Is the multi-crisis mode the breakthrough for value(s)-enhancing stakeholder management?
By Andrea Neumann and Emilio Galli Zugaro
Crisis – no one is spared, whether in private life or professionally. First the coronavirus pandemic, then the partial collapse of supply and transport chains, followed by a brutal war of aggression on a sovereign country in the middle of Europe. At the same time, the world is fighting against global warming and thus for its survival. And the series of successive “sub-crises” continues: the real threat of recession, enormous price increases, cyber war, and much smaller, though no less existential individual crises, frequently related to the major issues or fears of our time. Welcome to the world of volatile, unpredictable, uncertain phenomena in an increasingly complex environment that must confront multiple prerogatives of interpretation. Or, as the U.S. military summed it up back in the 1990s: VUCA – volatility, uncertainty, complexity, ambiguity. “What now?” is a question currently being asked not only by private individuals, but also by people who bear responsibility in companies and for whom the guardrails of traditional planning and implementation are being swept away again and again. Resignation has never been the right strategy. Revolution? But how and where to start? As is so often the case, it is important to learn from challenges, to make sense of them.
The multi-crises of our time not only present people with unplanned challenges. Companies, along with their business models and relationships with stakeholders, are also being put to the test. It’s not just a matter of continuing business and operations, but of countering obstacles to growth and, yes, also – seizing opportunities. This requires a review of the premises for the commitment and participation of employees, shareholders, customers and society in the company. On the one hand, the permanent crisis mode magnifies these challenges, which also existed before the pandemic & co. On the other, it forces companies to engage in genuine stakeholder management. How else can supply chains be maintained although key containers are stuck in the Suez Canal, and team members remain loyal to the company despite months of home office phases? Essential basic principles from the communications-related discipline of crisis management such as speed, truth, openness, initiative, willingness to enter into dialog, and empathy have been part of the daily routine of many companies for two or more years. Will we put this “crisis mode” back on “standby” when the world returns to calmer waters, or will such stakeholder management soon be part of best practice enabling us to jointly tackle the major issues of our time (from the shortage of skilled workers to climate change) and simultaneously not only retain our “license to operate” as a company, but also have lasting success?
We are facing “tipping points” in communications and leadership. The development will swing in one direction or the other in companies. But that will not be determined by fate: It’s in the hands of executives and communications professionals. They will shape the development, or, if they don’t, be shaped by it.
After two and a half years of the pandemic, some companies are now trying to reestablish a supposed “new normal” (they are, to paraphrase Karl Kraus, “looking hopefully to the past”) by clinging to rigid guidelines regarding, say, the maximum amount of home office time their workforce can have, instead of trusting their managers to strike the right balance themselves (flexibly) with their teams as they did during the first two years of the pandemic – for the good of the company, but also in terms of employee retention (shortage of skilled workers!). If more employees are now working at home again, this is often not because of their trust in their superiors and their teams, but due to the enormous increase in heating costs at the person’s workplace in the company.
It is the right thing to do and important for us to broaden our view now at the latest: If the organization of work functioned so well during the pandemic (in most cases), what can we learn from this in terms of optimizing our processes, strategies, and positioning as an employer in the VUCA world?
- How much flexibility to act do managers have? If there are problems in this regard, the cause is usually not the home office quota, but a weakness in leadership, a wrong personnel decision, or both.
- How can managers AND employees be involved in the development of processes and strategies (not just “communicating” top-down, but living openness and willingness to engage in dialog)? Brain science has proven that companies that consciously design and implement such a “cultural transformation” are more successful in the long run.
- What role can looking ahead have in uncertain times? The times when visions were equated with the need to go to the doctor are finally over, at least if they are genuine and sustainable. Dialog is also required here, and with all stakeholder groups, because we can only successfully tackle the existential problems of our time with genuine teamwork, pooled perspectives, and, above all, expertise, all of this with a view to a major common goal that no one can be indifferent to.
