Stakeholder engagement pays – a silver bullet?

Effective stakeholder engagement contributes both directly and indirectly to the bottom line. This post provides a sample of some proven benefits of stakeholder engagement for the major stakeholder groups. What is exciting, is that the generic communication skills at the heart of engagement are effective in diverse stakeholder settings. Surely engagement capability has to be a top priority for organisational development.

Some of the examples here have been in other posts – they are assembled here to demonstrate the multiple benefits of stakeholder engagement.


Companies with better CSR performance “face significantly lower capital constraints”. Beiting Cheng, Ioannis Ioannou and George Serafin’s research, Corporate Social Responsibility and Access to Finance, confirms their hypothesis that:

…better access to finance can be attributed to reduced agency costs, due to enhanced stakeholder engagement through CSR and reduced informational asymmetries, due to increased transparency through non-financial reporting.


An impressive array of research and anecdotal reporting evidences the vital importance of effective employee engagement. Here are a couple of examples:

  • David McLeod, in a report to the British government in 2008 estimated the cost to the UK economy of their low levels of engagement to be between £59 and £65 billion pounds.
  • Recent Gallup research identified a high correlation between effective engagement and high earnings per share (eps). Companies with “exceptional employee engagement” achieved eps more than four times that of their industry competitors.

By engaging employers, companies are engaging their engagers.


Gallup also provide impressive figures for those companies that engage effectively with customers.

Our studies reveal that customers who are fully engaged represent an average 23% premium in terms of share of wallet, profitability, revenue, and relationship growth than the average customer. Actively disengaged customers represent a 13% discount in those same measures.


This video from Walmart reveals efficiencies generated by the partnership between the company and Peterbilt, who supply trucks. The partnership is helping Walmart to achieve its target of a 100% increase in transport efficiency by 2015 from a 2005 baseline.

While I can’t support this anecdotal evidence with figures, the director of a local company attributes an effective relationship with suppliers with the survival of his company. When the company was experiencing difficulties, several suppliers extended credit to help the company through.


Witold Henisz led a major Wharton School research project delivering evidence of the financial benefits of effective stakeholder engagement in gold mines in Spinning Gold: The Financial Returns to External Stakeholder Engagement. The research team studied the impact of stakeholder engagement on the financial performance of gold mines and gold mining companies. They created an index based on 50,000 stakeholder events from the activity of 26 gold mines.

By incorporating this index in a market capitalization analysis, we reduce the discount placed by financial markets on the net present value of the gold controlled by these firms from 72 to between 33 and 12 percent.

Increased productivity of the effective engagers where able to start mining earlier than poor engagers. You can read more about this here.

This is just a sample of the increasing evidence of the efficacy of stakeholder engagement. Please add any others as a comment.


Engagement and the value chain

A quiet revolution is underway that is transforming business practice. For years we talked about the supply chain. Companies can do good and enhance profitability by converting their supply chains to value chains. To keep it really simple, I believe the key difference between these chains is that various parts of the supply chain seek to extract value creating winners and losers. The various stakeholders in the value chain seek to create value, and ideally, create shared value.

The graphic below contrasts the supply chain and the value chain. It deliberately polarises the two concepts to illustrate how the value chain can transform business. If you want a deeper understanding of the value chain, try Bob Willard’s blog. I am going to focus on giving some diverse examples to illustrate the how a value chain ethos can transform business and create multiple benefits.

Supply chain – parks and reserves

Going back two or three decades, most city councils in my country (New Zealand) had in-house parks and reserves departments. As financial reforms swept through the country, this function was contracted out. In the first years, the councils had a number of suppliers, but over time, using their power in the relationship, the contractors were encouraged to “sharpen their pencils” when tendering for contracts. While this was good for the ratepayers, as it drove down costs and the training infrastructure embodied in the old system was severely damaged. Now in a user pays age, staff employed by contractors, have to pay for their own training if they want qualifications.

The supply chain and value chain in gold

Here is an extract from Harriet Lamb’s Fighting the Banana Wars and Other Fair Trade Battles (page 170 – 171).

The most vulnerable people mining gold are getting ripped off, they earn absolutely nothing – and so work in the most appalling conditions…. the men go deep underground hacking out the ore. Kids as young as six then stands on a huge granite rock rolling it over the ore mixed with water and mercury, which gradually absorbs the gold.


Then these kids scoop it up with their bare hands into cut off plastic bottles and take it to their homes. There, on their kitchen stoves they evaporate the mercury, so releasing poisonous gasses, to leave the gold.

