Bettina Palazzo:

An Introduction to Stakeholder Dialogue

publishedin:

Manfred Pohl/Nick Tolhurst (eds.): Responsible Business: How to manage a CSR strategy successfully, Wiley 2010, S.17-42

Please do not cite or copy without permission

Dr. Bettina Palazzo

Rue Beau-Séjour 9bis

CH-1003 Lausanne

0041-213115521

The Stakeholder Scenario

In the seventies the noble price laureate Milton Friedman bluntly stated that the onlysocial responsibility of business is to increase the profit for its stockholders and nothing else.In reality things never have been that simple: companies always had to integrate the interests of other stakeholders than just the stockholders into their decision-making processes.

It is impossible to increase the profits for stockholders without the acceptance and cooperation of stakeholders like employees or customers. The legal framework already forces companies to assume certain responsibility for stakeholders like e.g. their employees, suppliers and business partners, customers and governments.Additionally, various economic and ethical reasons can be advanced to support a stakeholder view of the corporation: Ignoring the concerns of stakeholders might trigger serious financial or reputational disadvantages and it might violate existing normative standards, such as those outlined in the UN declaration of human rights. Consequently, companies cannot afford to disregard their stakeholders due to economic, legal, and ethical reasons.

Instead of concentrating on the stockholder only, companies have to live up to the challenge to manage all these different and often contradictory interests.

Box 1

Stakeholder management is no easy task since there is no automatic dominance of one stakeholder. The values, fears and interests of one reference group might contradict those of another reference group and it is clear that one can never satisfy everybody. Stakeholder Management means first and foremost that you will have to make though choices. There is no standard solution and no magic formula that would help to determine the priority of stakeholders in a given situation. We do not have shared and generally accepted standards for dilemma decisions like this. Furthermore, we are living in a globalized economy where the legal framework and sanctioning mechanisms are lacking.

It is also controversial how far companies should and can go in their responsibility for stakeholders. Are they only responsible for their primary stakeholders, i.e. those groups and individuals without whose continuing participation the company could not survive (e.g. employees, stockholders, customers)? Or is stakeholding self-legitimized, i.e. if someone judgeshimself to be a stakeholder he de facto is one?

  • Is the six-year old girl that works under gruesome conditions in the cottons fields of Uzbekistan of a third tier supplier of Puma a stakeholder or not?
  • Are Oil Corporations responsible for the lack of fossil fuels of future generations?
  • Is McDonalds responsible for overweight children?

This stakeholder scenario becomes even more complex if we realise that the traditional stakeholder model (box 1) is only a simplified model and that reality is much more complicated: A company’s stakeholder relations are characterized by coalitions and interdependencies between different stakeholders. Within this stakeholder network it is impossible to deal with just one stakeholder at a timeas the Nestlé example in box 2 illustrates.

Within this stakeholder scenario NGOs play an increasingly important part. The rise of their importance becomes obvious by the sheer increase of their numbers: In 1985 20,000 international NGOs had been registered by the Union of InternationalAssociation whereas in 2005 already 50,000 of these groups were active.In recent years NGOs have become more professional and internationally organized. They are highly skilled at mobilizing their constituencies and thanks to the internet, email, and Skype they can communicate and organize campaigns quickly and with low costs across the globe.

These groups monitor and criticize corporation on issues like working conditions, environmental standards, corruption, human rights, consumer protection, and so on. NGOs request transparency and information on these issues form corporations. In cases of conflict corporations risk boycotts, becoming the target of a NGO campaign, and damage to their reputation.

In order to respond proactively to this complex and demanding stakeholder scenario companies have to make clear that they cannot satisfy every interest of every stakeholder, but that they are dealing responsibly with them. Companies can win the trust of their stakeholders by informing them about the choices they are confronted with. The written information found in a CSR report is one first step in this direction, but direct and reciprocal communication with stakeholder is the more effective approach.

What are Stakeholder Dialogues and why are they important?

A stakeholder dialogue is a structured discussion between representatives of a company and representatives of one ore several stakeholder groups. Since within the stakeholder scenario NGOs play an important part and since they are the most demanding and challenging group of stakeholders, this article will focus on stakeholder dialogues between a company and NGOs.

It is the aim of this dialogue to investigateconstellations of interests and issues concerning the company and the stakeholders, exchange opinions, clarify expectations,enhance mutual understanding, and if possible finding new and better solutions.

Depending on the issue, the company and its industry, the country, and the goal of the dialogue there are many different forms of stakeholder dialogues.

One way to differentiate stakeholder dialogues is to distinguish between different levels of participation.

A first level of dialogue is purely informativecommunication. It can not even be considered a true dialogue since information flows only one way. Stakeholders receive information and the company has full control over the content of information and the way it is communicated.