Time and again, we hear critics say that such ideas are too cerebral and do not cater to the proverbial “little man in production.” It is true – as is always the case in target group-oriented communication – that the “flight level” must be right. And of course, the current times do not cancel out Maslow’s pyramid of needs. On the contrary, those who are genuinely worried about losing their jobs don’t care about how meaningful their work is for the time being. For fundamentally healthy companies, however, it is especially promising now to communicate the big picture, to discuss it with the workforce, and to learn from it – provided the company takes advantage of the great challenges of our time to underline the meaningfulness of the company’s purpose – both operationally and communicatively.
Never before has it been so important to proactively address issues in internal communications that have no direct impact on the company but are essential for the employees’ motivation: personal concerns about one’s own health or that of relatives (the pandemic, the war against Ukraine); fear for one’s own existence (the energy crisis, the threat of nuclear weapons being used).
This requires a great deal of empathy on the part of top management. More than ever before, companies are gauged by their moral principles, and even more so by their actions, which lend credibility to their moral principles. To quote a Jewish Adidas manager (from marketing!) on LinkedIn: “Until Adidas takes a stand, I will not stand with Adidas.” Never before have there been so many (internal) resignations or at least objections from the workforce because a company did not break off its relations with a certain business partner (in the abovementioned case that business partner was the American rapper Kanye West (“Ye”), who made several anti-Semitic remarks), or a certain country (Russia). And never has companies’ responsibility for the health of their employees been more obvious than during the pandemic (will I catch COVID at work or not?), and in view of the already noticeable effects of climate change (is my employer doing enough to limit global warming?).
Put another way: Companies that demonstrate the safety and health of their workforce, their contribution to climate protection, and their business conduct with integrity, and make this transparent in their internal communications, have significantly better chances of continuing to find good employees despite the dearth of skilled workers. This is where the old communications principle “internal is external” comes into play. And it remains true: The best (and often most numerous) ambassadors for the company are its own folks. But people are also powerful multipliers especially when things are not going well. The aforementioned posting by a marketing employee on the questionable attitude of her employer received more than 27,500 likes in less than 24 hours.
The termination of the cooperation with the U.S. rapper due to public pressure not only cost the sporting goods manufacturer more than 7 percent of its sales, but also a substantial amount of trustworthiness and reputation. On the day the separation was announced, the stock lost almost 9 percent in value, thus sinking to the lowest level since 2016. At the close of trading, it had recovered slightly, but still ended up in last place on the German DAX index. Of course, investors were not primarily punishing the company for its questionable handling of racist statements by a cooperation partner, but reacting to the loss of a lucrative source of income. But how much influence will absent corporate stances or attitudes that are reprehensible from a stakeholder perspective have on investment decisions in the future? Or, to put it another way: Will it develop into a tangible investment risk if companies put conventional “shareholder value” above socially entrenched values? There are some indications that this will be the case. At least, that’s what the current discussions about excessive dependence on autocratic systems suggest.
One thing is certain: shareholders have long been concerned with much more than purely financial indicators. The so-called “non-financials” are gaining in importance, at the latest since “green finance” took hold – pushed, of course, by political guidelines. But social pressure was key for the development, which began as a trend and is now standard. “It’s five minutes to midnight for our planet – high time to take climate protection into account when investing.” This is how fund companies with a sustainability focus are now advertising shortly before prime-time news on German television. Here, too, the values mentioned at the beginning such as truth and openness are increasingly key, because investors are becoming not only more open to sustainability, but also more critical. If investment funds advertise green investment opportunities but have hardly any more companies in their portfolios than before, this is not sustainable and will sooner or later be exposed as “greenwashing.” Long-term stakeholder relations are different.
Even most conventional investors now realize that a business model cannot be truly resilient if it excludes key indicators such as greenhouse gas emissions or the safety of production facilities. On the other hand, companies that demonstrably make a contribution to limiting global warming are increasingly being rewarded by the financial market – be it with more favorable lending conditions (ESG-linked loans) or better access to subsidies. What’s more, transparency about green KPIs, such as the development of greenhouse gas emissions, is changing from a reporting requirement to a factor that can give companies a competitive edge – provided they demonstrate good performance in this area.
