Someone reading this will be the first chief stakeholder officer of a Fortune 500 company. Turbulent times are making demands of business leaders that transcend existing C-suite roles. Between a global pandemic, social and political unrest, and new geopolitical conflicts, running a business requires a new set of skills, a new set of tools, and a new framework for engagement with stakeholders.
The emergence of stakeholder thinking
In 2019, Business Roundtable’s “Purpose of a Corporation” statement signaled the need for companies to deliver value to all stakeholders. While Business Roundtable was not the first to propose the importance of stakeholder engagement, the declaration by the leading association of CEOs gave footing to the recognition of stakeholder importance and helped to refocus corporate America.
In many ways, stakeholder thinking is not new. All businesses need the active support of their stakeholders to succeed. But as the COVID-19 pandemic swept around the globe, companies were newly challenged to bring their purpose to life by prioritizing the health and safety of their stakeholders. Later that year, the murder of George Floyd sparked an unprecedented wave of corporate commitments to actively fight racism and opened the door to further involvement in societal issues.
Today, the verdict is in: Businesses will always be accountable to their shareholders, but they are also responsible to all stakeholders.
Despite the growing importance of stakeholder engagement, business leaders lack a consensus approach to comprehensively understand their stakeholders and inform their decision making. In short, corporations live in a new world and require a new map. Today, business leaders need a new framework to navigate the increasingly complex and fluid world of stakeholder engagement.
Penta’s Four Corners identifies four key stakeholder groups: customers, employees, investors, and political actors. These groups may vary depending on the company, and how a company prioritizes and engages each group will also vary by company type and structure, as well as over time. Stakeholder opinions are fluid; reality demands a flexible framework. Regardless of a company’s profile, it is worth explicitly and deliberately mapping out key stakeholders across these dimensions to really understand each stakeholder group, as well as the dynamics, power, and conflicts between groups.
For effective stakeholder management, it’s critical to identify which stakeholders matter the most to the company. A good pressure test to prioritize different stakeholder groups is to consider three features: power, legitimacy, and urgency. Power is the extent to which stakeholders have influence to impose their will on the company or gain access to a network of influencers who will exercise pressure on the company. Legitimacy comes when the stakeholder actions toward the company are widely viewed as appropriate within social norms, values, and beliefs. Finally, urgency is measured by how much the stakeholders’ efforts can influence immediate action by the company.
While there can be layers of prioritization within stakeholder groups, it is also present between stakeholder groups. Perceptions of the company are shaped by where stakeholders sit: A customer’s priority may be different than an employee’s. How does age, politics, geography, and other factors influence those priorities? Tension is an inevitable part of operating in a dynamic, diverse environment. It can make a company better, but only if leaders understand the underlying drivers of tension and manage appropriately.
To face the inherent tensions within and between stakeholder groups head-on, the first step is to understand them. That requires information: What are stakeholders seeing, reading, and hearing from media, social media, competitors, policymakers, unions, and more? It is possible—and essential—to measure and understand differences between the information flows to each group.
Having a grasp on what stakeholders are exposed to is important, but it is fundamentally an external measure. A second step is to understand how they think about a company. Tools of opinion measurement form the next layer of understanding across a company’s stakeholder audience, though broad surveys are insufficient to know the differences between and among groups. It is important to dive deeper and seek out those hard to reach audiences, including through individual in-depth interviews, reputational and risk assessments, and media monitoring and analysis.
This foundation of mapping and understanding becomes the foundation of stakeholder engagement.
To succeed in today’s business environment, where corporations face unprecedented reputational risk from a hyper-engaged set of stakeholders, it is essential for leaders to have an integrated approach to stakeholder intelligence, strategy, and engagement. This journey begins with C-suite executives prioritizing a deep understanding of stakeholder motivations. Penta’s Four Corners provides leaders with the map required to navigate an increasingly complex business environment and develop the trust among their stakeholders that is necessary to achieve the company’s goals.
Matt McDonald is president of Penta and is a member of Fortune’s CEO Initiative.