining Company (NZRC). They aspire to be New Zealand’s best company. Over the last three and a half years, CEO Ken Rivers has invested a lot of energy in revitalising the company’s values. When Ken arrived at the NZRC he felt that there was no clear understanding of what the organisation wanted to achieve. Based on the belief that a company is more likely to achieve results if it is clear about what it aspires to, Ken embarked on envisioning, and developed processes to make the vision happen.

The three complimentary projects that emerged are leadership development, organisational learning and values driven performance. Together, these initiatives, now embedded in business planning, are being implemented throughout the organisation.

Ken enthuses about the emergence of a mental model of more informed and quality conversations, leading to better analysis and leading, in turn, to better decision-making. Thus staff become less reactive to events, and more mindful of the deeper implications of events. The values-based performance culture reinforces this process and fosters the values and behaviours that support improved performance.

To embed values, the NZRC is offering staff professional development exploring their personal values. Staff get to reflect on how they are living their values. This process is now widely valued by staff. The next step is to enable exploration of the alignment between individual values and company values.

Ken is beginning to see the dividend from these initiatives. Excitement is building throughout the organisation as staff are given the space to rethink their work in relation to their own lives. The consistent articulation of values and encouragement to engage more meaningfully in dialogue is reflected in higher levels of engagement, now measured regularly. Ken is seeing much better quality, congruent conversations and deeper communication as people are learning to say what they think.

Another evidence is the impressive safety record at NZRC. Safety is articulated as “our number one priority” and companies throughout New Zealand are turning up to learn how the NZRC does it. The NZRC is learning the value of investing in the embedding of values.

What is the connection to stakeholder engagement?

Rosabeth Moss Kanter’s vanguard companies are having an increasing social impact. “Their values and principles tend to make their leaders more attentive to societal needs and more willing to support innovation and investments to address those needs”. Their social action has moved away from dispensing loose change (philanthropy) to pursuing real change as a win-win with the communities they are embedded in.

Values guide action rather than prescribe action. And if staff are able to connect with the company’s sense of purpose and values they become effective ambassadors. They also keep alert for opportunities and engaged staff are primed to engage positively with stakeholders.

Hopefully more organisations will reinvest in defining their values and develop the behaviours to model and embed values.

Inspiring sustainability books

With the Christmas holiday break approaching, here are a few books that, for me, show clear signposts of the way forward to a more sustainable world. These books inform in two domains – the first is sustainability, and the second is in the human dynamics of organisations. Common to these books is a process of unleashing human potential and, in the principals that can be gleaned in their pages, is a blueprint for producing sustainable organisations that honour their stakeholders.

Building Social Business: The New Kind of Capitalism that Serves Humanity’s Most pressing Needs. by Muhammad Yunus (2010)

Muhammad Yunus embodies sharp intellect, pragmatic entrepreneurialism, and heartfelt empathy in pursuing his mission of eliminating poverty. Based on the successes of his Grameen group of companies, in this book, Muhammad Yunus describes the emergence of social business as a new business model. He is forging partnerships with corporates such as Nike, BASF, Intel and Danone to deliver social good to the poor.

These companies, in partnership with Grameen, create an entity that pursues a social agenda and returns any profits to expand activities. Typically the new entity requires seed funding from the corporate parent, but budgets to repay this over time.

As an example, Grameen Danone supplies inexpensive yoghurt, fortified with vitamins and minerals to the poor in Bangladesh. In addition to the good generated by the product, further benefits help to build communities through the company’s local activities and distributorships. And while Muhammad Yunus’s primary view is on the social dimension of sustainability, environmental concerns are also addressed. When he asked Danone to develop biodegradable packaging, they developed a corn-starch yoghurt package. He then asked them to produce an edible container!

The Power of Unreasonable People by John Elkington (2008)

The inspiration for the title of this book comes from George Bernard Shaw “The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.”

John’s book focuses on social and environmental entrepreneurs who are changing our world for good. The sheer range and global spread of the leaders and organisations featured in this book provide a overview of global trends in sustainability.