Corporations that act as investors themselves, for example in the form of corporate venturing, have long since recognized this fact. Many are looking for startups in the field of green product development that can expand or supplement their portfolio of sustainable solutions. The focus here is not on short-term return on investment, but above all on mutually beneficial collaboration. Founders receive the funding they often urgently need and can draw on established structures. And corporations benefit from the startup’s innovative strength. Not infrequently, they also learn a lot about entrepreneurial courage and purpose from the newcomers. For conventional “corporate tankers,” this is a value that can scarcely be overestimated.
It is therefore all the more astonishing that genuine stakeholder dialogs have been made presentable by, of all people, the supposedly stodgy financiers in a corporation. It has long since become established in integrated reporting that the question of what sustainability issues are truly essential for the respective company and should thus be prioritized must be clarified with the involvement of the relevant stakeholders.
Customers and suppliers (value chain):
Among companies’ most important stakeholders are customers and suppliers, if only from an economic point of view. The fact that they are in the same boat as the company and the other stakeholders has never been clearer than it is today. And we are not just referring to the container ship Ever Given, which blocked the Suez Canal for almost a week in the spring of 2021. Hundreds of other cargo ships were stalled in the canal, by far the most important cargo link between Asia and Europe, through which 10 to 12 percent of all world trade passes. The accident continued to impact global supply chains for weeks on end and cost the world economy several billion dollars.
In times of supply bottlenecks, enormous price increases, logistics problems, and supply chain due diligence laws, all market participants find themselves in a community of destiny. Only those who have not only decentralized or regionalized their supply chains, but also maintain trusting and good relationships with their suppliers and who, as suppliers, act as true partners to their customers have a chance of success. Only in such a relationship (stakeholder management!) is a reliable give-and-take feasible. And this is not only logistically advantageous: It’s the only way to achieve climate neutrality across the entire value chain.
In order to record and reduce Scope 3 emissions, information is needed from the supply chain. This is because while greenhouse gas emissions in this category occur outside a company’s direct sphere of influence, they often account for the largest share of its total carbon footprint. In concrete terms, if you want to manufacture your own product in a climate-neutral way, it’s not enough to reduce greenhouse gas emissions in your own production. It also depends on the carbon footprint of the raw materials used. Here, companies are primarily dependent on information from their suppliers, and these suppliers on the information provided by their suppliers. If this information is not available – for whatever reason – our company cannot meet its customers’ justified desire for transparency, and they in turn cannot inform their customers about the carbon footprint of their products. This chain continues all the way to the end consumer, to you and us, who want to make a contribution to climate change by means of consciously controlled consumption. It is true that we often read on the packaging of muesli, sausages, etc. that these products are climate-neutral. But this is often based on rough projections of the greenhouse gas emissions that may have been caused, which were not avoided in the value chain, but merely “neutralized” through compensation projects. It’s not without reason that the Wettbewerbszentrale, a private German association to combat unfair competition, is currently seeking an injunction against ALDI Süd. The reason: The statement “the first climate-neutral food retailer” made by the discount supermarket chain is too vague and misleading.
Of course, carbon-offsetting certificates – provided they relate to genuinely sustainable projects – are an important bridge toward actual freedom from emissions. But here, too, truth, openness, initiative, and a willingness to enter into dialog are essential. We must not pretend that offsetting is the solution to the problem, and certainly not advertise it as such. Rather, the challenge and the opportunity are to achieve solidarity across the entire value chain so that emissions can be accurately recorded and avoided in the next step. The prerequisite for this is to talk to each other and find joint solutions, find new ways of working together. Otherwise, we will be stuck in an information logjam like the ships in the Suez Canal. We are stuck without being able to stop global warming thus far. Therefore, speed is the order of the day. Our children will thank us.
Put another way: The future belongs to companies that close ranks with their supply chain partners and develop solutions together. Naturally, such a tour de force requires not only the participation of companies, but also of government organizations. In this context, one should mention the urgent need for sufficient amounts of green electricity (the annual electricity demand of the German chemical industry alone on the way to greenhouse gas neutrality by 2050 will increase elevenfold). But without stakeholder management, the biggest structural change in over 100 years – the transformation to a carbon-neutral world – cannot be achieved.
