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Stability through stakeholder engagement

Deepshikha Dharmaraj

Managing Director

Genesis BCW

Deepshikha.Dharmaraj@genesis-bcw.com

 

Stability through stakeholder engagement

While customer centricity is critical for business success, it has become increasingly important for organizations to build capacity for stakeholder engagement to ensure stable growth. This is especially true in India today, as companies are being increasingly called upon by regulators, investors, and other stakeholders to address some of the country’s most pressing problems, from economic and social development to the environment. Companies are not only expected to pay taxes and create jobs, but also to positively impact the communities in which they operate their business.

Indeed, this expectation is explicitly built into Indian law. Any company that has a net worth of at least Rs. 500 crore, a turnover of Rs. 1,000 crore, or a net profit of Rs. 5 crore is obligated to spend at least 2% of its average profits over the previous three years on CSR. Failure to comply can invite a fine ranging from Rs. 50,000 to Rs. 25 lakh as per the amendments to the Companies Act – and officials responsible for their company’s CSR deficit can even go to jail for up to three years! Beyond these laws, ESG (Environment, Social & Governance) investing is gaining ground in India with the launch of the first billion-dollar ESG focused investment fund. There are also several recent several examples of consumers and civil rights activists holding to ransom companies that have polluted the environment, while favoring those that produce goods and services sustainably.

The increasing focus on corporate governance, environmentalism, and social issues has necessitated greater stakeholder engagement. In our experience, many boards and CEOs of companies already know that the government, regulators, and customers will all have a great impact on their brands’ value. Many executives believe that there is going to be increasing stakeholder involvement in shaping the business agenda. We are already seeing this in sectors like motor vehicles, where the government is encouraging adoption of electric vehicles, and in financial services, where the government is pushing for wider adoption of digital transactions. Moreover, customers have increasingly started viewing brands from a social lens. Brands are expected to walk the talk when it comes to owning social and environmental responsibilities. Stakeholders have the capacity to influence and shape a company’s image and reputation in the market, and to impact its business!

For those less in the know, let us clarify: who, exactly, are these stakeholders? Broadly, stakeholders are defined as any individuals or groups of people who could affect an organization and its activities, or who could be impacted by an organization and its activities. Typical organizational stakeholders include customers, shareholders, creditors, regulators, employees, vendors, communities, and civil society. This could differ depending on the company or the sector; stakeholders can also be unique to certain businesses. Companies can build formal or informal engagement to understand their stakeholders’ perspectives on key issues, with an eye toward integrating stakeholders’ legitimate concerns into the business or brand strategy. Doing so enables brands to make informed decisions about their business, mitigate business risk, enhance brand goodwill, and ensure business stability. Moreover, having a proactive stakeholder engagement approach can prepare a company for emerging issues or crises that will affect the operating environment, thereby resolving potential conflicts, diffusing tensions, and limiting litigation exposure.

A good starting point for brands is as follows: First, define who the company’s stakeholders are. Then, ask who among these would be directly or indirectly impacted by corporate actions. Finally, define messaging for each stakeholder group that addresses existing or potential concern areas, and identify channels of engagement. This approach should clearly identify the desired output and outcomes.

While there is broad consensus that companies must engage their stakeholders, companies need to look at stakeholder engagement beyond mere compliance and make it a strategic priority. It is not enough to convene one annual meeting. Nor is stakeholder engagement the limited, time-bound exercise of a single team of people or department within an organization. Instead, it requires collaboration across the organization and all the employees and business partners. Companies can then create shared value by aligning stakeholder interests and build a stable future.