For proactive stakeholder engagement, companies must couple data-driven decision-making with traditional relationship-building. In this Thought Leader post drawn from his new book, Dr. Witold Henisz of The Wharton School of The University of Pennsylvania provides advice on how to practice such “Corporate Diplomacy.” NBS Thought Leaders are leading academics and practitioners: world experts on sustainability issues.
When crisis hits, managers typically turn to damage control and reputation repair. A few far-sighted organizations improve their long-term standing with external stakeholders by addressing concerns and highlighting positives.
Even fewer organizations proactively invest in their reputations and external relationships in order to reduce crisis frequency and severity and speed up recovery. I call such ongoing efforts to win over external stakeholders “Corporate diplomacy.”
Diplomacy Creates Value
Corporate diplomacy creates real business value. It is not just feel-good atmospherics or canny public relations. The intersection between business, politics and society need not be a source of nasty surprises or unexpected expenses. Instead, multinational firms can create value for shareholders and society.
Realizing this vision requires staffers in the functions that contribute to diplomacy, such as government affairs, communications and community relations, to move beyond moral arguments and embrace quantitative, data-driven decision-making. Such adoption of rigorous techniques moved marketers from the corporate periphery to the core.
Data + Relationships = Impact
This scientific approach can shift the balance of power within a company to highlight the strategic importance of external stakeholders. The analytic tools that I provide in my book “Corporate Diplomacy: Building Reputations and Relationships with External Stakeholders” can identify external stakeholders and their issues of concern, and pinpoint which issues have the greatest potential for financial gains and losses.
The book Moneyball popularized data-driven decisions, showing how statistical analysis created more effective baseball teams. But in stakeholder engagement as in baseball, analysis alone is insufficient. Relationships still matter.
A corporate diplomatic strategy should blend an analytic approach with a traditional one, steeped in understanding of human behavior and development of personal relationships. Managers must handle inevitable conflicts carefully and communicate goals and achievements, and all members of the organization must believe in, and support, these inter-related elements.
Six best practice elements allow companies to integrate these two approaches, the data-driven and the traditional. These are Due Diligence; Integration; Personal; Learning; Openness; and Mindset—DIPLOM for short (see Figure 1).
The first two elements are data driven and analytic. The remaining four are behavioral, with Learning and Mindset focused on implementation within the firm and Personal and Openness focused on implementation with external stakeholders.
- DUE DILIGENCE. Corporate diplomacy begins with a deep analysis of stakeholders and what they want. Without that, managers are almost guessing. 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 (outsiders with a financial, political or ideological interest in the project), their resources, and their specific interests. This information can come from traditional sources, such as surveys, or social media monitoring.
In the era of big data, the plan should be more sophisticated than traditional qualitative descriptions. It should provide hard data on each stakeholder’s preferences, power, issues of concerns and relationships with other stakeholders, that can be modeled using network tools and models of coalition politics.
- INTEGRATION. Firms must integrate stakeholder data into core business systems (e.g. financial and investment planning, budgeting and human resources). A corporate diplomat has to secure buy-in from colleagues in departments such as finance and marketing.
- PERSONAL. Corporate diplomacy reaches beyond the technical, calculating and analytical to incorporate interpersonal skills. A financial settlement can fail if it is cheap or offered grudgingly. Stakeholders want to see firms acting based on a transparent process that includes everyone’s voice. Disputes are inevitable, and should be managed using conflict resolution techniques such as conciliation and arbitration.
- LEARNING. Corporate diplomats adapt and change based on stakeholder feedback. No plan or strategy is perfect, and all must adapt. Power and preferences change, just like political and economic conditions.
The old approach to stakeholder engagement was to decide on a plan, announce it, and defend it against all comers. Such an approach no longer works — if it ever really did.
A savvy firm gets feedback upfront; it doesn’t always agree, but it tries to understand and anticipate objections, not just react to them. Ideally, the firm can engage opponents early, demonstrate understanding by changing its plan to address legitimate issues and thereby motivate the opposition to compromise.
- OPENNESS. Perceptions matter. If stakeholders believe that your company is a secretive bully, then they’ll see everything you do through that lens. The best way to head off negative perceptions is through a culture of openness. Share information in a way that reinforces trust and reputation, ensures accountability and creates realistic expectations.
- MINDSET. Corporate diplomacy requires new thinking within corporations. Everyone, from top executives to entry-level workers, should recognize that short-term financial wins can lead to medium- to long-term political losses, which end up being more costly. Without the right mindset, a few employees’ interactions with external stakeholders can undermine a firm’s overall goals.
Achieving this collective vision requires ongoing training and corporate communications that feature diplomacy as a central corporate value.
The challenge lies in implementation. While more firms accept the need to think strategically about their reputation, fewer see the importance of an integrated path, that couples stakeholder data analysis and financial modeling with external relationship building and communications tools, and with internal organizational change and culture tools. But firms that achieve this integration will increasingly distinguish themselves from their competitors in global competition.
Corporate Diplomacy: Building Reputations and Relationships with External Stakeholders (book and website): http://www.corporatediplomacy.com/
About the Author
Dr. Witold J. Henisz is the Deloitte & Touche Professor of Management in Honor of Russell E. Palmer, former Managing Director at The Wharton School of The University of Pennsylvania. His research examines how political hazards affect international investment strategy, including multinational corporations’ efforts to engage in corporate diplomacy to win the hearts and minds of external stakeholders. His research has been published in top-ranked journals in international business, management, international studies and sociology. Witold has won multiple teaching awards and also teaches extensively on the topic of Corporate Diplomacy in open enrollment and custom executive education. He is currently a principal in the political risk management consultancy PRIMA LLC whose clients include Anglo Gold Ashanti, Rio Tinto, Shell Corporation, Maritime Financial Group, The World Bank, The Inter-American Development Bank, The Conference Board, Eurasia Group, and Philippine Long Distance Telephone Company (PLDT).