At the latest with Henry Mintzberg’s discussion in Rebalancing Society, it is clear that society is a significant stakeholder of every company; even the former CEO of Siemens realized this due to his ill-fated relationship with Fridays for Future. Yet the idea goes back much further. In medieval England, this stakeholder was referred to as “the commons,” and today’s meaning of the term resonates with the work of Elinor Ostrom, who won the Nobel Prize in Economics in 2009 for showing how to responsibly manage freely available resources that are not regulated, starting with the environment.
Society is facing the greatest challenge in the history of humankind with the impending heat-induced collapse of our planet. And all parts of the global community are needed to solve this problem. In this context, companies that still advocate a strategy of “not having to express themselves politically” seem to have lost touch with the times, at the latest since Russia’s attack on Ukraine. Instead, corporate leaders (and their communicators) are called upon to take a stand, to help shape processes of change by actively intervening, to contradict when things are going in the wrong direction, but also to disseminate best practices. In addition, there is the need to recognize that the mantra “the market will solve it” is coming up against its objective limits and losing acceptance. So corporate social responsibility also means refraining from doing things that are harmful, even if they are legal. And accepting that citizens, voters, and the public institutions legitimized by them must be strengthened in every way, not weakened by misunderstood “lobbying.” This not only promotes the perception of a company as a “good corporate citizen”, but is also something that is clearly expected by important stakeholders, society included.
Gone are the days when corporations got away with greenwashing (see the reports on the discount supermarket chain that was sued) and token social sponsoring. Among other things, this is due to the fact that a younger generation is questioning all of this – for the simple reason that they will have to pay for the failures of our generation. Resignation is not an option here. Many young entrepreneurs are taking the initiative themselves, some of them even before they leave school. In 2012, for example, Philipp von der Wippel, then 16, developed the idea of ProjectTogether. As an innovation platform, this nonprofit venture supports talents of the next generation helping them to develop groundbreaking ideas and concrete solutions for the future and to effectively bring about change at the interfaces between society, business, and politics. Meanwhile, ProjectTogether has already accompanied more than 1,000 social initiators and built a network of more than 500 volunteer coaches and 400 experts. The underlying realization: Social and economic challenges are often thought of separately – ProjectTogether brings society, politics, and business together to achieve added value for society.
The new generation is demonstrating what should have long been the order of the day everywhere: genuine stakeholder management and the combination of a wide range of perspectives and expertise to solve the most pressing challenges of our time. Companies are called upon to get involved – not in order to shine as a good corporate citizen, but to be inspired to develop new solutions and products that promise lasting success. The fact that there is no longer broad acceptance of the idea that the market can regulate everything is putting more and more pressure on companies. Alongside smart democratic thinkers of the new generation (such as Mariana Mazzuccato and Anand Giridharadas), populist movements and autarchic regimes are positioning themselves on the side of those who see the state as the main actor, also in economic activity, using different arguments and with a diametrically different set of values and intentions. Some as part of a participatory, democratic process, others for reasons related to geopolitical power. So it’s not only about the climate catastrophe and the danger of nuclear wars just before midnight, but also about the social legitimacy of free enterprise in democracies. Financial firms know how their missteps, which led to several crises from 1987 to 2008 to 2012, have affected the regulation of their business. Many companies, aware of the relevance of stakeholder management, have come to understand that ESG is about fostering and reclaiming the social acceptance of business ventures. Through facts, all the way to overhauling their business models, and not through white-, gray- or greenwashing. Today the watchword is: ESG reloaded!