The entrepreneurs that John Elkington highlights are true iconoclasts and have moved beyond the constraints of the legacy systems that keep us in the past.  He identifies the qualities these entrepreneurs share in common:

  • they want to change the system
  • they are insanely ambitious
  • they are propelled by emotions
  • they think they know the future
  • they seek profit in unprofitable pursuits
  • they ignore evidence and try to measure the unmeasurable

Whangari Maathi is such a person. She embarked on a mission to reforest Africa. Early in the project she asked a nursery if they could supply a million trees. They confirmed they could but did not expect the deal to proceed. When she came back to confirm it, the trees were not available. The Green Belt Movement she founded has now planted over 30 million – do you think they will achieve the 1 billion trees they have now set their sights on?  I do.

Another interesting aspect of the book is the crucible experience that Walmart’s CEO, Lee Scott experienced when of seeing the devastation of Hurricane Katrina. Lee Scott has gone on to launch Walmart on a path towards sustainability, achieving some impressive results.

Supercorp: How Vanguard Companies Create Innovation, Profits, Growth, and Social Good by Rosabeth Moss Kanter (2009)

With piercing clarity, Rosabeth Moss Kanter reports on her research into the supercorps that are pursuing profitability. In her words:

For years, lip service has been paid by many corporate leaders to achieving high performance and being a good corporate citizen. What I have discovered in my research, however, is that the two issues, business performance and societal contributions, are, in fact, intimately connected. Service to society, guided by well-articulated values, is not just “nice to do” but an integral part of the business models for companies that I call the vanguard. They use their unique strengths to provide innovative new solutions to societal challenges such as early childhood education, water safety and sanitation, employment for people with disabilities, small business development, energy conservation, and disaster relief. Societal initiatives undertaken largely without direct profit motives are part of the culture that builds high performance and thus results, ironically, in profits. (page 1 – 2)

She demonstrates how companies such as Proctor and Gamble, Japan’s Omron and Korea’s Shinhan bank are modelling these practices. The author highlights how these companies use the tools of mission, vision and values to drive change – tools that were largely stillborn through ineffective use in the latter decades of the twentieth century. And for those looking for practical steps to foster a culture of innovation, this is the book.

Sustainability 2.0: Networking Enterprises and Citizens to Face World Challenges (2008) by Ernesto van Peborgh and the Odiseo Team

This book is available online as a pdf. It presents the Internet and specifically, Internet 2.0 as a causal factor in transforming social and economic institutions. The book features three appendices of business case studies looking at pioneer companies, companies that changed to aspire to sustainability, and more recently formed sustainable companies.

The Fortune at the Bottom of the Pyramid by CK Prahalad (2004)

I’m yet to read this book, but I have it on order, and I have been inspired by CK Prahalad’s work. He passed on this year, but he was the Thinkers 50 top thinker for 2009 (this site has some great video interviews of him)

The bottom of the pyramid refers to those four billion plus who live on less than two dollars a day. In the West we might conceptualise sustainability through the lens of climate change and the environment, but CK Prahalad challenges this view. He warns that if these billions get included in a wealthier economy, under current consumption patterns we would need at least two planets to sustain them. So we have a stark choice – exclude them from the global economy, or refashion our commercial and social activity for sustainability. Fortunately, as well posing this problem, he has some inspiring and pragmatic solutions.

If you take time to read two or more of these books, and reflect on their import, I believe it will change your 2011 for the better!

Reporting or engaging?

If resources in your business were tight, and you had to choose between reporting and engaging, which would it be? Here is why I would choose engaging.

Reporting is a quality assurance process with its roots in twentieth century industrial processes. I regard the current day sustainability movement to have started in the early sixties, when Rachel Carson and others raised concern about the negative impacts of commercial activity. Initially the companies that found themselves the target of criticism ignored it, but over time they, initially reluctantly, realised they had to take action.

Shell is an excellent example of this. In the mid-nineties, Greenpeace and others protested about the disposal of the Brent Spar and Shell’s alleged complicity with the Nigerian Government’s execution of activists. Initially the company attempted to repel criticism, but over time internal discourse changed to include sustainability. Shell was an early adopter of the Global Reporting Initiative (GRI) and soon regularly ranked in the top ten of global reporters. BP also performed consistently highly in GRI reporting and appeared genuinely committed to its rebranding “Beyond Petroleum”. But recent events in the Gulf of Mexico illustrate how reporting processes do not necessarily ensure a good outcome. In this case, better engagement with suppliers appears to be desirable.

