January 22, 2015

Corporate Social Responsibility Stakeholder Engagement: Opportunity for Business to Thrive?

Keith T. Vernon

It’s Friday afternoon and you find yourself in a group lunch with business and attorney colleagues when a colleague shares with the group his work in preparing for an upcoming “CSR stakeholder engagement.” Unaware of what exactly a CSR stakeholder engagement is, you excuse yourself, Google “CSR,” and quickly find information on corporate social responsibility. You learn that CSR comprises many aspects of intentional corporate work designed to help a corporation operate at its highest ethical and legal level including engaging on specific social issues that impact its business. It is here that a corporation may engage on high impact issues affecting its business including human rights, water stewardship, and human trafficking.

Comforted with your CSR Google research, you then Google “stakeholder engagement.” You learn that stakeholder engagement is a way for a corporation to reach out and meet with parties interested in the corporation’s business impacts on social issues – for example, how a corporation manages its water use in water-stressed parts of the world – ensuring its impact on the community is managed carefully and its need for water to operate its facilities is preserved. The engagement is designed to provide a formal process for communication between committed stakeholders and corporate representatives allowing stakeholders to detail business concerns and engage with the corporation on ways to impact the issues. 

Both terms seem to make sense and even sound a bit familiar. Armed with your Google knowledge, you confidently rejoin lunch, where you listen and nod as the conversation progresses. After lunch you find yourself asking yourself the question – what really is CSR stakeholder engagement? And more importantly, do I need to know more about what this area of business entails? The answer may very well be “yes.” If your practice includes advising businesses on internal policies and procedures, external policies and procedures, supplier contracts, governance, compliance, public relations, or even more generally issues related to corporate responsibility and contractual obligations including requirements within the supply chain, then you may someday find yourself providing counsel related to the issues in a CSR stakeholder engagement. You may someday be asked to join a stakeholder engagement to provide initial guidance on the impact that a new human rights policy would have on the corporation’s operations around the world. The issues could be many, including understanding the laws that would apply both in the United States and other countries in which the corporation operates. You may be asked to consider the compliance and transparency obligations that would come from the adoption of a corporate-wide water stewardship policy. You may be asked to advise on the effects that arise from the information reporting that may come from the adoption of the policy. More practically, you may be asked to provide advice on the practical growing contractual effects such a policy could have or require of your client’s current and future contracts within the supply chain. 

Some CSR Stakeholder Engagement Fundamentals

Stakeholder engagement, when done at its best, is an opportunity for a corporation to carefully listen to issues raised in the engagement, work to fully understand the viewpoints presented around the issues, and then engage in dialogue, response, and action where warranted. There are many styles and practices designed to create an environment for a successful dialogue. A few practices are critical. The party seeking the engagement must be well-informed with facts and supporting information in raising the issues which it seeks to engage on. The party seeking engagement should invest the time to understand the business operations and business environment in which the business it seeks to engage operates: without fully understanding the business operations, meaningful dialogue can be challenging. The party seeking the engagement must work to establish trust within the engagement, ensuring that parties at the table seek to understand one another’s positions and concerns in good faith. At the core of the engagement, the party seeking the engagement must work to make the business case for why the concern being raised is one which, once addressed thoughtfully, will create business value for the corporation. The corporation, if it hopes to benefit from the engagement, will have its best opportunity to do so if it enters the engagement with a true willingness to hear and understand the concerns being raised – committed to carefully listening to the positions being advocated and determining throughout the length of the engagement the opportunity for growth that may come from implementing responsive action to the concerns being raised. Stakeholder engagement is done best when the critical process of “trust and respect” is established – simple, yet essential to the process: true trust and respect. Once the information and facts supporting the concerns are fully evaluated and understood, a process for good faith engagement can move forward. The components of a CSR stakeholder engagement can vary from engagement to engagement, but the fundamental purpose of a stakeholder engagement is to provide a framework for a dialogue (conversation) in which committed stakeholders bring concerns forward to a corporation with the intention of discussing and hopefully coming to consensus in the form of a policy, a practice, or perhaps training designed to address a particular issue. Stakeholder engagements often involve teams including corporate executives ranging from public relations professionals, sustainability professionals, attorneys, and subject matter expert executives matching the dialogue topics. For example, in a dialogue focused on a corporation’s human rights policies and actions, you will likely have a corporate representative most familiar with human rights policies and practices within the corporation. Often, for the dialogue team initiating the engagement, teams will include stakeholder representatives and professionals with subject matter expertise committed to having a robust conversation around the concerns being raised. 

