A wider scope: from shareholders to stakeholders

Why corporate affairs should lead on corporate strategy development

There is no denying that the business context has changed remarkably over the last fifteen years. While the short termism aimed at satisfying shareholders still prevails in many companies, there is an increasingly large number of companies that take a stakeholder-focused approach towards business and profits, considering actions in the long term. 

During this period, change has been fuelled by dramatic socio-economic events and the emergence of the technology that has given a voice to stakeholders, enabling them to exercise scrutiny of a company’s actions. In this new context, the old rules of controlling and “spinning the message” unilaterally no longer apply. 

At the core of this change is a shift in the balance of power away from traditional actors and institutions towards the individual. The impact of the Internet and its subsequent evolution to social media has democratised the publishing process by creating millions of public voices. 

The way that companies use technology and information determines how they engage with their stakeholders.  Luis M. B. Cabral, a professor at New York University wrote: “Companies that integrate external engagement into their core strategy and operations are likely to acquire a strong reputation, and are likely to survive long into the future”.

The above can only be achieved when the company embeds the right leadership, culture and intelligence to work with its stakeholders, rather than ignoring these groups or even worse, antagonising them. These three interconnected components (leadership, culture and intelligence) are required to create the type of business able to engage with its stakeholders successfully and achieve long-term and sustainable value. Due to its pivotal position as an interface between the external context and the internal operations, corporate affairs is uniquely placed to lead on each of these three components.

Take your place

To take this place, leaders in this function must have a deep understanding of business strategy and objectives. As Johnson and Johnson CCO Maggie FitzPatrick puts it: “What are the factors driving business outcomes today? To be effective in this job, to gain the company trust and standing you need, you must know the answer to that question”.

As shown in a recent McKinsey survey, external affairs ranks in the top three priorities for more than half of CEOs surveyed, and boards also are paying more attention than they have in past years.

However, the survey also shows that very few companies have taken an active approach to engaging with stakeholders and that many struggle to achieve success in their external affairs efforts. The current business context requires the corporate affairs leaders to take their place and join the rest of the leadership team to share the valuable and critical stakeholder intelligence that they possess. 

According to a report from Watson Helsby, this leader is being asked to exhibit a combination of skills to gain the respect of the other functional leaders, which include:

Business understanding and financial literacy – this is key to generating trust among business partners and to demonstrate that corporate affairs’ contribution is beyond its departmental remit, spanning the whole business.

Courage and independence – bringing the outside perspective in and looking at issues through the lens of stakeholders requires the courage to state potentially challenging views.

Judgment – the ability to balance the commercial needs of the business with the reputational risks and implications of taking certain decisions. 

Leadership – the skills to build a high-performance, fit-for-purpose team that delivers value equivalent to that of other executive peers.

Measurement – the ability to provide rigorous analysis and metrics on stakeholder risks & opportunities supported by data/analytics that are used at board level, moving away from the traditional “institutionalised instinct”.

To tick all these boxes, the corporate affairs leader needs robust and dependable intelligence that enhances their understanding of the issues affecting the business, which also provides them with the independent evidence needed to confidently share their judgments at board level.

Ultimately, the biggest contribution of the corporate affairs leader is in ensuring that whether setting corporate strategy, making investment decisions, designing products or planning projects, every process must include consideration of the impact on stakeholders and the consequences for the business.

More than the value statement

Alongside leadership, the right culture is fundamental to creating a valuable stock of goodwill, always supported by company processes, strong ethical values and behaviours. To achieve a culture that rewards long term and sustainable value creation it is paramount to obtain the support of one of the most influential stakeholder groups, employees. Culture is the compass that points out what to do and how to communicate at any given time. However, a culture that is isolated from the issues affecting stakeholders or their expectations, is a culture that fails to connect to its context.

In a recent article in The Wall Street Journal describing what caused a retail-banking debacle, the CEO said that employees failed to honour the bank’s culture. “They did not do the thing we asked, namely to put the customer first”. In the article, the former CEO of IBM gives his view on culture: “What is critical to understand here is that people do not do what you expect but what you inspect. Culture is not a prime mover. Rather it is a derivative. It forms as a result of signals employees get from the corporate processes that structure their work priorities”.

"Culture is the compass that points out what to do and how to communicate at any given time."

