Difference between failure and success: doing stakeholder engagement right
Investors that finance local companies in African emerging markets are confronted with a myriad of challenges. Many of these bear little semblance with those usually confronted in other operating environments. Getting to grips with these unfamiliar realities requires assessing how local entrepreneurs address the changing environments on the ground, which are characterized by loose governance/regulatory frameworks and a platitude of risks.
Meanwhile, local African companies wanting to attract investments need to demonstrate that they have sound approaches to address risks and opportunities associated with their operations. This requires, inter alia, undertaking effective stakeholder engagement; or in other words, building solid relationships with individuals/groups who are affected or have an interest in their projects.
Effective stakeholder engagement in emerging markets is not ‘another tick in the box’. It is a vital process that can bring multiple benefits for companies (i.e., reduced legal, security costs and potential fines); and it can increase their competitive advantage (i.e., enhance corporate reputation; identify new markets and easier access to project finance; improve information about local distribution networks, inclusive growth and value chains).
Stakeholders are commonly defined as individuals or groups affected by a project, or those who may have interests in a project and/or the ability to influence its outcomes. Depending on their level of organization, interest and influence, stakeholders can either promote or oppose a project. By ‘project’ we mean anything from the launch of a new product/service, or the development of new policy or a solution to a public problem, to engaging an indigenous community whose natural resources are being tapped.
Stakeholders are commonly categorized along internal and external lines. The internal ones are those with whom interaction and engagement is a core business function and subject to national regulations and/or established corporate policies and procedures. These include, among others, suppliers, distributors, shareholders/investors, regulators, customers, or employees. External stakeholders lie beyond the core business operation and include affected communities, local governments, international donors, NGOs and other civil society organizations and other interested/affected parties (IFC)
The importance of effective stakeholder engagement cannot be overstated – it bridges the gap between perception and reality of running successful operations in changing environments. It requires local companies, therefore, to build proactive, inclusive and iterative relationships with their stakeholders throughout the project life cycle.
There is, however, no one-size-fits-all approach in the analysis and selection of stakeholders – it is context-dependent and needs to be tailored to the requirements on the ground. The stakeholder engagement process starts by identifying and analyzing stakeholder interests and their potential impact on a project. There are quantitative and qualitative tools that can be of help. These include Stakeholder Engagement Planning Template (Emergent Insights); Stakeholder Analysis tool (Mindtools); and IFC Handbook on stakeholder engagement for companies doing business in emerging markets.
Second, the process requires disclosing information, consulting and building partnerships with stakeholders. Sharing timely and quality information plays a critical role in managing project-related expectations. It implies early consultations in the design stage, and making it easy for stakeholders to communicate their grievances, and allowing a dialogue throughout implementation stages. Particularly when it is known or assessed that major social, financial or environmental impacts are expected to emerge from a project, potential grievances must be mitigated to prevent critical issues from escalating throughout next stages. Building strategic partnerships with external stakeholders can best address this, and demonstrates managerial commitment to address issues.
Third, stakeholder engagement requires regular monitoring and transparent reporting throughout the project. Involving stakeholders goes beyond participatory monitoring or consulting. It sometimes requires the physical presence of affected individuals at the time data is collected, as well as the evaluation of performance against social, economic and environmental indicators meaningful to those affected (IFC). The AA 1000 Stakeholder engagement standards or the GRI, are internationally recognized sustainability standards on effective stakeholders reporting.
In conclusion, irrespective of the type of organization, building a sound stakeholder engagement process into the business is good business. It creates competitive advantages and benefits, managing project expectations and building trust. Most importantly it helps shaping a brighter future, making the difference between failure and success.