Pi-Squared Part 2: Engaging Stakeholders
by Anita McGahan
Wednesday, October 23, 2024
Welcome to the second in a five-part series that will unfold over the next month on insights that are emerging from my conversations with thought leaders about what it is going to take to support companies and other private-sector innovators that want to contribute in a sustainable way to the public interest.
Last week I wrote to you about the challenge of creating a compelling aspiration. This week, we are focused on stakeholder engagement. The original stakeholder theory dating back to the 1980s dealt primarily with stakeholder mapping and analysis. In contrast, the new stakeholder theory is intensely oriented around stakeholder engagement. In this new conceptualization, the firm is no longer the center of the bullseye in an analysis. Right at the center now is the idea of innovating to overcome tradeoffs between important goals like job-creation vs. the environment; or access to critical services vs. preserving safety and security.
In all the conversations that I’ve had, stakeholder engagement has arisen in one way or another. The idea that we need to understand constituents deeply – that finding mutual purpose is a prerequisite to everything else – is reflected in just about everyone’s perspective. Four conversations in particular stand out on the topic of effective private innovation in the public interest through stakeholder engagement. These are my conversations with Olga Hawn, Sarah Kaplan, Samina Karim, and Sandro Cabral. The themes that hit me hardest:
1.Overcoming structural boundaries is the first priority. As an executive in a corporation, or really in any private-sector organization, you are expected to be flexible and adaptive to feedback. Key are responsiveness to customers, employees, distributors, suppliers, and investors. In contrast, as a leader with civic responsibility, accountability is the name of the game. You must be rigorous in following rules of fair treatment, reporting, and transparency to preserve the public trust. In our conversation, Sandro Cabral points directly at the tension between flexibility and accountability. If you work across the private-public boundary, you have to confront this head-on. Samina Karim points to the same tension in her discussion of breakthrough educational innovation in the work that she has done in Nicaragua, and I can’t help but to think as
well of Kate Cumming’s final thoughts during our conversation about the enormous responsibilities that public-sector leaders feel when they change established processes and practices. What constitutes success in the private sector is likely very different than what constitutes success for government employees and political leaders. That has to be addressed as a priority.
2.Innovating can’t happen without mutual understanding and commitment. All four of the featured speakers spoke with great wisdom about the importance of dialogue, mutual understanding, and the building of trust. Sarah Kaplan described co-creation of ideas as the essence of the kind of transformation that can arise from truly deep stakeholder engagement. Consultation, which was once thought of as sufficient in stakeholder processes, leaves opportunity on the table because it sets aside the powerful breakthroughs that arise from co-creation with stakeholders. Olga Hawn sees the challenge of innovative collaboration as so difficult for siloed large companies that she’s placing her bets on smaller organizations that are not as stuck in old practices. Sandro Cabral describes processes of stakeholder engagement as the building of trust that can only arise over time. He sees the process co-evolution of understanding as the central challenge of effective stakeholder engagement. Samina Karim frames this idea as a matter of achieving the mutual commitment required to work together effectively across sector boundaries to solve hard problems. I was struck by the level of emphasis that each of these friends put on engagement over consultation as crucial to innovation.
3.Aligning everyone is impossible. Only some people across the public-private boundary can align with each other around common goals. Many people – likely even the majority –can’t or won’t be able to join the effort, particularly as it begins. I asked Samina Karim whether public-school teachers in Nicaragua felt threatened by the entry into their communities of an innovative NGO committed to educational innovation. She
responded by describing how the NGO’s leaders sought out people in the school system who could act as champions for the innovation. The challenge of finding champions was also a centerpiece of Sandro Cabral’s ideas of how to get going. He described how mutual trust among early-stage champions must be strong enough to overcome the organizational barriers to innovation that inevitably arise.
4.Overcoming the risks and dangers of established CSR/ESG practices is hard. Olga Hawn expressed particular concern about the problems created for companies by rating agencies that evaluate CSR/ESG initiatives on criteria that are not nuanced enough to reflect the particular priorities of a company. This idea echoed a central point made by Sarah Kaplan, which was that requiring a business case for any pro-social
initiative is likely to lead to incremental innovation. In our conversation about why CSR/ESG currently are controversial, Witold Henisz described the importance of better and more flexible metrics for measuring the effectiveness of corporate initiatives. Olga Hawn suggested that it may take as many years – even decades – for pro-social metrics to become as well-shaken-down as financial metrics have become. Witold Henisz suggested a solution that could involve showing how pro-social initiatives could be assessed in monetary terms (which was something that I found a bit worrisome). Despite differences in ideas about what could resolve the problems, we all expressed concern that the current state of CSR/ESG reporting carries risks and dangers that can kill innovation initiatives if they are not carefully managed.
5.Piloting and experimenting are essential as prerequisites to scaling. Almost all of the featured conversations reflected the idea that private innovation in the public interest should begin with piloting, experimenting, learning, and idea improvement prior to large-scale rollout. Sarah Kaplan described the importance of early-stage experiments at Nike that ultimately led to the rollout at scale of blockbuster products. Sandro Cabral talked about how quick, learning-oriented pilots lead to process and product improvements that make corporate initiatives effective. Olga Hawn sees pilots as so important that she is betting on small organizations that are well-suited to conduct them. And Samina Karim described the kind of learning that occurred through early-stage piloting of educational projects that have since been scaled up. I couldn’t help but to think as well of the excitement that Roger Martin expressed in our conversation about the potential for social enterprises to act as piloting organizations on ideas that could subsequently launched at scale by larger companies. Subi Rangan and Leo Pongeluppe also emphasized how experimenting in partnership with stakeholders can lead to breakthrough innovations.
6.Pulling together resources and capabilities is important but secondary. One of the most surprising common themes in our discussions was the emphasis that our experts put on the ways in which critical resources and capabilities were drawn together. The surprise was in the point that these may be transferrable across organizational boundaries. Samina Karim, for example, described how an NGO leader in Belize saw how orphaned children were separated from their siblings. She then worked with members of the government agencies responsible for child welfare to innovate in ways that would keep siblings together. To accomplish this, she brought resources from the U.K., the U.S., and Australia to Central America and then worked with local leaders to deploy them in established agencies. Sandro Cabral turned the tables on me, saying that my own transition across organizations had led to the transfer of skills and resources that could not have occurred otherwise.
7.It’s tough to track stakeholder needs and capacities as they change over time. In reflecting on the implications over time of establishing mining operations in northern Ontario, Sarah Kaplan and I talked about the unfolding over time – even after an innovation initiative begin – of change in stakeholder needs, understandings, preferences, and capabilities. She pointed out how ongoing stakeholder engagement, when thought of as a process rather than as an episodic prerequisite, could lead to much better outcomes for everyone than a firm-centric response to the emergence of problems. Olga Hawn alluded to the same kind of opportunity in describing how the metrics for understanding what a company can accomplish in the private interest must be tailored to the context.
Next week, you will hear about what Im learning on the kinds of value that can be created through private innovation in the public interest. Please stay connected with us! Sign-up for updates and visit our website.