Mercury is incredibly toxic – just small amounts will kill over time. I imagine these children have to work, because their parents are busy doing the heavy work extracting the ore, and the financial returns are so poor. Do you think these people know that the price of gold has gone through the roof – probably not. I imagine that some of this gold goes to gold plating in the mansions of the opulent, or for rapper “bling”. These consumers would have no idea of the suffering they are complicit in (is that too harsh?).

The Fairtrade movement seeks to extract miners from the supply chain and embed them in a value chain. A major difference will be that those making the purchase will know the good that their purchase creates. Here is a video telling the story of Fairtrade and Fairmined gold. Note the children grinding the ore.

Walmart’s value chains

Earlier blogs have identified how Walmart is created shared value in supplier relationships with companies such as Peterbilt. The massive trucks Peterbilt sells to Walmart are at the heart of their strategy to reduce their emissions 100% by 2015. Peterbilt will benefit both from this long-term relationship with Walmart, and in creating technology to make their vehicles more environmentally friendly – probably opening up other markets.

Another value chain strategy is Walmart’s intention to reduce sugar and sodium content and eliminate transfats from the foods they sell. As they supply 25% of the food in the U.S., they benefit the consumer and the wider community by, hopefully reducing the burden on the health system. Here is Daniel Goleman commenting on the Walmart value chain.

Here are just three examples of the supply and value chain. Feel free to comment and add further examples.

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Stakeholder engagement drivers – Part 3: enlightened self-interest

The first part of this series of blogs outlined three three drivers for stakeholder engagement, self-interest, enlightened self-interest and altruism. In this blog we will look at enlightened self-interest using Walmart for illustration. Such companies want to make money and be more sustainable. They attempt to operate in ways that are not just financially sustainable, but also factor in the well-being of others and care of the environment. They look for synergy in these aspirations.

The sweet spot

The emergence of sustainability as a major driver of business decision making is now undeniable. Companies that attempt to privilege their own self-interest over broader societal and environmental concerns will become increasingly irrelevant. Smart companies pursue the “sweet spot”, of synergy between self-interest and creating value for society and the environment. In the sweet spot self-interest becomes meritorious.

 Walmart as an example of enlightened self-interest

First some disclosure: I live in New Zealand – we have no Walmart stores so I rely in the media for my knowledge of Walmart. Much has been written about former CEO Lee Scott’s crucible experience in Hurricane Katrina and the company’s work to rectify negative publicity. Given its sheer size, Walmart still attracts negative publicity, but there is an increasing amount of evidence that they are a great example of enlightened self-interest.

In part one of this series, factors that indicate enlightened self-interest are:

  • engagement focus
  • creating value chains
  • sustainability aspirations
  • values driven decision-making

And as they embed these practices evidence of altruism starts to emerge and the organisation becomes more driven by the greater-good. Here are some examples. They explicitly illustrate the creation of value chains and sustainability aspirations, and we can infer they require an engagement focus and values decision decision-making.

Creating shared value with suppliers

In each trans-pacific journey from China to Walmart, the massive Emma Mersk transports 15,000 containers. With 60,000 suppliers, it must be difficult for Walmart to achieve intimate engagement with each, but the company can have a huge influence in ramping up sustainability expectations. With larger suppliers, such as Peterbilt, Walmart are working closely in pursuit of its sustainability aspirations. Peterbilt recently delivered eight hybrid trucks to help Walmart achieve its goal of 100% increased efficiency by 2015 from a 2005 baseline. In this video Hunter Lovins, of Natural Capitalism Solutions, states “Walmart may now be the centre of environmental responsibility on the planet”. By combining improved aerodynamics, auxiliary power units capturing energy from breaking, improved rolling resistance in tyres and improved load management Walmart has already achieved 60% reductions. Walmart’s aspirations reduce costs and pollution, delivering on self-interest and benefits for customers, suppliers and the environment.

Learning from criticism

If Walmart was motivated solely by self-interest, it would choose suppliers based mainly on cost. In a recently announced initiative, the company revealed plans to double what it buys from businesses owned by women by 2016. The initiative will support women’s economic development both in the U.S. and other supplier nations and promote greater gender and minority presence through the entire value chain. Earlier this year, a class-action lawsuit by some of Walmart’s female workers was dismissed by the US supreme court. Whether or not these issues are linked indicates that Walmart continues to respond to and learn from public perception.