The second level isconsultative. Here stakeholders are asked for their opinions and the results of the consultation will be transmitted to corporate decision-makers. To a limited extend the stakeholders’ input can influence corporate decisions and strategies. Corresponding tools for this level of stakeholder involvement are e.g. opinion polls, surveys, interviews, workshops, focus groups,online-dialogues, and ad-hoc dialogues on specific issues.

The final level is decisional. Since stakeholder are getting involved in corporate decision making this form of stakeholder dialogue requires the most commitment and openness for the corporate side, it might be more risky but if managed properly their long-term effectiveness can be more innovative and sustainable.

The methods and forms of communication corresponding to this level of stakeholder involvement are e.g. continuous dialogues processes, partnerships and joint projects, and stakeholder panels.

Stakeholder panels are the most decisional form of stakeholder dialogue so far. With Stakeholder panels companies institutionalizethe dialogue into their corporate decision making process. This group of independent external experts and NGOs challenges a corporation’s activities in CSR, critically reviews the CSR report and turn attention to upcoming issues.In Box 3 an example of such a stakeholder panel is described:

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Box 3

TheLafarge stakeholder panel

Active since 2003 this group of 10 persons representing the Group’s main categories of stakeholdersmeets twice a year

They challenge Lafarge’s approach to CSR, suggest improvements and form each year an opinion on Lafarge’s performance and accountability in this field.

The panel makes a collective statement on Lafarge’s sustainability report. Lafarge publishes this statement without censorship.

Almost all of the members of the executive board participate in one of the two meetings.

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Beyond the mere exchange of ideas and opinions stakeholder panels can also be useful to develop or implement corporate CSR activities like e.g.:

  • Help in defining a companies policy
  • Help in drawing up a code of conduct
  • Employee awareness and training in CSR
  • Assistance in policy implementation
  • Help in drawing up progress indicators
  • Support with expertise on the local environment
  • Monitoring existing indicators and standards
  • Involvement in the design and implementation of a project
  • Social Audit

Source: ORSE: Strategic NGO Partnerships Guide, 2006

Box 4 sketches the stakeholder consultations process ABB conducted in order to collect feedback on the draft of their corporate social policy.

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Box 4:

In 2001 ABB published the first version of its corporate social policy. In order to “road-test” the policy and to collect ideas for its implementation ABB conducted stakeholder dialogues in 34 countries and involved national and international NGOs, trade unions, central and local government, academics, the media, religious groups and business partners.

In these stakeholder dialogues the following questions were discussed:

  • Does the social policy cover all the issues it should? What should be added and which issues are most important?
  • How do we put the social policy into practice? How can we measure compliance and progress?
  • Which of the principles should receive the highest priority in implementation?
  • Which of the principles are the ones on which ABB is most vulnerable to criticism?

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Other variations of stakeholder dialogue are stakeholder partnerships or multi-stakeholder partnerships. In stakeholder partnerships companies and a stakeholder develop and implement a joint project in order to solve a problem or conduct a project they could not tackle alone. An example:since 1999 Starbucks Coffee partners with TransFair USA, Fairtrade Labelling Organisation (FLO),and ConservationInternational in order to promote the production of fair-trade coffee. Starbucks and these NGOs join forces to conduct the verification process and help to improve the farmer’s environmental and agricultural practices.

In multi-stakeholder dialogues, as the name implies, actors form the corporate world, civil society, government and international organisations join forces to work on an issue that affects all of them and that has to be approached through cooperation.Here a corporation that is involved in the dialogue is no longer the focal organisations but becomes a stakeholder of the initiative. In this casethe company enters a network to solve a problem (inside out approach) and does not involve stakeholders into its organisation (outside in approach).Prominent examples for multi-stakeholder initiatives are e.g. the UN Global Compact or the Fair Labor Association.

All these different forms of stakeholder dialogues can have their justifications. It is not always possible and desirable to engage with all stakeholders in a consultative or decisional fashion. Especially if a company wants to gather information about the opinions of large stakeholder groups like customers, or most of the stakeholders in one country, surveys might be an adequate method. In box 5 the process for Vodafone’s stakeholder survey in Greece is described:

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Box 5: Vodafone’s Stakeholder Survey in Greece

“Vodafone Greece conducted a survey of 150 stakeholders during 2005. The aim was to assess stakeholder needsand expectations as well as to get detailed feedback on Vodafone’s performance and future actions.

Participants were selected from 11 key stakeholder groups: academia, business customers, employees, VodafoneShops franchise, 3rd parties’ associates, government, institutions, business community, journalists, NGOs and suppliers.

The survey was organised by Vodafone Greece’s CR department but all business functions were involved throughout.

For example the procurement department helped to identify and contact suppliers to take partin the survey. This contributed to the high response rate of 75%.

An independent agency carried out interviews in person using a structured discussion guide, and by phone usinga specific questionnaire. Vodafone Greece provided training to ensure the agency was familiar with the company’sCR programmes and understood the survey aims. Three employee focus groups were also organised.

