Over the past 20 years, stakeholder engagement has come to be viewed as essential to fostering more responsible and sustainable business practices. In the 1990s, it emerged as a new method for understanding and addressing a broader set of social and environmental, as well as economic interests when planning and implementing corporate activities.
Our basic starting point for understanding the notion of a “stakeholder” encompasses the full range of individuals and organizations who are affected, influenced or impacted by businesses and those with potential themselves to influence, impact or affect business.
The notion of “engagement” potentially include disclosure and transparency by business towards its stakeholders and direct involvement, consultation and/or partnership with stakeholders.
The importance of stakeholder engagement is best recognised when it is lacking – customers might see a company as unresponsive to their needs; employed persons can feel unappreciated; suppliers could have less trust in the company; local communities might be less cooperative; and investors could withdraw.
Consequently, there are four key reasons for stakeholder engagement:
Building social capital
Social capital refers to the relationship with the community – how the organisation is perceived.
Stakeholder engagement can provide early warning on a variety of issues, such as the service or product concerns of customers, safety, human rights and environmental concerns of communities, and the governance concerns of shareholders.
Stakeholder engagement can improve information flow, identify business opportunities and generate ideas.
Integrating these elements into the corporate strategy
As part of the overall approach to CSR, the engagement process encourages further alignment and coherence of the business strategy. In all phases, approaches to engagement are meant to be practical and transparent.