The Rev. David Schilling, senior program director of the Interfaith Center on Corporate Responsibility, a coalition of 300 faith-based and socially responsible investors founded in 1971, has been working within the stakeholder engagement model for two decades. He has seen the fruit of engagements done well through the efforts of committed stakeholders and corporations set on making the corporation better through well-crafted stakeholder engagements. Rev. Schilling has also witnessed the rising tide of engagements and the breadth of topics being engaged. He adds: 

Ten years ago stakeholder engagement for most companies meant episodic, one-off meetings with a few selected stakeholders designed to put out fires. Today, there is an emerging global norm where companies now see ongoing engagement with non-governmental organizations, investors, consumers, and local community groups as essential to assessing and addressing their social and environmental impact on communities. Leading companies incorporate strategic stakeholder engagement into their business plan and see the value in entering equal partnerships with affected communities, whether it’s a beverage company in India on water scarcity, an apparel company in Bangladesh on wages, fire, and building safety, or a food retailer sourcing seafood from Thailand confronted with slave labor. 

Just How Relevant is CSR Shareholder Engagement?

To begin to shed light on whether CSR engagement is “opportunity for business to thrive,” we move beyond the quick Google research and see what CSR means to professionals operating in the CSR world. Bart Alexander, principal at Alexander & Associates LLC, has been operating in the corporate responsibility world for decades, including serving as the chief corporate responsibility officer for Molson Coors. Bart accepts the evolving nature of CSR and the fact that the term means different things to different folks, but believes that CSR at its core is fundamental to the long-term success of a corporation, adding: 

CSR simply means making money the ‘right way,’ which requires simultaneously building shareholder value, providing social benefits, and enhancing our physical environment. Of course, there are many puts and takes to be weighed, which will vary in relative importance depending on what time frame is used. Typically, there are a number of CSR strategies, such as improving eco-efficiency, that make good financial sense in the short run. However, some of the transformational changes that will produce the greatest financial, social and environmental impacts will require a longer time horizon to demonstrate ROI. 

Alexander acknowledges that making the case for strong CSR initiatives within the context of all the other business concerns a corporation may be dealing with can be a challenge, and that the business case for CSR – the “why” is CSR-relevant is essential and must be made well, adding: 

Across the world, societies are recognizing both the limitations on government capacity and the significant role of the private sector in influencing, if not determining, social and environmental outcomes that go beyond typical measures of shareholder return. Companies that understand these changes will seize the opportunity to be the competitive winners in generating economic, social, and environmental capital. Those that do not may find themselves subject to negative reactions from their customers in terms of market performance and the public in terms of regulation and taxation. 

Well, that sounds good, right? Corporations certainly aspire to be ethical in their practices and very often engage in rigorous analysis to develop strong, consistent, and fair policies. For example, most companies have in place procedures to ensure fair employment practices for their employees. And most companies set forth specific policies to ensure compliance with all applicable laws. You may even have clients who have called upon you for help in constructing a policy to ensure guidelines for responsible water use and runoff within its manufacturing plants throughout the world. And, some of these policies and procedures may have been driven by stakeholder engagement. So perhaps, as you reflect a bit, you already are involved in some aspects of business decisions within CSR policy and actions. As many forces push to create growing levels of corporate compliance and transparency (including within supply chains), corporations are moving to meet these demands through many mediums, including through actively engaging in stakeholder engagements. 

