Corporate Diplomacy

Building Reputations and Relationships with External Stakeholders

Witold J. Henisz

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351287869
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Managers of multinational organizations are struggling to win the strategic competition for the hearts and minds of external stakeholders. These stakeholders differ fundamentally in their worldview, their understanding of the market economy and their aspirations and fears for the future. Their collective opinions of managers and corporations will shape the competitive landscape of the global economy and have serious consequences for businesses that fail to meet their expectations.

This important new book argues that the strategic management of relationships with external stakeholders – what the author calls "Corporate Diplomacy" – is not just canny PR, but creates real and lasting business value.Using a mix of colourful examples, practically relevant tools and considered perspectives, the book hones in on a fundamental challenge that managers of multinational corporations face as they strive to compete in the 21st century.

As falling communication costs shrink, the distance between external stakeholders and shareholder value is increasingly created and protected through a strategic integration of the external stakeholder facing functions. These include government affairs, stakeholder relations, sustainability, enterprise risk management, community relations and corporate communications. Through such integration, the place where business, politics and society intersect need not be a source of nasty surprises or unexpected expenses.

Most of the firms profiled in the book are now at the frontier of corporate diplomacy. But they didn't start there. Many of them were motivated by past failings. They fell into conflicts with critical stakeholders – politicians, communities, NGO staffers, or activists – and they suffered. They experienced delays or disruptions to their operations, higher costs, angry customers, or thwarted attempts at expansion.

Eventually, the managers of these companies developed smarter strategies for stakeholder engagement. They became corporate diplomats. The book draws on their experiences to take the reader to the forefront of stakeholder engagement and to highlight the six elements of corprate diplomacy.

One
Due diligence:

Mapping and analysis of your stakeholders

Due diligence, or the lack of it, doomed AES in Georgia. The company’s mergers and acquisition staffers and its investment bankers undoubtedly vetted Telasi—they surely understood its low collection rate, its antiquated accounting systems and its rickety distribution network. They also probably appreciated the scope, if not the precise extent, of the electricity thievery—the illegal lines spider-webbed throughout Tbilisi. What they did not appear to factor into their plans were the Georgians themselves—their history, their habits and their expectations. AES’s top management, both in Georgia and the US, did not seem to appreciate the tenuousness of Shevardnadze’s power, the local suspicion of foreign multinationals, or Russian resentment of US incursion in a country tucked against its southern border. AES fancied itself a savior. Plenty of locals saw it as an invader.

This chapter offers a guide to a novel stakeholder mapping and analysis protocol—a synthesis of a number of existing tools that can help you understand the sorts of factions and forces that buffeted AES so badly in Georgia. These tools are built on data extracted from stakeholder surveys, media analysis, and historical and demographic research. The chapter shows how to aggregate and visualize that information so as to answer these critical questions:

• Which stakeholders matter most?
• Which grievances should I stress?
• Which stakeholders should I rely on to introduce me to others?
• How are stakeholders learning about me and how can I influence their opinions?

Once compiled, a stakeholder database lets you do scenario analysis or modeling to allow you to see not only the current stakeholder landscape, but also the likely future evolution of that landscape. Modeling allows for an examination of current trends and comparisons of hypothetical interventions.

Of course, no matter how good your stakeholder data and modeling, the personal side matters too. Think of it this way—perfectly placed name cards do not make a party. A charming and canny host does. Just as the host discretely reshuffles the name cards when someone brings an unexpected guest, you will have to modify your plans once you have begun operating in a new place. Learning and adaptation are always required. So is a communication strategy to introduce your firm to a new audience, publicize your plans and persuade people of your good intentions. A committed team of employees will be needed to execute those plans. Due Diligence is essential, but it is just one element of an integrated approach to corporate diplomacy.

Stakeholder data

Individual-level data

Who are your stakeholders?

Who should be included within your stakeholder database? The goal is to incorporate people or groups who have a stake in the outcome of your project, and who can influence its success or failure now or later.

Stakes may be direct—someone will get, say, money or a job; or indirect—he or she will receive benefits from another person or organization that benefits directly. Even when people are not affected in obvious ways, they may still care about the outcome. They may associate a project with any number of controversial topics such as imperialism, political favoritism, government intervention in the economy, the loss of traditional values or environmental degradation. Sometimes, their beliefs might not seem reasonable, but that will not make the holders any less convinced they are true.

The set of potential stakeholders can seem overwhelming. Screening based on influence is thus required. Include in your database any stakeholder who can ruin your day. That potential is a function of how much power stakeholders have and how much your project matters to them.

How powerful are your stakeholders independently?

Power seems straightforward—a company CEO has it, an unskilled worker does not. But quantifying it poses difficulties. There is no objective unit of measurement, and people may differ in their perceptions. A laborer in the island nation of Tuvalu probably sees his prime minister as powerful; the CEO of Exxon Mobil may not. In the context of corporate diplomacy, the appropriate measure of power reflects the extent to which a stakeholder owns or controls resources that can influence a desired outcome or public opinion about that outcome. These resources include money, legal or political rights, and guns. They also include reputational assets and other sources of “soft power” that confer influence or status. The 14th Dalai Lama, Tenzin Gyatso, has little formal power, but many people, and not just Tibetans, see him as a moral leader of unusual probity and charisma.

Power does not lend itself to a single objective measure, so it is easier to consider it in relative terms—how does the power of one stakeholder compare with another? Who follows whose leadership? The goal is to assess the resources that an individual or organization has that can influence the success or failure of any project. Critically, this measure does not vary by project but is an overall score that should be equivalent for any given investment or project in that location. Contextual differences in power related to the nature of a proposal or due to the ability of one stakeholder to influence others are captured elsewhere.