Reporting is essentially a compliance process. The great thing about compliance processes is that they provide assurance that the plane we are about to fly on is well maintained, or a product we buy is fit for purpose. The downside is, that if they become the default organisational strategy, they can generate a compliant and uninspired workforce. The compliant workforce knows what it can and can’t do and tends to operate within these parameters.

These days, for most commercial activity, compliance is unavoidable. One or more industry bodies or standards organisations and multiple local, state, national or federal government departments require our compliance. And we are often complied to report. Why impose further voluntary compliances on your workforce? Might it not be useful to foster other methods? This is where stakeholder engagement processes are useful.

Engaging in the 21st Century

While reporting is a twentieth century practice, stakeholder engagement is of this century. Complying (through reporting) and engaging are diametrically opposed. The former follows prescribed practice while the latter seeks opportunity. Engagement is essentially a communication process and our twentieth century organisations didn’t do that very well. Now we understand communication processes better, and our workplaces feature more diversity (in age, gender, culture and ethnicity) of necessity, we have to learn to engage better. Engagement can thus pursue sustainability aspirations, but also improve communication internally and externally – the stakeholder engagement win-win.

Zappos is a great example of excellent engagement. In CEO, Tony Hsieh’s great read Delivering Happiness, he outlines “happiness frameworks”. Tony highlights happiness as one of the foundations for Zappos stellar success. His first happiness framework includes four factors, perceived control, perceived progress, connectedness and vision/meaning. These factors foster happiness and create a motivational culture. Lets look at how these might stack up with reporting and engagement.

Of course this is a very stark contrast, and in reality the gap will not be so great, and some companies (such as Canada’s Vancity) do a great job of both reporting and engaging.

It takes some courage to prioritise engagement over reporting. A business’s capacity to engage is enhanced by effective internal engagement – where every staff member is an ambassador for the business. So it takes courage and commitment to first accurately assess the quality of internal engagement, and then to relentlessly pursue better engagement. But the payoff, socially, environmentally and financially is huge. Failure to engage will accelerate mass business extinctions.

What is sustainability 2.0?

Sustainability 2.0 is not an established concept. It has popped up from time to time over the last few years. But from the glimpses I have seen, it represents a profound change in the way we think about sustainability.

Two of the more authoritative pointers that form the concept, are the book Sustainability 2.0 by Ernesto van Peborgh and the late, great, C.K. Prahalad’s September 2009 Harvard Business Review article. Van Peborgh’s book links sustainability 2.0 to the radical societal changes driven by Internet 2.0 and 3.0 – the participative web.  The book’s case studies of companies pursuing sustainability, categorise them as pioneer companies, companies that change and sustainable companies. Companies that change, appear to typify Sustainability 1.0 – companies originally motivated to adopt sustainability as a response to some public relations crisis caused by unsustainable practices.

In the HBR article Why Sustainability Is Now The Key Driver of Innovation, C.K. Prahalad and his co-authors clearly articulate the change to what we might call sustainability 2.0. Companies move from risk aversion to aspiration. The authors claim “in the future, only companies that make sustainability a goal will achieve competitive advantage”. Thus, sustainability becomes a catalyst for rethinking business models, products, technologies and processes.

We are very near the beginning of this bell curve. Companies that position sustainability central to strategy are still rare. Prahalad asserts that most European and American executives believe that moves towards sustainability will erode competitiveness. “That’s why most executives treat the need to become sustainable as a corporate social responsibility, divorced from business objectives”.

The new frontier is wide open. Prahalad calls sustainability the “motherlode of innovation”. It may well be the dominant driver for business development and opportunity over the next few decades. Some big players are taking full advantage and also driving sustainability through to their suppliers. Walmart announced sustainability 2.0 in 2008. That year Walmart directed more than 1000 Chinese suppliers to achieve sustainability targets.

Prahalad and his co-authors outline five stages of sustainability that each offer opportunities to innovate. The article provides inspiring examples of how companies are exploiting these opportunities and finding new market niches in a recession. The stage 5 concept of next-practice, where businesses create new practices that transcend and displace current practice, infer a paradigm shift. The smart grid, where diverse electricity inputs and outputs move around a locality to maximise efficiency and minimise energy imports is cited as an example. At present we are so conditioned to remote distributed networks, that we take them for granted.

