Proactive Approaches To Stakeholder Engagement

Engagements with other stakeholders can be crucial in assisting a company to understand what society expects. William, Janvrin, Perkins and Raschke (2016:248) outline that each type of stakeholder group has its own interests in the company, but there are multiple and common interests that join stakeholders or sub-groups of stakeholders together at some point. For instance, employees and civil society are likely to be interested in environmental safety and better living and working conditions.

Environmental organisations are likely to be interested in protecting civil society from the negative impacts that arise from business processes. In other words, environmental organisations are concerned with companies’ relationships with the natural environment (Rossouw, 2015; Benn et al., 2016:3). In its process of investing in the society and environment, a company needs to engage social and environmental stakeholders to identify priorities instead of confining investment to unsustainable charity acts and philanthropy. Many businesses pursue corporate social responsibility (CSR) activities that can best be termed pet projects that reflect personal interests of individual senior executives (William et al., 2016:249). While these activities may be presented with much noise and fanfare, they usually offer minimal benefits to either business or society. In the middle are efforts that can make both sides feel good but generate limited and often one-sided benefits (Maignan, Ferrell & Hult, 1999; 456). With philanthropy, for example, corporate donations confer the majority of benefits on society questionable reputational benefits to the business).

Similarly, in what is best referred to as propaganda, CSR activities are focused primarily on building a company’s reputation, with little real sustainable benefit to society. Some cynics suggest that this form of CSR is, at best, a form of advertising and is potentially dangerous if it exposes a gap between the company’s words and actions (William et al., 2016:251). Having a positive impact on societal issues such as improving living standards is not a quick fix project (Kolk, 2010:371). Companies that want to partner need to have a long-term mind-set backed up by solid promises an measurable commitments and actions. Their initiatives must demonstrate added value to both shareholders and stakeholders over time.

This study focuses on outlining how stakeholder engagement or involvement plays a part in the creation of shared value. To create shared value through consultation, involvement or participation of social and environmental stakeholders, a company needs to design business processes and business strategy that is stakeholder oriented. There is growing dissatisfaction by stakeholders around the world at being inadequately engaged in the processes and decisions that affect their biophysical, social, cultural, and economic environment (Fassin, 2012:88). This dissatisfaction is reflected, for example, in protests such as those that took place in Marikana in 2012 where 34 employees lost their lives due to lack of effective stakeholder engagement (Drake, 2013).

An increasing number of cases are being taken to court because the concerns of interested and affected parties have not been adequately taken into consideration in the decision-making process (Drake, 2013). In South Africa, opportunities for stakeholder engagement have, however, been increased by democratic governance, the increasing degree of decentralisation in decision-making, the growing influence of non-governmental organisations (NGOs), community-based organisations (CBOs) (Asuelime, 2017:53). Poorly run stakeholder engagement processes have led to a large degree of criticism by Interested and Affected Stakeholders (IASs) and environmental consultants. This reveals that processes of engaging need be improved. Businesses have different methods of engaging as explained below.

I have located the research of this paper within a qualitative approach (Gay 1992; Babbie 1998; Leedy & Ormrod 2013). This decision was informed by the fact that this paper is not interested in the quantification of data. But its main interest lies in the painting of qualitatively rich picture of the phenomena being studied within the context of limited respondents (Hall 2007; Maserumule 2011; Baugh & Guion 2016). To this end, the problem of this study is explained descriptively and theoretically for the purpose of generating a crispy understanding of the approaches to stakeholders’ engagement at large. In terms of data collection, the author sourced and reviewed literature on the topic. Among others, these sources included journal articles, books, magazines, newspapers and King IVreport.