Public health – towards altruism

Walmart’s recent initiative to require suppliers to reduce sugar and sodium in foods, and to eliminate transfats is another great example of enlightened self-interest – the company has been criticised for being part of the American obesity culture. This initiative has potential to generate huge good, as Walmart supplies 25% of the nations food. Those suppliers and others will now be rethinking their role in public health. As Walmart ventures more into this territory, is it on the cusp of altruism? I welcome your thoughts.

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Sustainability depth – are you green from top to bottom?

Companies trumpet sustainability initiatives, but what is the significance of these initiatives? Another lens we can use to evaluate their efforts is a measure of sustainability depth. There are three levels of performance to consider:

  • the company’s in-house sustainability performance
  • the impact of the company’s products and services on society and the planet
  • the company’s leadership role in sustainability in its industry or sector.

Lets look at examples of some industries to understand the significance of this approach.


You probably will have noticed banks that use advertising to announce their use of green cars. Or perhaps they have chosen to occupy green office space. While these initiatives are helpful, they are dwarfed by the impact the banks’ products and services have on the planet and society. The capital that they provide can support sustainable initiatives or more traditional extractive initiatives. The flow of capital has tended to be more determined by risk analysis rather than an analysis of sustainability.

The practices and example of the Grameen Bank exemplify creative thinking and dedication to sustainable aspirations (in this case, the eradication of poverty). The achievements of the Grameen Bank leave most Western Banks looking homogenous and deficient in leadership. One notable exception (you may know of others) is Vancouver’s VanCity Bank. This statement from their Accountability report indicates their willingness to show leadership at all three levels.


Another evidence of their commitment to sustainability is their relative longevity – Citizens Bank, a subsidiary, was talking about sustainability before the turn of the century. Closer to home (New Zealand) the Australian banks here were at least more conservative and responsible, sheltering us from the worst of the financial crises.

In the banking industry, the impact of their in-house sustainability initiatives are miniscule, compared to the greater impact of their products and services and the banking industry’s huge influence on economies. The banks to support are, yes, those who run fleets of green cars, but more importantly are engaged in leadership discourse in their industries. The worst examples of banking were the junk-bond traders that were essentially corrupt and dishonest. Who are the banking leaders who will follow the example of Muhammad Yunus and position the industry to both serve and prosper?


As with banking, you can imagine retailers who focus on in-house sustainability, but are locked into the need to grow their business. They may be tempted to sell whatever they can to make a buck with little focus on the environment or wider society.

It appears that Walmart has become a very positive exemplar of deep sustainability. They have a long way to go – but are taking initiatives from in-house sustainability, through to industry leadership. Here are examples:

In-house sustainability – For Walmart, electricity is their number two operating expense. They are moving on two fronts.LED lights have been installed in freezer panels, providing a 70% reduction in energy consumption. LED lights will eventually be rolled out throughout stores and carparks. Walmart also have installations of solar panels underway. Over 30 stores are already installed with another 20 to 30 in the pipeline.

Another massive opportunity to improve in-house sustainability is with Walmart’s transport fleet. This video refers to a goal to increase transport efficiency by 100% from a 2005 baseline, by 2015. By the end of July 2011, they have achieved 65%.

Impact of products and services – Walmart aspire to improve the quality of food that their customers eat. Here is an extract from a recent article:

With more than 140 million customer visits each week, we have an opportunity to make a real difference in the nutritional quality of the food we sell, so we have a long-term goal to make food healthier and make healthier food more affordable.

First, we are reformulating thousands of our private brand packaged food items and working with branded products to do the same. By 2015, we will:

  • reduce sodium by 25%
  • reduce added sugars by 10%
  • remove all remaining industrially produced trans fats in our packaged food.

And here is a video about organic lettuce production at Walmart.

Leadership role in sustainability – Because of its size, Walmart can be particularly effective as a leader in the retail industry. When they get interested in initiatives such as LED lighting, solar panels and transport efficiency, they indirectly accelerate the mass adoption of better technology by consequence of their size in the market place. Recently Walmart has turned its focus on food-waste, reacting to the news that approximately one-third of food produced globally is wasted and are working with the USDA on projects to reduce waste. They also are working to access produce closer to the point of sale.

The examples here are a sample of the great work that Walmart is doing and provide a great illustration of a company engaging with sustainability across the three dimensions identified here.

Drive and imagination is the key

In the positive examples here, including Professor Muhammad Yunus of the Grameen Bank and Walmart, we see clear evidence of a desire to create a better world. This drive in turn generates the cognitive resources of imagination and breadth of vision that create new possibilities and transform industries from the top to the bottom.

I would love to hear of more examples.