Effective stakeholder engagement: Pathways to impact

Effective stakeholder engagement is one of the trickiest parts of modern governance to get right. It takes a colossal amount of work, and if things ever fall out of balance, you’ll hear about it in a hurry. 

Let’s get one thing straight: the days of focusing solely on shareholder profits are over. Whether you do or don’t pursue inclusive principles like corporate social responsibility or collective leadership, you’ll find that they tend to creep into your decision-making and stakeholder relations anyway. 

This is especially true if your company is big. Here, you could have diverse groups of investors, each with differing opinions, some of them vocal enough for true activism. 

The result is that businesses nowadays recognise that creating lasting value means considering the interests of everyone involved: employees, customers, suppliers, communities, investors, and regulators. This evolution is driven by changing public expectations, the significant rise of Environmental, Social, and Governance (ESG strategy) considerations, and the influential voice stakeholders now have in our digital world.

Understanding this shift requires looking back at traditional ideas like shareholder primacy, famously championed by Milton Friedman, and contrasting them with newer models. 

Stakeholder Theory, introduced by R. Edward Freeman, argues that organisations depend on a wide range of groups for their success and survival. In most cases, ignoring these groups is no longer a viable option. 

This is Freeman’s widely accepted definition, which covers the essentials very clearly:

“A stakeholder is any group or individual who can affect or is affected by the achievement of the organisation’s objectives”.

Stakeholders matter because your business directly impacts them. As a result, you will often find them to be the loudest and most frequent source of feedback on your company’s successes and failures. Usually, if you don’t listen or act on this commentary, you create more problems than you need. That’s why it’s essential to build trust with stakeholders from the get-go.

Meaningful engagement is impossible without stakeholder trust, and this takes time to cement into your organisation properly. One or two positive events will not convince stakeholders. They need consistency, framed with the following qualities: 

• Competence: The ability to do what the organisation says it will do.
• Integrity: Adhering to ethical principles and being honest.
• Benevolence: Showing genuine care for stakeholder welfare.
• Transparency: Openness about operations, decisions, and impacts. Transparency allows stakeholders to understand organisational actions.
• Accountability: Taking responsibility for actions and outcomes.
• Communication: Open, honest, frequent, and empathic dialogue. Consistent, reliable communication is crucial for building trust over time.

Stakeholder engagement isn’t one-size-fits-all. It exists on a spectrum, ranging from simply informing stakeholders to empowering them in decision-making. When determining what approach is right for you, know that it depends a lot on your company and industry. 

The IAP2 Spectrum of Public Participation is a widely used framework that outlines five levels of communication, based on what you and your stakeholders want from each other:

1. Inform: One-way communication to provide information.
2. Consult: Two-way communication to gather feedback on proposals.
3. Involve: Working directly with stakeholders to ensure their concerns shape options.
4. Collaborate: Partnering with stakeholders to develop solutions together.
5. Empower: Placing final decision-making power in the hands of stakeholders.

It might seem that stakeholder engagement is too subjective to be adequately measured, but that is far from true in reality. Effective stakeholder communications can easily be tracked, and in fact, it’s often an essential metric for demonstrating the strength of your governance capacity. 

How well do you talk to the people who depend on you?

Here are some key ways you can track effectiveness:

• Quantitative Metrics like participation rates, interaction frequency and response times to emails and official complaints. 
• Qualitative Assessments, like feedback via interviews or focus groups, sentiment analysis.
• Relationship Quality: Assessing trust levels and satisfaction scores.
• Influence Tracking: Documenting how stakeholder input shaped decisions.

Being able to demonstrate your communication skills as a company is a tremendous asset when it comes to attracting more support or investment. People don’t want to put their money towards a venture where basic questions and answers take ages to materialise. If you can demonstrate efficiency in this area, you have an advantage from the start.

Many companies that have realised the importance of stakeholder engagement are already looking ahead to building more robust partnerships in the future. The idea of two separate groups keeping each other informed will be replaced by an integrated effort, where information flows naturally like never before. 

This, for many, is the path forward. It requires recognising stakeholders as co-creators of stakeholder value and collaborators in achieving organisational and societal goals. Key recommendations include:

• Developing a strategic framework with clear objectives linked to business and ESG goals.
• Embedding engagement into corporate culture and governance, championed by leadership.
• Utilising frameworks for systematic identification and stakeholder prioritisation.
• Building internal capacity and establishing clear processes for integrating feedback.
• Implementing robust tracking and measurement systems, focusing on impact and continuous improvement.

By embracing stakeholder partnership, organisations can unlock innovation, build lasting trust, enhance resilience, and contribute meaningfully to a more sustainable and equitable future.