Businesses can adopt various approaches when engaging with their stakeholders. Proper choice of an effective approach reduces financial, reputational, and political risks (Jensen & Berg, 2012:303; Bhattacharyya, 2018:192). This may be true for companies that have the intention of building visible, prominent brands, which can be more vulnerable to reputational risk. Understanding the concerns and interests of employees, customers, NGOs, politicians, and business partners helps a company to manage environmental and social expectations better, resulting in reduced risk of brand assassination, improved access to capital, cost savings, and reduced vulnerability to regulatory changes (Jensen & Berg, 2012:303; Bhattacharyya, 2018:192). Engagement helps companies understand stakeholders’ changing expectations and needs and it assist in identifying issues that could become critical or simply lead to changes in the way a business operates (Jensen & Berg, 2012:300). There are different approaches that businesses use to engage stakeholders.

Gray (2006:805); De Schepper, Dooms and Haezendonck (2014:1219); Crawford and Smith (2019:45); and Kovoor-Misra (2019:26) reiterate that the management of some companies might decide to ignore stakeholder concerns entirely. It means the companies do not consider societal issues as valuable. Companies should not treat opinions and concerns of stakeholders as immaterial (Porter & Kramer, 2011:13). The reactive approach allows companies to do less than required and, at times, deny its responsibility (Ewah, 2019:293). The following is an example of what happens when companies use the reactive approach as reported by Loubser (2013):

The Vaal Environmental Justice Alliance (VEJA) is a voluntary association of non- governmental and community-based organisations that advocate for a healthy environment and sustainable development in the Vaal Triangle. This is an area of heavy industry and mining in the south of Gauteng, in which two of Arcelor Mittal’s major steel plants are situated, namely, Vanderbijlpark and Vereeniging sites. On 3 June 2013, the VEJA and people of Vaal picketed outside the South Gauteng High court to push for increased transparency and accountability from Arcelor Mittal SA (AMSA) mining company. The civil rights organisation, VEJA, decided to fight for the community to gain access to critical information in order to improve environmental governance and protect the health of communities in the Vaal.

The biggest problem in this area is the unsustainable activity of mining granite. The environmental authorities, the lead agent according to law, allowed and condoned the operation of new granite mining activities using an unsustainable process called boulder-hopping, which destroys the landscape forever (Loubser, 2013). Before a new mining operation commenced, public meetings with stakeholders were held, which the society claims window-dressed the consultations since none of the concerns of the community were taken into consideration. Interested and affected parties felt dishonoured and disrespected from collection of objections and comments that, in the end, where discarded and never considered (Loubser, 2013).

After such meetings, where objections are discarded, Environmental Management Programme Reports (EMPRs) goes ahead to approve the mining applicant. Should a new granite mine be opened next to an existing mine after a few years, the exact same procedure is followed without taking the impact of the existing mine into account. The Department of Mining (DME) is perceived to work on a very simple principle of ignoring the public and any NGOs, operating in that particular area, that are concerned with the environment. They determine whether or not members of the public have funds to go to court. If the public cannot afford a court case, they ignore them. Should the public have the funds, the DME adheres to the law until the permit is approved. Thereafter, they amend the EMPR administratively in their offices and then work on another principle: it is difficult for the public to take the matter to court on an administrative decision (Loubser, 2013). Any complaint, if it does not reach the media or court, is ignored. If a complaint is reported to the media, the DME either goes to ground or issues a statement that “the matter will be looked into” (Loubser, 2013).

According to Abo-Murad and Abdullah (2019:3), the existence of protest reflects a breakdown in relationships because of the failure of proponents and/or authorities to effectively and equitably engage with stakeholders. It might be seen as a demand by stakeholders to be more effectively and equitably engaged in decision-making processes that significantly affect society and environment. Alexander, Runciman and Maruping (2015:16) posit that protest activities may take a number of forms, including petitions, marches, strikes, boycotts, and vandalism. In South Africa,there has recently been an increase in protests, for example, in connection with service delivery, impact of international trade agreements, globalisation, and the activities of mining and oil companies. Reactive approach is also known as protest approach because businesses wait for stakeholders to react or protest.

According to Fassin, (2012:89); Ewah, Igbaj and Iyang (2019:293), defensive approach is whereby companies reluctantly and partially acknowledge their responsibility. Companies provide information to help stakeholders to understand business operations and the company is ready to receive stakeholder concerns and inputs but an element of consultation is non-existent (Ewah, 2019:293). Information is disseminated through advertisements, magazines, news articles, exhibits or displays, formal reports, website, field trips, and conferences. When using this approach, companies make available all the positive information and conceal any negative information (Ewah, 2019:293).

