Preventing Crisis

The “If-Then” of Stakeholder Engagement and Reputational Risk

Posted May. 5 2016, 01:09:56 pm

Julie Steininger

Senior Vice President

314-469-3500

A recent study from Standing Partnership revealed that executives think their organizations do a good job building and managing their business reputation. But when it comes to identifying reputational risks, executives are far less confident. 

While public perception ranks high as an area of concern for respondents (64 percent experienced a reputational issue associated with public perception in the past and 62 percent consider public perception to be a potential reputational issue going forward), respondents don’t see a connection between stakeholders and public perception. Engaging with stakeholders is not relevant at all to 38 percent of respondents and very or somewhat relevant for 26 percent. This signals a serious disconnect for executives between the role of stakeholders and public perception.

To begin addressing that disconnect, reach back to junior high school (ok, a further reach for some of us) to geometry and if-then statements. The part after the “if” is the hypotheses and the part after the “then” is the conclusion. An if-then statement based on our study results could be: “If companies don’t engage with stakeholders, then they will suffer a negative impact on their public perception.”

Let’s start by defining what a stakeholder is: anyone who is impacted by the decisions and actions of a company or an organization – and maybe even more importantly – anyone who can have an impact on a company or an organization. Case in point: CNN reported that activist groups representing minorities and women are asking major companies not to sponsor the upcoming Republican National Convention. They expect it to be a contentious event because of the controversy surrounding Donald Trump. Result – Coca-Cola has said it will have a limited role at the GOP convention, although the company didn’t tie its decision directly to the activists’ request.

Next, let’s talk about who stakeholders are. Examples include current, potential and former employees, customers, suppliers, shareholders, investors, NGOs, regulators, policy-makers, and the general public. Stakeholders can be supporters, neutral toward you and even opponents. Regardless, any stakeholder could impact an organization’s reputation.

Now that we know what a stakeholder is and who they are, what do we do with them? Engage. Listen and then have ongoing, open dialogue with those impacted by the decisions and actions of your organization to understand their expectations. Read more about how stakeholder engagement can help build a positive reputation in Standing Partnership’s Authentic Stakeholder Engagement white paper.

For those not yet totally convinced of the critical role of stakeholders, let’s dig a little deeper. A company’s reputation is the sum total of its stakeholders’ perceptions. Stakeholders want and need to trust the companies, industries and organizations that impact them. Before buying a car, a pair of tennis shoes or even a cup of coffee, consumers – a stakeholder group critical to many organizations – are taking a company’s reputation into account when making decisions, ultimately impacting the company’s bottom line. Let’s try another if-then statement: “If a company has a good reputation, then the impact on its bottom line is likely to be positive.”

Going back to our research study, public perception is one of the two top issues for companies that experienced a reputational risk issue in the past, whether they are in banking and financial services, health care, industrial, or consulting industries. Like justice, public perception is not blind! And it can be costly – survey respondents reported that past reputation issues, including public perception, cost them $100,000-plus. How about another if-then statement: “If a stakeholder chooses not to buy from a company because they believe that company has a poor reputation, then that company’s bottom line will be negatively affected.” Yet, 38 percent of respondents view engaging with stakeholders as not important at all.

A final if-then statement: “If a company fails to recognize the connection between stakeholders and public perception, then they are putting their reputation at risk.” A well-executed stakeholder engagement strategy can minimize reputational risk, and result in positive perceptions of and trust in an organization, which can produce value for and have a positive economic impact on that organization.

To learn more about how stakeholder engagement can help your organizer, download our free authentic stakeholder engagement white paper.

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