Culture results from the cumulative effect of multiple processes: compensation, performance measurement, recognition as well as the value statements crafted by the communications department. In addition, employees can have their perceptions of their corporate culture affected by external coverage. It is therefore important that the corporate affairs leader is aware of both the external discussions and existing internal employee concerns. To create the culture that builds long term and sustainable value it is key to understand how each process in the company is communicating what the business considers important to employees. That coupled with creating expectations and communicating goals is the responsibility of corporate leaders and the corporate affairs leader is uniquely placed to spearhead this process.

A new kind of intelligence

The third component with which any business must be equipped to derive value in the current business context is intelligence and more specifically stakeholder intelligence. Thanks to the ubiquitous nature of information today, transparency is no longer optional, companies can embrace the new media landscape or resist change at their peril. However, this should not be seen as a threat, but rather an opportunity. 

The media platforms act as amplifiers of good behaviour as well as bad. As Lord Browne wrote in  Connect: How Companies Succeed by Engaging Radically with Society: “Businesses can turn online transparency to their advantage if they have nothing to hide, if they are willing to have a genuine dialogue, and if they have used the proliferation of data without overstepping privacy boundaries”.

To achieve this, corporate affairs must apply the analysis-based management practices they use in other areas of their companies, thus gaining the trust of the rest of the business. Over the years, at alva we have seen that there are still many companies that lack the understanding and quantitative rigour to obtain timely and meaningful stakeholder intelligence. One of the reasons is that many organisations still focus on volume rather than business outcomes. Another major challenge is the lack of robust analytics and insight since most vendors and agencies focus on output-based metrics.

"Thanks to the ubiquitous nature of information today, transparency is no longer optional, companies can embrace the new media landscape or resist change at their peril."

A new kind of stakeholder intelligence is required, one that integrates vast amounts of internal and external sources (traditional, digital, social media, primary research), covers multiple stakeholders (customers, regulators, investors, employees, media, communities and more), allows the surfacing of issues from a particular stakeholder lens as well as providing an integrated and contextualised view across the whole business. This intelligence facilitates dialogue and brings together other business functions. It allows the corporate affairs team to sit at a command centre and oversee teams whose job is to connect with the main stakeholder groups to have greater control and consistency over the company’s identity, values and behaviour.

alva has been developing this intelligence for several years in collaboration with our clients. One interesting example is the intelligence that we provide for a global mining company, where analysing data from many regions in multiple languages, alva provides intelligence on reputational risks for its relationships with local communities at its operational sites. Using a combination of stakeholder engagement and media metrics across the group, alva provides a single sentiment and perception report that helps inform the business’ understanding of its social licence to operate at an asset-by-asset level.

In a global pharmaceutical company alva has audited the various primary research outputs for different stakeholders to understand the key drivers of its reputation with these audiences. This knowledge has been used to create a research framework for each stakeholder (issues, expectations, risks and opportunities), which has been embedded into the company’s daily monitoring and monthly analysis programs. Issues which are known to be impactful for different groups are surfaced quickly to enable the corporate affairs team to respond, where appropriate.

The connecting leader

Understanding and being able to demonstrate the value created by the corporate affairs function is key in leading the rest of the organisation to adapt to the new business context and become stakeholder-focused. 

For businesses to succeed they must integrate corporate affairs with wider business functions to contribute – if not lead – in corporate strategy, and no other role, aside from the CEO can connect multiple business forces to build long-term and sustainable value.

As Claire Divver, corporate affairs director of BAE Systems states: “The most important quality in the job is judgment – the ability to understand different and complex points of view and to provide the ExCo with a coherent expression of what the outside world is expecting of our company. My job is to bring the outside world into the boardroom”.

Most successful companies will be those which understand that business exists to serve society, not the other way round. The corporate affairs directors must take their place and lead the business for this very purpose.

This is an edited version of a white paper from alva: Corporate Affairs, take your place!

Image: Nicolas Raymond / Flickr

Alberto Lopez-Valenzuela

Alberto Lopez-Valenzuela is CEO of alva. He has worked in the analytics and business information industry for the last 20 years. Prior to founding alva, Alberto held senior management roles at Datamonitor and Cision. With alva Alberto has developed business intelligence solutions for some of the largest companies in the world. He is a regular speaker on corporate reputation and risk, a visiting professor at Cass Business School and sits on the USA Board of City University.