In August 2010, a UK company, AstraZeneca, paid out £125m to settle a class action. More than 17,500 patients claim that the company withheld information showing that a schizophrenia drug, quetiapine (trade name Seroquel), can cause diabetes (Goldacre, 2010). In the drug case, the manager of AstraZeneca admitted that it is their practice to bury any negative data (Goldacre, 2010).

It is sometimes through litigation that the public gets to know the negative effects of products and services at their disposal.

In 2005, the International Committee of Medical Journal Editors put its foot down and said its journals would only publish trials that were fully registered before they started, which should make those that went missing much easier to spot. Several years later, as recorded in this column, fewer than half of all the trials that the editors published had been adequately registered, and more than a quarter were not registered at all (Goldacre, 2010).

According to Fassin, (2012:83); as well as Nguyen, Mohamed and Panuwatwanich, (2018:81), this approach can also be termed the information dissemination approach. The company informs stakeholders of a proposal, activity or decision. The information provided may be designed to help control stakeholders and make them understand an issue before it is distorted by a third party such as the media (Fassin, 2012:84; Nguyen et al., 2018:81; Ewah et al., 2019:293). The meetings are held to contain or control stakeholders. The information disseminated might be true but incomplete (Nguyen et al., 2018:81). This approach is usually augmented with the provision of philanthropic activities and corporate social activities that are not necessarily there to improve the material needs or sustainability of stakeholders as defined by stakeholders (Kariuki, Guyo & Odhiambo, 2018:1927).

The information dissemination approach does not provide defined objectives of the stakeholder engagements and responsibilities of the different stakeholders. It does not take cognisance of environmental consultants and stakeholder engagement practitioners (Kariuki et al., 2018:1927). The result is often that the expectations of different stakeholders regarding the outcomes of the process are mismatched. This approach is characterised by ill-planned procedures and techniques in the stakeholder engagement process.

Consultation happens, but stakeholders’ views and concerns are not considered most times since company management is the one that decides on materiality (Hult et al., 2011:62). This unequal balance of power causes a company to take advantage of its stakeholders, especially when their level of literacy is low. The combination of these problems and challenges has led to accusations, in some cases, of token stakeholder engagements with companies taking advantage of unequal balances of power and resources to force proposals through the decision-making process (Unerman, 2007:139). There is no opportunity for stakeholders to comment on the outcomes after the consultation process unless they form lobbying groups. Consulting stakeholders for feedback dissemination is called public relations and should not be confused with stakeholder engagement (Hult et al., 2011:62).

According to Crawford and Smith (2019:45); and Kovoor-Misra (2019:26) a company that uses the involvement approach has stakeholder engagements that manifest accountability in a well-functioning democratic environment. The engagement process aims to effectively achieve the desired objectives without wasting effort and resources while ensuring that the process is fair and just (Fauver & Fuerst, 2007:23). With the involvement approach, the company and stakeholders work together in the planning stage to establish concerns and issues of the stakeholders (Crawford & Smith, 2019:45). Involvement approach is a step towards collaborative inclusive approach or empowerment approach. The difference is on the parties that make decisions. In Accommodative or involvement approach, when concerns and interests of stakeholders have been identified, the decision on what should be included in the business model lies with the company. Fassin (2012:88); Crawford and Smith (2019:46) agree that involvement allows stakeholders to map but not make decisions. In other words, materiality of stakeholder concerns is in the hands of the company. Stakeholders have no power to select needs that should be prioritised. Responsibility for decision-making is retained by the entity (Fassin, 2012:88). In Accommodative approach, an element of withholding information by one party is possible. This approach is similar to McGregor’s Theory Y that allows participation of stakeholder in the formulation process and all the stages of decision-making process but retains implementation to the proponents (Mohamed & Nor, 2013; 716).

