Companies that sit down to discuss the concerns of campaigners should be much clearer about what they want to get from the process, says Chandran Nair.

Stakeholder engagement is a buzz phrase in corporate responsibility. The process by which multinational companies communicate with and seek to understand the concerns of stakeholders is vital for building a responsible business.

A large portion of this engagement is directed towards civil society organisations working to hold companies accountable for their social and environmental impacts. With so much of a company’s intangible assets defined by the brand, it is no surprise that even a loosely coordinated activist campaign can be highly threatening for reputation-management teams.

However, there is a need to question the sincerity with which companies go about this engagement.

While the trend towards greater collaboration between corporate and civil society is admirable, current models of stakeholder engagement have proven largely ineffective. So far they have failed to drive substantial improvement on environmental degradation, labour abuse and corporate responsibility in Asia. Corporate engagement on the issues too often arises as a reaction to threats rather than from a thoughtful, strategic approach towards change and improvement.

Despite being fertile areas where actual improvement can be made, even the most engaged companies – such as Coca-Cola, HP, BP and Shell – have tended to avoid difficult topics, seeking to develop defensive strategies instead of solutions.

NGOs share responsibility for this situation. Well-meaning groups are often too far removed from the realities of the business impacts they attempt to address. Quite often they have inadvertently worked against solutions because of their inability to compromise, lack of effective tactics or a desire to retain a high media profile by taking extreme positions.

Despite current shortcomings, corporate engagement with stakeholders is vital. Meaningful relationships are starting to be established between executives and leaders of civil society. One example is the Global Network Initiative, a multi-stakeholder process to promote free expression and privacy on the internet involving Microsoft, Google and Yahoo and various human rights campaigners.

Outcome audit

But decision-makers on both sides of the table in such initiatives need to start thinking about what they really want as an outcome of the process. Do they want to see substantial change in the way business gets done, or another process of dialogue that keeps NGOs busy, (even paid by sponsorships of events), and eventually lets companies off the hook?

So what can and should be done differently to ensure that corporate stakeholder engagement has a meaningful and substantial impact? How can leading companies transform the engagement malaise into competitive advantage?

An important first step in the process is for a company to assume ownership of the negative impacts of their business rather than being in denial or steering public attention elsewhere through unrelated corporate responsibility initiatives. Before spending time and resources on stakeholder processes, a company must determine how committed it is to getting something done, and state this very clearly.

In addition, companies need to tap their internal knowledge base and engage a wider cross-section of internal process owners. Divisions such as finance, purchasing, logistics, compliance and others can create internal incentives. When business units say one thing and corporate responsibility departments suggest another, business inevitably wins out.

This process of internal engagement creates a huge opportunity in unlocking innovation from within. If an electronics manufacturer is looking to improve supplier performance on environmental issues, it stands a far better chance of succeeding if it engages process managers who are more likely to see solutions, as they have no desire to be defensive.

Ultimately the decision for a company to look at engagement strategically needs to be driven from the business units and understood as a business imperative rather than an isolated PR issue. Individuals on the senior leadership team are the first stakeholders who need to be really engaged. The company can then draw from a wider array of internal company stakeholders and gather honest input on what works and what does not, before engaging external stakeholders.

Challenge presents opportunities. Under current models of engagement, such opportunities are largely unrecognised. Yet engagement in difficult challenges, when approached seriously and strategically and focused within, will lead to unexpected successes.

Chandran Nair is founder and chief executive of Global Institute for Tomorrow.