But is CSR stakeholder engagement really that relevant, and are business leaders interested in CSR? If you ask Father Nicky Santos, SJ, he would work to convince you they are! Father Santos brings a particularly unique perspective to CSR stakeholder engagement as he has served on stakeholder engagement teams and teaches business marketing ethics – standing at the intersection in which business seeks to grow while recognizing the growing number of issues that can impact a business – and the value a well-crafted CSR and stakeholder engagement plan can bring to the corporation. Father Santos, a Jesuit priest and professor at Marquette University’s School of Business, believes CSR and stakeholder engagements have moved up the business chain within a corporation to now stand as a highly critical piece for corporations (intentional with their operations and actions impacting business both today and into the future) that have a long-term horizon. Father Santos is encouraged to see corporations standing up and engaging in good faith dialogues with the purpose of understanding concerns that are being raised and seeking to find solutions that will add shareholder and societal value. Father Santos believes CSR stakeholder engagement is business opportunity and opines that some of this is driven by a deep belief within today’s business leaders wanting to impact the world in a positive way as they seek to fulfill the business operation goals they set out to achieve. Father Santos notes a growing shift in just how important the idea of doing well in business while ensuring your impacts on the world are managed responsibly, and adds: 

I see a big shift in student attitudes towards CSR, from when I did my MBA some years ago at Marquette, to the students I now have in my class. When I did my MBA, there were just a few students who would subscribe to the stakeholder model and to CSR concerns. Today, it is just the reverse. Most MBA students expect companies to be good corporate citizens and to care about social and environmental issues. This perspective is even more pronounced in the undergraduate classes. It is almost like a given. 

CSR Stakeholder Engagement is an Opportunity to Thrive

Given the increasing presence of committed and well-informed stakeholders raising issues impacting corporations’ immediate and long term success, engagement with committed and well-informed stakeholders is indeed an opportunity. With the increasing compliance and transparency demands on corporations, a committed CSR program with careful attention to stakeholder engagement should prove to provide short-term and long-term advantages for a corporation. Alexander thinks that stakeholder engagement opens opportunities for corporations committed to innovation and growth. He adds: 

Engagement with diverse stakeholders exposes the company to new information that may inform previously unknown risks and opportunities. I encourage companies to focus their stakeholder engagement, first, on those key stakeholder groups who materially impact the business, and second, on the issues that really matter to those key stakeholders. The people and the issues are very different for different companies, depending on their products and services as well as geographical footprint. While the initial focus will be on what the companies can do themselves, over time, the greater value lies in forging partnerships with other companies, governments, and civil society organizations to effect meaningful and sustainable change. Companies that don’t intend to adapt to a changing environment should probably eschew stakeholder engagement, which might expose risks and concerns that need attention, and which if left unaddressed, create liabilities. Similarly, addressing new opportunities would require business changes, so these prospects are probably best left to more flexible and adaptive competitors. 

Father Santos believes the business case for a careful and well informed stakeholder dialogue is solid. With the benefit of seeing the fruits of a multi-year engagement around complex and significant human rights issues with a large corporation resulting in the adoption of a world-wide human rights policy, Father Santos has seen the benefits that can come to a corporation engaged in a trusted and committed dialogue. He adds: “what the corporation did as a result of adopting this policy was to intentionally require their executives, employees, suppliers, and contractors to adhere to the tenets of this policy, thereby reducing possible human rights violations.” 

When done well, stakeholder engagement should be a win for all sides. A growing number of business leaders are coming to view CSR work as essential as the very quality of the product they provide and service they offer. These leaders view CSR engagement as an avenue to engage pressing societal concerns that also impact their businesses. By engaging in meaningful dialogue and working toward ways their companies can mitigate down their risks and impacts on the concerns raised, these leaders contribute to answering the call to very real problems that will likely impact their companies either today or in the future. Businesses that invest in CSR and listen carefully to the concerns raised by committed stakeholders will be poised to benefit from the engagement and thrive well into the future.

Keith T. Vernon

Vernon Law Firm

Keith T. Vernon is principal of the Vernon Law Firm, practicing in Washington, D.C.