In a recent McKinsey Article “Business, society, and the future of capitalism”, Paul Polman, the CEO of Unilever, argued a strong case for Business taking a much broader look at how it contributes (positively and negatively) to society at large. He highlighted how business needs to “work much more transparently and effectively in partnerships”. My sense is that enterprises need to develop a broader understanding of the spectrum of stakeholders in their enterprise and, moreover the expectations these stakeholders have for the enterprise.
“Any company – certainly a company of our size [Unilever]- has thousands if not millions of shareholders, and they can have different objectives. Some want you to spin off businesses and get a quick return. Some want share buybacks, some want dividend increases, some want you to grow faster. It’s very difficult to run a company if you try to meet the needs of all your shareholders. So we spent time identifying those we thought would feel comfortable with our longer-term growth model instead of catering to shorter-term interests.”
Whilst the focus of the Paul Polman article was large global issues, the need for better engagement with stakeholders also applies at a more micro level and in smaller enterprises. One enterprise I am familiar with had grown steadily through the 1990s and early 2000’s under the leadership of a CEO who owned 40% of the equity in the business. Members of the CEO’s extended family owned the remaining 60% and had shown little, if any interest, in the management of the enterprise. Over the last 20 years, 75% of the profits of the enterprise had been retained and used to fund expansion and pay down debts. The enterprise had minimal borrowings in 2008. Revenues held steady in 2009 and but they were only being maintained in 2010 by introducing discounts. The CEO and his senior managers undertook a comprehensive review of the business and concluded that they should expand geographically into emerging markets in Latin America – where a long standing friend had good contacts from his time as an Attaché in an Embassy in Brazil. The CEO prepared a paper for a Board Meeting outlining the current situation, the review of the enterprise and the conclusion. The CEO was shocked when the board rejected his paper and requested his resignation. Subsequently a new CEO from outside the family was appointed on an interim basis and two consultants were engaged to develop a profit improvement programme and options for the sale of the business.
I have previously written about the value enterprises can gain from higher engagement with one of the key groups of stakeholders – employees. This is reinforced by Paul Polman in the McKinsey article quoted earlier:
“People are proud to work on something where they actually make a difference in life, and that is obviously the hallmark of a purpose-driven business model. We’re getting more energy out of the organization, and that willingness to go the extra mile often makes the difference between a good company and a great one.”
I encourage all Leaders to develop a simple annual plan of activities to secure and then optimise dialogues with the full spectrum of their stakeholders. The objective being that Stakeholder Engagement improves year on year and Executives are not faced with a shock like the one outlined above. Moreover, this dialogue should improve the stakeholders’ understanding of the enterprise and provide a foundation for improved commitment to the company.
A practical start point for preparing such a plan could be the preparation of a simple Stakeholder Expectation Matrix. The dialogue involved in this process can provide a rich stream of insights that can help both current performance and your agility. By sensing changes in the expectations of society, your competitive environment, amongst your value chain, the owners of your enterprise and your employees, you can develop a more proactive agenda.
Developing stakeholder commitment is one of the three themes that I discuss in my book “Strattomics” (alongside exceling at current activities, spotting changes in the operating environment early, and developing the agility needed to embrace new threats and opportunities. Please take a look at the new 2nd edition of “Strattomics” that is now available in both print and Kindle versions and contact me if you think we can help you develop a stakeholder engagement plan.