Is a stakeholder’s disposition towards the project cooperative or oppositional? Are your operations perceived as legitimate?

Like power, stakeholder position can be hard to define, but it is relatively easy to array stakeholders with respect to their degree of support or opposition for your work. Cooperation and conflict are signaled by words or actions. Pledging support and giving time, for example, signal cooperation, while condemning and protesting indicate conflict.

Some scholars and practitioners speak of the extent to which a firm, investor or policy-maker receives a social license from stakeholders. A social license is offered by a stakeholder when that person or group perceives you or your outfit as acceptable or legitimate at a moment in time. Social license is based on perceptions, not objective criteria, and, like a personal reputation for fair dealing or truth telling, it can be lost if it is not maintained. Its measurement requires canvassing the opinions of stakeholders.

How motivated are stakeholders by the opinions of their peers?

Some stakeholders may be resolute in their opposition, even in the face of pressure from their family, friends or allies. Others may be swayed by the opinions of peers. Someone’s degree of independence can affect his or her role in a stakeholder network. Some stakeholders are more prone to jump to the majority, while others will stand fast even if they are the last holdout.

What issues matter to your stakeholders?

In developing an engagement strategy, you should understand what matters for each stakeholder. What do they value? What matters less to them? You may be able to bundle issues together in a manner that shifts the overall level of cooperation. If, for example, a stakeholder worries about environmental protection, addressing pollution may help. By contrast, influencing someone else may require attention to schools or healthcare.

Relational data

How strong are the connections between stakeholders?

Every stakeholder operates in a network of some sort—family, friends, neighbors, colleagues, co-religionists or political allies. Through these networks, stakeholders share information and resources and, at times, work together to achieve common goals. Understanding the structure of a network helps to identify key relationships and influencers—people who touch and can sway many others. For each stakeholder pair identified, your database should contain information on the strength of the particular stakeholder relationship (as compared to that between other stakeholder pairs), the kinds of connections between the stakeholders (financial, informational or social), their joint activities (political, work or social) and their typical means of communication (e.g., face-to-face conversations, phone calls, email, online social networks).

Are relationships cooperative or conflictual? Do they afford each other a social license?

Using the same approach as described above, you can capture a stake-holder’s disposition towards peers.

Summary of data structure

The resulting database includes a minimum of four fields for each stakeholder (name, power, disposition and social influence), plus an additional field for each stakeholder for each issue that matters to that stakeholder (i.e., if there are ten issues in play and all matter to everyone, there would be 14 fields per stakeholder). In addition, there are two pieces of information on each stakeholder pair that have a connection. The total data structure thus contains a maximum of 4N + NI + 2N² pieces of information where N = the number of stakeholders and I = the number of issues. For a case of 100 stake-holders and 20 issues, the maximum number of fields is (4 × 100) + (100 × 20) + (2 × 100 × 100) = 400 + 2000 + 20,000 = 22,400. Typically, however, each stakeholder has preferences over only a fraction of the issues and connections to only a fraction of their peers. If we assume that each stakeholder has preferences on 25% of the total issues and connections to 5% of their peers, we arrive at a more manageable (4 × 100) + (100 × 20 × 0.25) + (2 × 100 × 100 × 0.05) = 400 + 500 + 1000 = 1,900 fields.

Data sources

Many sources can contribute to a shareholder database. Some can be accessed quickly, such as news articles available online. Others, like the information on social relationships, will require more time and money to collect. Either way, reliability increases with effort expended.

Expert assessments

In the easiest and quickest process, a small group of managers with knowledge of external stakeholders creates the database in a workshop over the course of a few hours. They draw on their experiences with stakeholders and their knowledge of media reports and other sources. The process may include a consultant or facilitator. It may also be informed by the report of an external consultant with expertise into relevant political and social dynamics. This approach relies upon the objectivity of the managers involved. They must accurately and dispassionately record information on stakeholders. Inasmuch as they do not, the database loses value.

A powerful tool to develop a quick analysis that minimizes bias has been developed by Eva Schiffer. Her Net-Map diagnostic tool⁸⁴ was developed when she was a post-doctoral fellow for the International Food Policy Research Institute working in rural Ghana with the Challenge Program on Water and Food. The process involves the literal mapping of stakeholders using figures whose varied heights represent their power. These are then linked with color-coded markers capturing different types of relationships. A group of internal experts and, possibly, external stakeholders can convene a workshop to quickly identify the pertinent inputs and create the map. The map itself, which is seen by all participants in the workshop, helps to identify biases and omissions while highlighting areas of disagreement among participants. Furthermore, the act of making it is itself a form of stakeholder engagement, which can help to build and maintain trust between the company and stakeholders. These benefits have been seen in the use of Net-Map in water projects in Ghana, Canada and Iraq; agricultural projects in Zambia, Uganda, Nigeria, Malawi, Kenya, Ethiopia and Brazil; women’s health advocacy in Ethiopia, Malawi, Nigeria and India; nutrition policy in Bangladesh; development policy in Burundi; and environmental policy in the US.

In-depth stakeholder surveys

A common next step is a stakeholder survey co...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Dedication
• Contents
• Acknowledgments
• Preface
• Introduction
• 1 Due Diligence: Mapping and Analysis of Your Stakeholders
• 2 Integration: From Stakeholder Maps to Financial and Operational Performance
• 3 Personal: Stakeholder Relationships Are Personal Relationships
• 4 Learning: Humility in Adapting to Negative Feedback in a Necessarily Imperfect Strategy
• 5 Openness: Strategic Communications to Reinforce Trust and Reputation
• 6 Mindset: Externally Facing Long-term Organizational Culture
• Conclusion: 12 Traps to Avoid
• Endnotes
• About the author
• Index