According to Evan and Freeman in Lindblom and Ohlsson (2011:29); Valentinov, Roth and Will, (2019:843), there are two principles for effective stakeholder engagement: the principle of corporate legitimacy and the principle of stakeholder fiduciary. These two principles outline that proponents should create a platform for stakeholders to participate in decisions that materially affect them and take cognisance that they are just agents employed not only for financial interests of shareholders but for all (Valentinov et al., 2019:843). The two principles outlined by Valentinov et al., (2019:843) further propose setting up of a stakeholder board of directors solely meant for stakeholder engagement. Freeman and McVea (2001:202); and Aina (2019:74) propose the board to have a representative from each type of stakeholder and be led by a unanimously chosen director. In South Africa, Valentinov, Roth and Will, (2019:843); Aina (2019:74)’s proposals have been adopted by JSE- listed companies through King IV (2016). All stakeholders are involved and procedures on how to engage stakeholder types have been stipulated in the Code. The level of stakeholder involvement, engagement or inclusion stipulated in the Code does not seem to suggest that all stakeholders be included on the final decision point. Inclusivity approach as stipulated in the King IIV (2016) seems to encourage companies to involve all key stakeholders in the decision making process without prescribing the point at which management can close doors and finalise a decision. The Code‘s weakness can be flouted or can be used positively as leverage by companies that wish to perform above the set standards. For instance, Top ten companies in the EY Excellence awards report that they involve stakeholders and collectively implement stakeholder decisions.

Nevertheless, Freeman and Evan’s proposal is presented in Figure 1 below.

Figure 1 illustrates that different stakeholders have different interests and needs. Therefore, these stakeholders cannot be managed as one, hence the need for each type of stakeholder to have a representative in the board for stakeholder engagement. Representative have the mandate to convey communication to and from stakeholders but this approach has a loophole which representatives can abuse if they decide to serve their own interests. King IV (2016) has recommended the representative approach and companies are slowly adopting it.

In collaborative inclusive approach, stakeholders are given enough time to sit down and form their forums in order to collect concerns and interests of stakeholders (Morris & Baddache, 2012:4). Pollet (2013); and Aina (2019:60) reiterate that representatives of stakeholder groups review concerns and become involved in the implementation process to the end of the cycle. The collaborative inclusive approach includes stakeholders in the operational management phase. The company implements what has been decided by stakeholders (Pollet, 2013; Ewah, 2019:293) and the company allows stakeholders to monitor progress.

Management and all other decision-makers are able to understand the degree to which stakeholders will be affected by any acceptance of a trade-off (Kariuki et al., 2018; 1929). This approach brings informed decision-making, greater transparency, and an opportunity or willingness for interested and affected parties to play a role in the decision-making process (Hult et al., 2011; 59). As a result, it may assist in building up the credibility of environmental assessment and management processes. Business Social Responsibility (BSR) (2019:24) is based on the notion that through dialogue, there is provision of appropriate information and the willingness and commitment to find a solution acceptable to all parties. With this approach, it is possible to reach a decision which best meets the interests of the various stakeholders. Stakeholders are empowered. This means all stakeholders are given the chance to decide on what should be implemented. Their ideas are pooled together and based on those inputs, a consensus decision is made. An illustration on empowerment of stakeholders is presented in Figure 2. The company receives a pool of stakeholder interests from all stakeholders as shown by the funnel in Figure 2. All parties agree on what they consider as material and implement the collective decision. Collaborative inclusive approach or empowerment approach can be presented in a diagram as shown in the Figure 2below.