The results were analysed in aggregate, by issue and by stakeholder group. For each issue and stakeholder groupthe company was able to identify any gaps between stakeholder expectations and actual performance. Afterthe survey the CR team met with each business function to present the findings and define plans in responseto the findings.»

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These classifications of types of stakeholder dialogue are in reality not always clear-cut and the boundaries between the different forms often overlap. Consequently, this guide on how to conduct stakeholder dialogues can only describe some general principles, project stages, and tools that would be applicable for most stakeholder dialogues.

Why should companies get involved in stakeholder dialogues? If a company wants to open up to or improve its CSR practices it cannot avoid to continuously examine its stakeholder scenario and the issues and positions that develop in the stakeholder network. Stakeholder dialogues are the logical step after this form of passive observation of one’s stakeholder network. Consequently, stakeholder dialogues are simply part of a companies overall CSR management. And it is important, that these dialogues are integrated into the general CSR strategy and the general stakeholder management. Only than stakeholder dialogues can help to create a proactive relationship between a company and NGOs that goes beyond a defensive and adverse mindset.

Companies hope to minimize their reputation risks if they learn about controversial issues at an early stage through stakeholder dialogues. But the opportunities of stakeholder dialogues (should) go beyond this mere protectionist approach: Getting involved with independent and critical opinion leaders is also a very effective way to initiate processes of learning and change within the organisation. In today’s hyper-interdependent world companies need the constant contact with their external environment in order to be responsive to the needs of consumers and society. Since almost all organisations are acting within a global context, managers must be able to communicate effectively across cultural, social, and geographic boundaries.

Like with any kind of human relationship the opportunities of the involvement with NGOs can also imply certain risks: Box 5 gives an overview of the risks and opportunities of stakeholder dialogues for companies and NGOs:

Box 5

For companies / For NGOs
Opportunities /
  • To signal their willingness to becomeinvolved in CSR practices
  • To improve their internal managementpractices
  • To benefit from expertise on the issues of CSR and how totackle them.
  • To improve their image within the companyand outside
  • To be able to open up to civil society
  • To avoid or escape from crisis situations
  • To create innovation
  • Facilitate community development
/
  • To be able to move their ideas forward
  • To encourage companies to adopt a vision of CSR rather than managing crises one by one.
  • to encourage companies to improve the way they act in social, societal and/or environmental contexts.
  • To be involved in determining strategy as well as in its monitoring.
  • To develop relationships with other companies.
  • To get more visibility and therefore more people involved in the cause defended by the NGO
  • To better understand how a company works and what challenges it faces
  • To create innovation
  • Raise credibility in establishing real discussions rather than having a hostile behaviour

Potential Risks /
  • To expose itself to potential attacksbecause its activities are under constantsupervision - A partnership is in no way akind of insurance against NGO campaigns
  • To be victim of information leaks
  • To waste time and money if the partnershipdoes not succeed.
/
  • To put its reputation on the line if it becomes involved with a company that proves unable to meet the original expectations
  • To compromise its principles and its original intentions in the name of the partnership, and hence lose its independenceand all credibility especially when the funding is predominant
  • To be exploited by an unscrupulous company that sees a way of destabilizing one of its competitors
  • To give rise to differences of opinion within the NGO
  • To replace consultants or employee representatives on some particular subjects (discrimination, human rightsrespect in the workplace…)

Source:

How to conduct a Stakeholder dialogue? A four-phased Process Model

It has become clear so far that there exist many different forms and methods of stakeholder dialogue. Consequently, the process I will describe here is only a rough guide that has to be adapted to the specific level of participation, the goals of the dialogue and the needs, objectives, and resources of the company and of the stakeholders involved.

The basis of this guideline is a four-phased process model

Adapted from: BSR Guide and the Collective Leadership Institute:

1. Phase: Exploration and Consultation

Before entering into a stakeholder dialogue a company hasto decide with what stakeholder(s) it would like to engage with, what issues it would like to discuss, what issues the potential stakeholders want to discuss, and what the companies and the NGOs objectives for the dialogue would be.

If companies pursue an instrumental approach in stakeholder management they start by screening their stakeholder scenario for the NGOs that have the most power and influence to threaten the company’s reputation. Although this approach is understandable form a business perspective, it will never achieve a high level of credibility with stakeholders. Furthermore, it might also be a high risk strategy to ignore less influential stakeholder, since it is always possible that these groups start new and successful campaigns that suddenly put a company under pressure.

Therefore, it is recommendable to start the exploration process with the potential issues the company has to address. There are two elements in the analysis of a company’s ethical issues. Overall, companies should be aware of the fact that they are potentially held responsible for all social and environmental problems that might occur along their values chain. As a consequence, corporations have to understand that chain itself and the various geopolitical contexts in which the steps of their supply chains are embedded.

First, companies analyse their ethical issues by deconstructing their value chain:

  • How are the working and production conditions at the suppliers?
  • What are the social and environmental impact of the production process and the products and services?

The following chart gives an example for the analysis of the value chain in the food industry: