Five Best Practices for Stakeholder Engagement

Five Best Practices for Stakeholder Engagement
In The Council series, top experts address a current Boardroom topic. This time: stakeholder engagement. A professor and three sustainability directors present five best practices for optimizing the relationship with a wide circle of internal and external stakeholders. But note: ‘Stakeholder management is different from management by stakeholders.’

Window frames from an old Philips building, a ceiling insulated with 16,000 pairs of ABN AMRO employees’ jeans, old carpet against the walls and an art deco boardroom table by architect Karel de Basel, at which bankers made weighty decisions a century ago. Outside in the garden is an insect hotel, birds chirp and in summer butterflies flutter. We are in the middle of Amsterdam’s Zuidas. Location: Circl, ABN AMRO’s circular pavilion built as a ‘meeting place for startups and educational institutions, for local residents and established businesses, for governments and citizens, for NGOs and institutions.’
It is a fitting ambiance for the pop-up ‘stakeholder board.’ Alongside Xavier Baeten, professor of sustainability & reward at Vlerick Business School, three sustainability directors have joined us. Babs Dijkshoorn is director of sustainability at cooperative financial services provider Achmea. The other two participants both work at an AEX fund: Richard Kooloos, global head social impact & human rights at ABN AMRO, and Mark van Kruijsbergen, director strategy & sustainability at construction company Royal BAM Group.

Turn to circular
Together they explore the theme of stakeholder engagement, and this immediately offers an example: the collaboration between ABN AMRO and BAM during the construction of Circl. They were presented with a traditional, green but far from circular design, for a classic bank pavilion with fancy marble. The contract with BAM had already been signed when the bank suddenly made a 180-degree turn. The pavilion was to be built fully circular, better suited to the bank’s sustainability ambitions. Kooloos to Van Kruijsbergen: ‘The average contractor would see such a change of course as additional work and ask the highest price for it, but you sat down with us to create a building that was better for the environment and society: that is stakeholder engagement. (Incidentally, the sale of ABN AMRO's adjacent headquarters will lead to the dismantling of Circl by new owner Victory Group to - hopefully - be rebuilt elsewhere).

Co-creation with the external environment
Chain collaboration is at the next level when it comes to optimizing the relationship of organizations with their wide circle of internal and external stakeholders, according to Baeten. He outlines four ways of stakeholder engagement: inform, listen, involve & partner. In other words: transparency about the (sustainability) policy, conducting a dialogue with employees, customers, supply chain partners, governments, NGOs, and social groups, involving stakeholder(interests) in decision-making and, finally, actively working together for positive change. ‘Currently, many organizations do not get further than the first two phases,’ is Baeten’s experience, ‘they often do not yet dare to take the step to actual involvement and co-creation with the external environment.’

Shareholder meeting is the new Malieveld
The need for stakeholder engagement is inescapable as the transition to a more sustainable society gains momentum. This calls for a shift from the shareholder model to the stakeholder model and the dusting off of our traditional Rhineland values to enable shared value creation. ‘The societal challenges are too big to face them alone as a company,’ says Dijkshoorn. ‘So, you have to bring in the voice, vision, knowledge and creativity from your environment from outside to the inside and act together.’ And if companies do not do that of their own accord, some stakeholders do make that voice heard themselves. Sometimes literally: a little later on the same day as this discussion, the ING shareholders’ meeting took place, where environmental activists protested the investments in the fossil industry and sang: ‘Fossiel dat kan toch echt niet meer (Fossil fuel really cannot go on)’, to the tune of The Lion Sleeps Tonight. The AGM as the new Malieveld.

Paralyzing pressure and directing help
Van Kruijsbergen sees the sense of urgency growing in the Boardroom, not only because of intrinsic motivation but especially because of increasing (European) laws and regulations and the threat of lawsuits. ‘The top structures of companies suddenly have an enormous focus on ESG and reporting on it. That is something from only the last year and a half.’ Change without a negative or positive impulse is always difficult. ‘You need both pressure and help for the change to sustainability in a broad sense,’ according to Kooloos. ‘Pressure from NGOs, regulations and the courts alone have a paralyzing effect; help from stakeholders alone is often too non-committal to ensure that business changes and accelerates. It is about the combination.’ Pressure and help: how do you deal with one and optimize the other? Five best practices.

1. Bring outside in as an input to strategy

Baeten developed a ‘taxonomy’ to characterize the stage of development of companies in the field of sustainability. He distinguishes four categories: laggards, prospectors, proponents, and leaders. For laggards and pioneers, stakeholder engagement often remains on the periphery of the strategic process; for proponents and leaders, it is at the heart: a symbiosis for integrated value management. Baeten: ‘How can you possibly formulate a sustainability strategy without looking outward and involving your stakeholders?’

Value creation topics
The companies at the table completely agree. At Achmea we anchored sustainability in our purpose and strategy, so it is only natural to discuss and report on this with your stakeholders,’ says Dijkshoorn. BAM recently launched a new sustainability strategy. ‘If you do not look at what is happening in the world and what your stakeholders think about it, you are not doing a good job.’ At ABN AMRO, Kooloos worked hard to move stakeholder engagement from the classical sustainability angle and broaden it to the level of value creation topics. These include adaptability, data protection and a responsible remuneration policy, to name but a few. ‘It is now fully integrated into our strategic process.’

2. Conduct a robust dialogue

How do the companies at the table organize stakeholder dialogue? The basics: environmental scans, internal and external surveys, and events to start the conversation. ABN AMRO has tightly formalized and structured the process, with no fewer than five stakeholder dialogues on the value creating topics: how important do stakeholders consider them and what obstacles do they encounter? One of these dialogues showed, for example, that many NGOs struggle to get a bank account. Kooloos: ‘These are often automatically placed under the category of high-risk accounts in the context of money laundering control, including the local playground Board. Then we as a bank go into consultation with municipalities, ministries, fellow banks, and the regulator: how do we fix this?’

First broad, then deep
Until now, stakeholder engagement at BAM has been an organic, iterative process: talking through the most important topics from the annual stakeholder surveys during discussions with employees, the works council, client, and investors. As a prelude to the new phase of the sustainability strategy, more structure is needed. Van Kruijsbergen: ‘But how should we structure this stakeholder dialogue: at the corporate level or per business line, internationally or regionally, broadly or thematically?’ Why not both,’ responds Dijkshoorn. First invite broadly, then deepen. ‘For example, we asked Achmea’s customer council, consisting of private and business customers, how we could help consumers make their homes more sustainable. They felt that with our Centraal Beheer brand we had a guiding function. This since led to an online tool, a sustainability advisor, and a climate store with products for employees and policyholders.’

Method-Bellingcat deployment
The stakeholder dialogue can be conducted at all business levels. Some specialized topics are best dealt with by experts within the organization in their own stakeholder field. General topics can be dealt with centrally. Dijkshoorn: ‘We recently brought our top-50 managers into dialogue with customers, scientists and NGOs on climate change.’ What are the to do’s in stakeholder dialogue? ‘Involve your own employees early and actively’, Baeten advises. ‘Line or middle management often feel bypassed, even though they are the most obvious stakeholder. Moreover, the own employees are also the closest to the customer and know very well what is going on there.’ And further: ‘learn from customers (similarly close and influential) and think outside the box. For example, ABN AMRO took inspiration from the investigative journalism network Bellingcat in identifying customers with business contacts in China, to subsequently create awareness of Uighur repression with them.

3. Attach concrete goals to the materiality analysis and steer it into ecosystems

The input from the stakeholder dialogue is funneled into the materiality analysis, resulting in the familiar matrix in the annual report: what are the most important themes, when stakeholder interests and their influence are compared? ABN AMRO also uses the United Nations reporting framework to determine where the greatest negative impact (most salient) on human rights occurs in its supply chain. ‘Materiality analysis is for many companies just a nice to have,’ Baeten says. The danger of box-ticking lurks: a nice but meaningless matrix in the annual report. ‘It still often remains only with input, there is no translation into outputs, in the form of concrete KPIs.’ After the materiality analysis, organizations must go back to their stakeholders, to bring about real change together.

Sustainable cooperation in chain
To achieve this, they must seek earlier and more active cooperation in the chain, according to Baeten, who considers SDG17 (Partnership to achieve goals) the most important of the sustainable development goals. He cites several examples of companies that are already putting that into practice. Danish beer manufacturer Carlsberg, for example, is working with chain partners on more sustainable raw materials, less water consumption and more environmentally friendly packaging. The Belgian chemical company Solvay introduced a supplier engagement program in which more than 250 executives from over 130 companies participated, leading to plans for 69 collaborative projects. And British bathroom manufacturer Howdens holds 40 annual forums for contractors, who, as customers, get to help set the sustainability agenda. The non-executives demand a record of the forums in their Board pack.