Figure 2.2 shows the ideal process of making decisions together with all stakeholders. At this level, responsibility for decision-making is shared between stakeholders (Unerman, 2010:139). Effective and equitable engagement between stakeholders contributes to the identification of key issues and possible solutions (Madlala & Govender, 2018:7). Collaborative or inclusivity approach helps to ensure that proposals that have a significant effect on society and the environment, are taken into account (Shackleton, et al., 2019:91). In this way, the potential negative impacts of a proposal or activity may be minimised through proactively engaging stakeholders (Madlala & Govender, 2018:7). According to AA1000 (2008), inclusivity involves:

i. accepting to be accountable to stakeholders;

ii. establishing a stakeholder participation process that cuts across groups of stakeholders is the company;

iii. integrating stakeholder engagement with all other processes in the company;

iv. establishing continuous ongoing communication with stakeholders to build trust;

v. putting in place the necessary competencies and resources to operate the process of stakeholder engagement;

vi. identifying capabilities of stakeholders and implementing robust and balanced engagement strategies, plans and modes of engagement for stakeholders; and,

vii. Establishing ways for stakeholders to be involved in decisions that will improve sustainability performance such as building the capacity of internal stakeholders, a supporting building capacity for external stakeholders to engage, and addressing conflicts or dilemmas between different stakeholder expectations.

For effective stakeholder engagement to take place, Madlala and Govender (2018:7) further elaborate that meetings, task force formulation, advisory panel committee meetings, focus groups, workshops, and other forms of collaboration should be held. The number of engagement might depend on the issue or situation. In consonance with the same idea Shackleton et al. (2019:89) allude that this proactive type of approach saves on resources as stakeholders can identify concerns and interests as a team, and traditional wisdom is utilised in decision-making. To summarise the ideas above, collaboration is likely to minimise conflicts and mitigate issues to avoid any possible litigations. It may reduce the authorisation process time since the firm may not wait for stakeholders or follow a hierarchy. A detailed example of a collaborative or inclusive approach for stakeholder engagement was developed by the Business for Social Responsibility (BSR) organisation. The approach is outlined in the stages below.

Business for Social Responsibility (BSR) is a global non-profit organisation that works with its network of more than 250 member companies and other partners to build a just and sustainable world. Business for Social Responsibility develops sustainable business strategies and solutions through consulting, research, and cross-sector collaborations (BSR, 2019).

Furthermore, BSR (2019) suggests a five-step approach for the effective strategic management of stakeholders. The approach outlines that engagement requires a shift in a corporate mind-set and a change from treating stakeholders’ issues as outside concerns to serious dialogue (Pollet, 2013; Oskam et al., 2020:24). The implication is that, if properly embraced, stakeholder perspectives should inform a company’s strategy and operations (Madlala & Govender, 2018:1). However, the level of knowledge about stakeholder engagement may vary among key personnel. With an internal common understanding of stakeholder engagement, you can move on to building a strategy.

Stages of engagement.

Suggested stages of engagement

Source: BSR (2019:9) Morris and Baddache (2012:4); as well as BSR (2019:9) exhaustively explain the five steps illustrated in Figure 2.3 as follows:

STEP 1: Strategy briefing

a. Review of the past: It suggests a review of the company’s engagement history. Lessons from past engagements will help to focus on the current strategy BSR (2019:11).

b. Deciding on a level of ambition: This happens when you judge the effectiveness of the previous and current engagements so that a decision can be taken to continue with the same approach or change it BSR (2019:11).

c. Clarifying business objectives for the engagement: Each engagement should be conducted to fulfil planned objectives BSR (2019:12).

Step 2: Stakeholder mapping

According to Morris and Baddache (2012:6), mapping is an important step for understanding who the key stakeholders are, what makes them company stakeholders, and what they are expecting to benefit from the company. Mapping stakeholders is a visual exercise and an analysis tool that can be used to further determine the most important group of stakeholders (Benn et al., 2016:3). Mapping allows one to see where stakeholders stand when evaluated by the same key criteria and compared to each other and helps to visualise the often complex interplay of issues and relationships created in the criteria chart above. Benn et al., (2016:2) propound that multiple perspectives are used to determine a key list of stakeholders across the entire stakeholder spectrum. Mapping can be broken down into four phases listed below.

