Thursday, April 24, 2014

Corporate diplomacy and stakeholder engagement: Five questions for Witold Henisz

Henisz: "Corporate Diplomacy is the proactive engagement of external stakeholders"
Witold Henisz, author of the new book "Corporate Diplomacy: Building Reputations and Relationships with External Stakeholders" answers five questions about his tome.

Tobias Webb: Your new book is on corporate diplomacy, what is that exactly? How is it manifested? 

Witold Henisz: Corporate Diplomacy is the proactive engagement of external stakeholders to win their hearts and minds in support of the creation of shareholder value. It is not just feel-good atmospherics or canny public relations.

It seeks to transform the place where business, politics and society collide from a source of nasty surprises or unexpected expenses to a source of value for shareholders and society.

Realizing this vision requires staffers in the functions that contribute to corporate diplomacy, such as government affairs, communications and community relations, to move beyond the moral suasion that typically dominates diplomacy discussions, and embrace quantitative, data-driven decision-making.

It begins with the identification of external stakeholders, and the issues they care about, and pinpoints which of these issues offer the greatest potential for financial gains and losses.

Implementing a corporate diplomatic strategy then requires melding of this analytic approach with a traditional one steeped in an understanding of human behavior and the cultivation of personal relationships.

Relationships do still matter, and they must be nurtured in a manner that builds trust. The inevitable conflicts must be managed in a manner that does not damage relationships. Goals and achievements must be communicated, and all members of the organization must believe in, and support, these inter-related elements.

The challenge is to integrate the analytic and behavioral approaches and elevate the status, resourcing and power of these functions typically seen as cost centers or support roles. Data and analytical insight then can guide conduct in the field and deliver financial returns. I aim to give you the framework and tools to achieve that.

Tobias Webb: If a company wants to start out doing what you call stakeholder due diligence how would they do that and which resources might they turn to?

Witold Henisz: Corporate diplomacy begins with a deep analysis of stakeholders and what they want. Absent that, managers are left with little more than guesses.

Just as an oil field or gold mine begins with an analysis of geological and engineering studies, so must corporate diplomacy rest upon a foundation of stakeholder analysis.

A smart manager or team must identify the stakeholders (that is, outsiders who have a financial interest in the project or who care about it for political or ideological reasons), the resources they control, the reasons the project matters to them and the relationships between them.

This information can come from more traditional sources, such as surveys or workshops, or (social) media monitoring. The book provides examples of a questionnaire for field surveys and also discusses how any unstructured text (e.g., meeting minutes, newspaper articles, radio transcripts) can be coded into a similar data structure.

Tobias Webb: How do successful companies make sure stakeholder communications are truly two-way, can you cite some practical examples?

Witold Henisz: Successful companies overcome the misconception that communication is primarily about being heard and realize that, by contrast, it’s actually about listening.

A good communications strategy begins, not with your story, but with the story of your stakeholders. It puts them front and center. By helping them reach their goals, you demonstrate your trustworthiness and character.

The stakeholder questionnaire provided in the book thus begins with an open-ended question seeking to understand the goals or priorities of the stakeholder being interviewed. That does not mean neglecting shareholders or internal stakeholders.

As part of your communication strategy, you should be forthright about your needs and what you can and cannot do on behalf of your stakeholders. If your project cannot survive, you cannot help anyone else.

Stakeholders must understand not only your constraints but also how you ascertain what you can and cannot do on their behalf. Without transparency on this topic, people will doubt you.

One example I cite in the book and then continues to develop is IKEA’s response to accusations regarding child labor in the manufacture of its rugs.

It assessed the issue, listened to its stakeholders and developed a response that met those needs in a realistic way.

It didn’t make grandiose and unrealistic promises to end the scourge of child labor in India but focused on the more realistic and attainable goal of “serving the interests of the child” which it announced in partnership with “Save the Children.”

It’s strategic response to that crisis and the communication plan that accompanied it has since been extended into the much larger challenge of child labor in its supply chain for cotton.

Tobias Webb: Organisational culture change, CSR in “our DNA”, we hear these terms all the time from CEOs. Which are the companies you see getting this at least partly right, and what are the success factors? 

Witold Henisz: It is not enough to have good data and analysis if senior decision-makers do not seize the results and use them to evangelize for change. Even in the presence of this kind of support, lower-level employees must believe too.

Change only happens if everyone who is involved commits to doing his or her job differently. Sadly, the most common success factors are outside of current managers control.

They are either a strong founders’ imprint that inculcated externally-facing long-term values or having experienced a stakeholder related crisis that threatened the organizational’s survival.

Either at the time of founding or in response to such a crisis, the leaders of these companies articulated a clear vision or policy statement enshrining the value of stakeholder engagement and built a system of financial and career incentives that showed these words should guide action.

They also reinforce these incentives with symbolic rites such as inclusion in the intake training program, continuing education and recognition for deserving service.

In terms of success stories, ironically, some of the leaders are in the extractive industries largely because of the magnitudes of the losses they experienced in the past, they had to change their mindsets. Anglo American, Rio Tinto, Newmont, Anglo Gold Ashanti and other mining companies have all made enormous strides over the past decade as have Chevron and Shell.

My hope is that through the book readers can learn from the mistakes of other organizations instead of awaiting their own calamity to begin the process.

Tobias Webb: What’s your take on how Free, Prior and Informed Consent is being used. Is it a help or a hindrance for business?

Witold Henisz: Free, prior and informed consent is a powerful set of guiding principles that is very consistent with the focus on developing personal relationships that build and reinforce trust in my corporate diplomacy framework.

The key, however, is in its implementation. I think that the framework of Corporate Diplomacy and the tools highlighted therein can help more companies act according to those principles.

Building Reputations and Relationships with External Stakeholders, by Witold J. Henisz is available here. More on Witold is here. Details on Wharton's Corporate Diplomacy programme is here.


An event designed exclusively for managers called: "How to effectively engage stakeholders in frontier markets" takes place on June 17-18 in London. Full details are here. And here's a link to a downloadable PDF about the course.


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