‘Gyro Gearloose’  
Similar experiences can be gleaned from the companies at the table. At Achmea, for example, an internal collaboration emerged between health insurance arm Zilveren Kruis and real estate arm Syntrus Achmea to build - in cooperation with municipalities - life-cycle-proof buildings to allow the elderly to live independently for longer. BAM is working together intensively on innovative solutions to make material consumption more sustainable, for example with startups and universities. Van Kruijsbergen: ‘Together, the Gyro Gearlooses came up with a more sustainable alternative for a foundation machine that normally consumes 500 liters of diesel a day.’ As a financier and investor, ABN AMRO tries to bring potential partners together with its sustainable impact fund. ‘For example, we put a scale-up with a good idea in touch with an SME customer who can act as a launching customer,’ says Kooloos. Cooperation within and outside the chain should ultimately create ecosystems that transcend the boundaries of companies and sectors.

4. Adapt leadership and governance  

Managing to achieve value creation for and with stakeholders also requires a different type of leadership, Baeten argues. ‘Companies need to connect more with their environment. The decision-making process takes longer but is much richer and embedded. All sorts of dilemmas arise, and difficult choices must be made that require support. That requires a feminine way of thinking.’ Dijkshoorn sees more diversity at the top already improving the social antenna (Achmea, by the way, has a female CEO with Bianca Tetteroo).

Brush up on Board, Executive Committee and Supervisory Board
points out the importance of increasing the knowledge of directors and supervisory directors about sustainability. Research shows time and again that this is still lacking. ‘You have to be able to have the right conversation about issues with existential impact on business operations.’ The companies around the table therefore pay substantial attention to continuous education. The Supervisory Board and the Executive Committee of BAM took part in a program of the Cambridge Institute for Sustainability Leadership and then participated in education sessions on topics such as social value. Achmea also invests in education and moreover brings directors and supervisory Board members into direct contact with stakeholders. Dijkshoorn: ‘That often has more impact than when we as sustainability team say it.’

Let big clients challenge the top
Adapting governance can help institutionalize stakeholder engagement at the top, Baeten says. He cites the example of insurer AXA, which created a stakeholder advisory panel, with one member of the Supervisory Board, the CEO, two Executive Committee members and seven community representatives. Baeten himself is on the External Sustainability Board of Belgian bank KBC. There is also an internal counterpart with business leads. ‘It can help to have external stakeholders, for example large customers, challenge directors on sustainability and keep them on their toes,’ agrees Kooloos. The experts consider including external stakeholders on Boards and Supervisory Boards a bridge too far. Achmea has an internal Program Board with two Executive Board members and several division chairs. Dijkshoorn: ‘They are close to the customer and the Board has a mandate from the management to accelerate the realization of sustainability ambitions.’

5. Be honest and transparent

One of the most important best practices, according to Van Kruijsbergen: ‘Be open, honest and clear about what you are doing, what you are not yet doing and why.’ BAM is on the list of 29 companies that Milieudefensie wrote to to ask for a climate plan. ‘On our initiative, we sat down at the table,’ says Van Kruijsbergen. ‘We stated our goals, but also explained honestly what challenges we were experiencing in doing so. For example, we are doing our very best to find a less polluting alternative for our asphalt production, but we cannot achieve it immediately. That honesty resulted in a constructive dialogue.’ His other advice is to set boundaries: ‘Milieudefensie, for example, wanted BAM to be open about detailed plans, but we do not want competition-sensitive information to be in the public domain. They must respect that, because if we no longer make money as a company, we cannot exist.’ Baeten nods: ‘Be aware of the difference between stakeholder management and management by stakeholders.’ 

More guts in the Boardroom
The example of BMW comes under discussion. In its annual report, the carmaker openly reports on the topics raised in the 360-degree stakeholder dialogue: the CO2 targets for 2030, where BMW stands on CO2 offsetting, the company’s lobbying strategy and why the production of cars with combustion engines has not yet been terminated. ‘If a company state these things that explicitly, then you really must get to work on them,’ says Baeten. ‘That is a thorough commitment.’ He advocates more courage in Boardrooms. He sees this, for example, at the previously mentioned Carlsberg, which has set targets for 2040 but is also translating them into concrete short-term objectives. ‘They outline an ambition, a distant vision, but at the same time they do not shy away from short-term sustainability targets, on which they can be judged by their stakeholders. That takes courage, which I would also like to see in other companies.’ Kooloos concludes with a final practical tip for stakeholder engagement. ‘Gathering stakeholder insights and especially translating them into measurable KPIs on which you will steer is a long, tough, and unruly process. But it does not have to be perfect right away, just start.’

This article was publised in Management Scope 05 2023.

This article was last changed on 23-05-2023