By learning the ins and outs of stakeholder interaction, businesses can improve cooperation and cut down on friction.
“The single largest obstacle in communications is the illusion that it has taken place,” George Bernard Shaw famously said.
This is a common pattern in the relationships between businesses and their constituents. In order to build credibility, increase collaboration, and lessen the chances of disputes, businesses need to increase their lines of contact with important players. But how does that interaction manifest itself? How about varying it based on the type of stakeholder involved?
Timeliness, valence, richness, and topicality are four criteria that matter when engaging with stakeholders, and they were recently examined in a paper published in the Journal of Business Ethics that I co-authored with Witold Henisz and Sinziana Dorobantu*. We see how stakeholders react depending on how quickly a company responds (timiness), how the response is worded (valence), how involved the company is (richness), and how well it addresses the stakeholder’s unique concerns (topicality).
Our findings provide credence to the idea that authoritative replies would be more effective if they were more prompt, more open, more in-depth, and more pertinent. Yet, the significance of these factors varies depending on the kind and position of the stakeholder.
Locating and analyzing key players
It is especially important for stakeholders to work together in extractive sectors like gold mining. Costly delays, regulatory actions, and legal judgements can result from conflicts with stakeholders over environmental and social concerns, including as labor practices, human rights, and larger community implications.
By limiting our analysis to the gold mining sector, we were able to choose 19 publicly traded businesses from the Toronto Stock Exchange that own and operate three or fewer gold mines in developing economies that have completed a feasibility study.
We gathered information from 199 parties that have a vested interest in the political, social, or economic outcomes of 26 gold mines across 20 nations by analyzing media coverage of their interactions.
In a first step, we combed through Factiva-collected news stories that mentioned the company or the mine between 1993 and 2010. We derived a full roster of stakeholders from this, including non-traditional commercial partners like DRC rebels, the Romanian Orthodox Church, and even Vanessa Redgrave.
Next, we extracted source-verb-target triplets from the phrases, which tell us who said or did what to whom (the target) (target). We placed each verb on a 20-point scale of conflict to cooperation, from 9 (very conflictual action or statement) to 0 (neutral statement of fact) to +10 (highly cooperative action or statement) (extremely cooperative action or statement). Giving money or forming a partnership as examples of cooperative actions, while protesting or demolishing property as examples of conflictive ones, were both classified as +7.
We counted 6,068 instances of reported interactions between stakeholders and businesses that involved the expression of opinion or action by the stakeholder, a response by the business, and a reaction by the stakeholder.
We looked at how a stakeholder’s reaction shifted depending on when the company responded, how the company responded, how richly it responded, and what issue was being discussed at the time.
Measuring conflict and cooperation
We examined whether the company reacted one day, one week, or one month following the stakeholder’s initial interaction to ascertain the value of timeliness.
Our evaluation of the firm’s reaction was based on how it differed from the stakeholder’s first statement or action. For example, whether the company reacted with greater collaboration or conflict.
The gap in richness (i.e., verbal communication vs. action) between stakeholder involvement and company reaction was then determined. To evaluate the time and money invested by businesses in this event, we developed a five-point scale.
Lastly, we analyzed the gap between the firm’s reaction and stakeholder involvement with the help of the Python program EMPATH. As a result, we could see if the comment was relevant or off-topic.
Our findings show that good stakeholder responses are more likely when replies are quick, positive, rich, and on-topic. For instance, Banro American Resources reacted swiftly, within a day, when the DRC government stated in 1998 that it intended to nationalize all gold mining holdings. In a complex and timely reaction that was tense without further inflaming the situation or taking any tangible steps, the corporation demanded an explanation, threatened legal action, and decried the government’s behavior. The government’s response elaborated on the company’s long-term mining concession the following day and emphasized its close connection with the company’s top executives. Moreover, it acknowledged that it had made an error in its initial statement.
Several years later, it was revealed that a state-owned company would be handed Banro’s unused licences. After almost a month of silence, the company stated it would be bringing a lawsuit against the government in protest of the allocation of licenses. This was both an overt act of hostility and a further ratcheting up of emotions. The government’s attitude to Banro became much more antagonistic the next day.
Responding in a variety of ways is appreciated by many parties
We re-tested our hypotheses with smaller samples of interested parties in a post hoc study. Civil society players included demonstrators, communities, and non-governmental organizations like Greenpeace, while economic actors included other businesses and economic stakeholders like other mining enterprises. Both high and low status stakeholders were also included. This allowed us to investigate the varying degrees of importance that various stakeholders place on various facets of the firm’s replies.
Our findings suggest that public officials value depth of involvement and relevance more than speed and emotion. Meanwhile, economic actors care more about freshness than they do about depth and relevance. Stakeholders in civic society place a premium on freshness and emotional resonance but discount depth. In general, low-status actors give less weight to timeliness and richness than high-status players do, whereas high-status actors expect performance across all four dimensions.
Managers must make a decision on what factors to emphasize while interacting with various constituencies. For instance, a timely response may sacrifice depth or relevance.
We believe that managers should tailor the choices they make among these factors to each stakeholder’s unique traits in order to foster more meaningful dialogue and reliable relationships.
The way a company reacts to one stakeholder affects how the stakeholder feels about the company overall. This can have effects across the firm’s stakeholder network, some of which may be beneficial, while others may be detrimental.