Part 3

The importance of stakeholder engagement

What is stakeholder engagement?

At its most basic, corporate social responsibility (CSR) is about seeing business as an integral part of Canadian society, the global community and the environment that supports it. A business does not exist in isolation. It relies on a multitude of relationships with customers, employees, suppliers, communities, investors and others -- in other words, stakeholders.

Stakeholder engagement comprises the formal and informal ways of staying connected to the parties who have an actual or potential interest in or effect on the business. Engagement implies understanding their views and taking them into consideration, being accountable to them when accountability is called for, and using the information gleaned from them to drive innovation.

Stakeholder engagement spans a continuum of interaction that reflects the degree of influence stakeholders have in decision making. At one end, businesses simply inform stakeholders of their plans. At the other, stakeholders are deeply involved from early in the decision-making process. In between are varying degrees of consultation and participation. Suncor Energy characterizes three positions on the continuum as information sharing, consultation and collaboration. In this guide, stakeholder engagement includes, at a minimum, a genuine effort to understand stakeholder views.

Why does stakeholder engagement matter?

One way to understand the importance of stakeholder engagement is to look at what can happen when it is not done: customers see the firm as unresponsive to their needs; employees feel unappreciated; suppliers trust the firm less; communities dig in their heels; and investors get nervous. Three key reasons for stakeholder engagement are building social capital, reducing risk and fuelling innovation.

Building social capital. In today's business environment, social capital is at least as important as fixed assets. Social capital refers to features of social organization, such as networks, norms and social trust, that facilitate coordination and co-operation for mutual advantage.

Social capital is the foundation on which a firm renews its “licence to operate.” It is the basis for employees' willingness to give their best. It is essential to brand value. Social capital means strong, trusting relationships. It is forged slowly over time through positive interactions with stakeholders, but may be quickly lost when trust is broken.

Benefits of building social capital include improved access to information, enhanced influence, increased adherence to group norms, and being given the benefit of doubt should an unexpected problem arise.

In a recent document, Stakeholder Relationships, Social Capital and Business Value Creation (2003), the Chartered Accountants of Canada noted that the extent to which social capital creates value depends on the context, the perspective of the stakeholder and the nature of the corporation's strategic goals. While it is not possible to measure the value of a corporation's social capital, it is possible to assess the quality of a firm's stakeholder relationships and the potential contribution of social capital to the creation of business value.

Reducing risk. In an environment of instant, global communication, stakeholder engagement can provide an early warning of service or product concerns of customers, safety, human rights and environmental concerns of communities, and governance concerns of shareholders, among other issues. With a stakeholder engagement process in place, a firm will have a way to respond to stakeholders' concerns promptly, before they become much bigger problems.

Fuelling innovation. Stakeholder engagement can improve information flow, identify business opportunities and generate ideas. Some researchers have suggested that businesses that cultivate a culture of learning and transparency in relation to stakeholders will have an edge in the increasingly wired and knowledge-driven world.

Another way to understand the importance of stakeholder engagement is to consider the role that customers, shareholders, employees, suppliers, communities and others can play in the “plan, do, check and improve” aspects of a CSR implementation framework.

Planning. During the planning phase, stakeholders can assist in identifying a firm's environmental, social and economic impacts, and help develop a firm's CSR strategy.

Doing. Shifting from planning to doing, stakeholders play an important role in developing a firm's CSR commitments, as well as implementing the commitments.

Checking. At the checking stage, stakeholders are integral to verification and progress.

Improving. Finally, the input of stakeholders can be crucial to a firm's evaluation and improvement activities.

In all phases, approaches to engagement should be practical and transparent, tailored to the abilities and needs of the firm and the stakeholders.

How to approach stakeholder engagement

A five-step stakeholder engagement process is set out below.

1. Identify stakeholders
2. Understand the reasons for stakeholder engagement
3. Plan the engagement process
4. Start the dialogue
5. Maintain the dialogue and deliver on commitments

Note that the order and the steps suggested here simply represent one way of approaching stakeholder engagement.

Depending upon the issue or issues involved, the size of the firm and other factors, firms may choose less elaborate approaches than that outlined here.

CSR and Small Businesses

Stakeholder engagement for small firms Stakeholder engagement is a great way to check whether a firm's CSR approach resonates with those with whom the firm interacts. Still, small business owners and managers might think, “Stakeholders? I wouldn't know where to begin finding them let alone engaging them in our decision making. Do we really need to open this can of worms?"” The object is not to do more than is realistically possible. Begin simply by determining main stakeholder groups -- most often employees, customers and the local community. Engaging them can be accomplished easily by placing CSR information on the firm's website, sending out e-mail updates or creating a flyer outlining CSR initiatives. It is also possible to set up an e-mail account for anyone to use to ask questions and make comments about products or practices.