This article originally appeared as a blog on the International Integrated Reporting Council website. It is reposted with permission from the International integrated Reporting Council.
Corporate failures and scandals often have deep relational roots. So too does success, for the essence of any business is to invite people into relationship as investors, customers, employees or suppliers and to make such relationships more valuable. Yet, as the authors of The Relational Lens recently published by Cambridge University Press point out, these relationships are too often like dark matter – the fabric of the universe that passes unseen.
As a global leader on corporate governance and reporting I have advocated since 1994 that in its decision making process a board needs to take account of the legitimate and reasonable needs, interests and expectations (NIE’s) of its primary stakeholders.
Either management must have an ongoing communication with stakeholders or a Corporate Stakeholder Relationship Officer (CSRO) should do so. The CSRO informs management of the stakeholders’ NIE’s and does a written report to the board on the quality of the relationships. At every board meeting there should be an agenda item “Stakeholder relationships.” This will result in the board having an oversight which is informed in regard to managements’ proposals on strategy.
The Salz Review into Barclays, the National Commission on the BP Deepwater Horizon Oil Spill, the Inquiry into the death of Victoria Climbie (a major UK public service failure), or indeed the reviews into almost any corporate failure show that weaknesses in relationships between the company and its stakeholders are readily identified after things have gone wrong. But would Volkswagen or Deutsche Bank have landed in their current situations if their internal and external stakeholder relationships had been better founded and managed? Could the many corporate disasters, of which Enron, Lehmans, Cendant, Worldcom, HealthSouth, Tyco, Qwest Communications, Toshiba, BP and Arthur Andersen are just some of a long litany, have been avoided by a more systematic management of stakeholder relationships?
Restoring confidence in corporate, political and other institutions will require more than clever PR. It requires systematic measurement and reporting on the quality of relationships with all major stakeholders so that companies can take specific steps to address the key issues seriously.
Andy Haldane, Chief Economist at the Bank of England puts it this way in his comments on The Relational Lens: “There is widening acceptance that organizations – large and small, public and private, commercial and charitable – may be failing to meet the needs of their societal stakeholders. This has, in some cases, caused a rupturing of trust, a loss of social licence. This book … equips companies with the tools to begin the slow process of rebuilding trust, relationship by relationship.”
In corporate reporting on social and relational capital, companies have too often resorted simply to recording their CSR spend. With integrated thinking and embedding sustainability issues into a company’s business strategy CSR has become yesterday’s thinking.
The lack of available quantitative measures is perhaps the main reason why the boards of companies, as well as executives and managers, invest so little monetary, temporal and other resources into understanding, managing and measuring relationships with their stakeholders.
A way forward is shown by the new book by John Ashcroft and his colleagues, based on over 20 years of measuring relationships within and between organizations across the public and private sectors, as well as in different parts of the world. They demonstrate persuasively that all relationships operate in 5 domains – communication, time, information, power and purpose. Using these 5 domains will aid the CSRO in carrying out their mandate.
This approach identifies whether the conditions for effective relationships are being put in place and identifying perceptions gaps around the effectiveness of such measures. Looking at the preconditions for relationships serves as a way to assess a leading indicator of risk, focuses on the relational building blocks of such outcomes as trust, accountability or loyalty, identifies the factors that can be managed and changed, as well as enabling more constructive and effective dialogue about the issues identified.
All that makes this book timely, especially for the corporate world.
Here is the framework, here are the tools and the case studies to enable companies to give stakeholder relationships the kind of detailed and systematic attention which will bring an informed understanding to a board about a company’s social capital, and help bridge the divide between financial and social capitals.
‘The Relational Lens: Understanding, Managing and Measuring Stakeholder Relationships’ was published by Cambridge University Press in October 2016. A video of the launch can be found at Relational Analytics.
Author: Professor Mervyn King SC, Chairman, International Integrated Reporting Council
Photo: Mervyn King by Sveriges Kommunikatörer on Flickr.