a) Listing of stakeholders: A list of relevant groups, organisations, and people who might have an interest in your company should be compiled (Benn et al., 2016:5; BSR, 2019:26). This means the list can change as the situation or the environment changes or as stakeholders themselves change decisions or opinions. The approach considers potential stakeholders from new markets, new technologies, new customers, and new impending regulations (BSR, 2019:26). This is an opportunity to reach out and mix the old with the new (Tullberg, 2013:130), including individuals from each of the following stakeholder categories: influencers, collaborators, advocators, and implementation partners. Social media provides an unparalleled opportunity to identify and reach lesser- known stakeholder groups. In consonance with this idea, Bellucci (2016:995) suggests use of canvas, blogs, forums, networking, reviews, and news sites to discover stakeholders relevant to the business and learn about their interests. Businesses have a tendency to focus on formal authorities in the mapping process, but the loudest voices or heaviest campaigners are not necessarily key stakeholders. Silent members may have a hidden wealth of expertise.

b) Analysis of stakeholder needs: The list of stakeholders should be analysed to understand stakeholder perspectives and interests. In the same vein, identifying a list of stakeholders is useful for further analysis to better understand their relevance and the perspective they offer to understand the issues that relate or link them to the company and to each other. Moreover, BSR (2019:27) clarifies that the analysis will assist in deciding engagements that need to be prioritised and to develop a list of criteria to assist in analysing each identified stakeholder. In the same regard, Brennan and Merkl-Davies (2014:605) outline that legitimacy or the right of the stakeholder to be engaged, their willingness to engage, and the level of influence each type of stakeholder has over the business strategy, are some of the factors to consider when analysing stakeholders.

c) Mapping the networks or relationships: Mapping means visualising relationships to objectives and to other stakeholders. It involves grouping stakeholders according to their assumed attributes. It involves identifying the influential groups, negligible groups, and based on these groups, the company can closely monitor or engage the groups accordingly (BSR, 2019:27).

d) Prioritisation: This allows the company to give preference and more attention to those groups that can affect the ability of the company to operate (Morris & Baddache, 2012).

STEP 3 and 4: Preparation and implementation

Fauver and Fuerst (2007:23) emphasise that preparation is the most important step for successful stakeholder engagement. More time should be dedicated to the preparation than the delivery of an engagement. Instead of allocating more resources on cultivating excellent facilitation skills, more, as alluded by Nguyeni et al., (2018:75), should be channelled into properly defining and designing the rules, assigning the roles of engagement, and the management of stakeholder expectations. All actions in prior steps should be designed to inform and improve the preparation process. After defining strategic objectives and prioritising material needs of stakeholders, choose engagement tactics. According to BSR (2019:33), the choice of engagement tactics will lead to a format that matches the level of ambition. Depending on the scope of the engagement strategy, multiple tactics may be considered in order to address different stakeholder groups simultaneously (Tullberg, 2013:132).

Step 5: Action plan

An action plan that takes into account the concerns and perceptions that stakeholders express during the engagement, as well as key discussion points, is developed. Nguyeni, et al. (2018:80) posit that each action should define roles and responsibilities for implementation, milestones, and a realistic timeline for completion. This step suggests that, before issuing the decision and implementing what was agreed, the concerned and affected stakeholders are consulted to confirm if the document is representing their final decisions (Madlala & Govender, 2018:1) allude that engagement facilitators can be drawn from internal stakeholders and/or external experts or consultants who are not stakeholders. Nguyeni et al. (2018:81) outline that the action plan serves as a progress report for goals and objectives and as a basis for the future engagement strategy. In addition to that, an action plan can also be used to analyse unmet goals so that realistic goals can be set in the future. Finally, stakeholder feedback is gathered to further improve the future engagement strategy and the cycle continues.

The study realised that there are different approaches to stakeholder’s engagement. The study understands that each type of stakeholder group has its own interests in the company at any given time although there are multiple and common interests that join groups of stakeholders together at some point. Stakeholders ‘interests are dynamic. Ultimately, companies employ approaches that suit the prevailing circumstances. Accommodative and collaborative or inclusivity approaches have been seen to simultaneously address multiple concerns of a group or groups effectively. Proactive continuous engagement with stakeholders brings mutual trust and builds sustainable relationships.