New movements require new language and new tools. Corporate social responsibility infers guilt and reparation whereas corporate sustainability is more future-focussed. Sustainability reporting is a tool designed for justification and to assuage guilt. Energy invested in sustainability initiatives is better spent pursuing innovation than pursuing a ranking on a reporting league table.

Of the sustainability tools on hand, stakeholder engagement appears more relevant to sustainability 2.0 than sustainability reporting. Stakeholder engagement is more future-focussed as it seeks to find the pathway forward in dialogue with stakeholders. Stakeholder conversations are where innovative ideas are likely to arise.

In conclusion, this blog is a tribute to C.K. Prahalad’s acute vision and humanity. In the article referred to here, and in his other recent work such as The Fortune At The Bottom Of The Pyramid, he has helped to open vistas where businesses can prosper, and importantly, we can collectively create a prosperous, just and sustainable world.

Peter Bruce 16 August 2010

Stakeholder engagement, culture and strategy

In earlier days, corporate sustainability was an add-on. Companies were often motivated by risk-aversion and the need to improve public relations. A rare few were motivated by genuine sustainability aspirations.

Stakeholder engagement is one of the more recent fruits of sustainability practice. Stakeholder engagement has evolved to a point where it can now move from the periphery to contribute as a core business process, supporting a strong culture and informing strategy.

Edgar Schein’s definition of culture illustrates how stakeholder engagement can make to cultural development. Culture is:

a pattern of shared basic assumptions that the group learned as it solved its problems of external adaptation and internal integration, that has worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems.

Let’s look at how two important elements of culture – external adaptation and internal integration are supported by stakeholder engagement. We know the pace of change seems to be ever increasing. We will continue to witness massive changes over the next few decades as we move to a low-carbon future and grapple with the complex economic and social problems of our global community. Those companies that lack adaptive capacity will simply not survive. If the thinking of those at the helm remains grounded in decades past, and they continue with succession practices that essentially clone themselves, they will struggle.

Engagement processes aspire to create dialogue with stakeholders – those affected by a company’s operations, or who can affect that company. When engagement processes work well, the company and its stakeholders will enjoy greater mutual understanding and get closer to shared meaning – where both parties have deeper understanding and empathy of each other’s perspective. This in turn, becomes a platform for external adaptation – as the company sees the world more through the eyes of its stakeholders, rather than its own filters.

To engage effectively, ideally all staff become the eyes, ears and voice of the company. Engaged staff, who understand the importance of engagement, are primed to spot threats or opportunities in the environment. And if the company’s learning processes are effective, the information from those staff members becomes useful knowledge.

Thus internal integration is closely linked to in external adaptation. These processes support each other.  Both require transparent communication, clear vision and the explicit expression of the values that underpin a culture of engagement.

Unfortunately, surveys from around the globe indicate that typically 60% of staff are disengaged. The good news is, that improving engagement with any group of stakeholders is likely to embed better engagement practices, potentially supporting better engagement with all stakeholders.

Of course these days, it is difficult to define a clear boundary between the internal and external. For example many companies have sub-contractors delivering core services. Others have suppliers manage the goods they provide. Some of the more successful companies are expanding the zone where internals and externals overlap.

By now you will see the link with strategy. Recall how a component of strategy was environmental scanning. The inference here is of a captain scanning the horizon from the bridge of the ship as it sails through dangerous seas. Engaging is a totally different way of informing strategy – it seeks to work with the “environment” in a more dynamic way, relying on shared understanding, rather than detached observation.

How does your company establish stakeholder engagement as a core business process? A first step is to establish a stakeholder engagement plan. This may mean simply formalising and intensifying what you already do. AccountAbility’s Stakeholder Engagement Standard is a great tool to use. As you draft your first plan, you will find that elements of strategy start to emerge. And as you intensify the process through engagement with stakeholders, more knowledge to inform strategy will surface. You will also see more clearly how the dynamics of leadership, organisational learning, communication and adaptive capacity (change) are critical to engagement, while also strongly supporting an adaptive culture.

Peter Bruce