More than ever, corporate communicators are called upon to play their part as enablers of successful stakeholder management, even and especially where it hurts. If they have not done so already, they must now establish themselves as experts in stakeholder opinions and in how to deal with them. Professional analyses and concepts regarding the possible effects of corporate decisions on credibility and reputation belong on top management’s decision-making table just as much as sales forecasts and legal opinions. For what all disciplines have in common is that the risk-opportunity calculations they contain can have a significant impact on business – in one direction or the other. Particularly in the case of acquisitions, reputational risks can become deal breakers. By contrast, risks that are manageable and identified in good time can be overcome through intelligent communications strategies, and opportunities can be exploited more quickly or better. That’s why reputational due diligence provided by corporate communications – as the term suggests – is part of the due diligence of sustainably successful companies. Just ask the (still living) top managers and consultants of the major European energy provider that, before the planned takeover of Enron, decided against the deal at the last moment and thus saved their company.
Harnessing the power of excellent communication for good corporate governance, however, requires two things: a deeper and broader range of required skills for chief communicators, and participation in decision-making and co-liability.
In addition to mastering all communication disciplines, they must also have a thorough understanding of the company’s business model, know its ramifications, and be able to question it from a professional perspective. Social talents such as listening, dealing with dilemmas, dialog skills, diplomacy, as well as negotiation and mediation techniques are also particularly important.
The second prerequisite, in addition to an expanded competence profile, is the participation of communications heads in strategy development and decision-making processes. The best communications strategy is of no use if it comes too late, namely, when the underlying corporate decision has long since been made without the voice of the most important stakeholders having been heard or – in the case of very significant change – without their having had the chance to be involved in these decisions and to internalize them. Developing the reason why for the relevant stakeholder groups is then like starting to talk about family planning when the offspring is already on the way. A more serious analogy is often used by the insurance industry (and not without reason): You can’t insure a house after it’s on fire. But that’s precisely what is still often expected of communications professionals, even outside of crisis management. The phrase “Now it just has to be communicated” sums up an attitude that not only should have been a thing of the past long ago, but has never been right: namely, manipulating the whole thing after the fact so that it makes sense to the most important stakeholders, or (even worse) announcing the decision “blindly.” That is not “communication”: what is meant here is the announcement of a decision – often made behind closed doors and without consulting the stakeholders. If the project does not meet with approval or at least a neutral response, the decision-makers don’t always question the decision, but declare the reaction to be a “communication problem.” For this reason alone, strategic corporate communications should engage in fire protection and not act as a fire accelerator.
But it’s not only corporate leaders who should be aware of the relevance of stakeholder management. Communications departments themselves must also live up to their responsibility and create tangible added value for top management through their function. Involvement is not an end in itself. Rather, communications professionals need the requisite knowledge, know-how, experience, and sometimes even a modicum of civil disobedience. After all, waiting for an order to conduct reputational due diligence, for example, can become a permanent state of affairs in some companies. What’s much more important is helping to shape meaningful change, and that cannot wait – at least when it comes to the big issues of our time. Corporate communicators must therefore be able to courageously advise top management and endure not being “everybody’s darling.” In any case, the “board trumpets,” which merely nicely package what the CEO has said in communications, are a one-way street and unsuitable for stakeholder management.
Indeed, establishing contemporary corporate communications is itself a stakeholder management task. After all, the idea that communications departments are only there to provide pretty texts and illustrations is, surprisingly, still widespread. In this respect, the most important stakeholders for communicators, besides top management, are interfaces such as HR and the works council (employees), corporate development (strategy, acquisitions), investor relations and, of course, the operating business (customers).
What is easily overlooked: The communications teams themselves also need to be taken along on this journey. And that’s a great opportunity because the meaningfulness of professional communications management has never been greater. Pure purpose. Those who take advantage of this can rely on a team that is aware of its role in the company and fills it – with the respective expertise, but above all with speed, truth, openness, initiative, willingness to engage in dialog, and empathy – have the best prerequisites for creating real added value not only for the company, but also in a larger context.
We don’t know what the world will look like in a few years, nor do we claim to know. But the current challenges we face, some of them existential, will shape individual and collective memory like the moon landing, the fall of the Berlin Wall and the Iron Curtain, and September 11, 2001: In 30 years’ time, everyone will remember where they were and how they fared during that time. This will shape our relationships with people and companies.
The behavior of companies and their executives during this period will lead to new relationships with stakeholders: from distancing and “punishment” on the part of stakeholders, to the partial or complete withdrawal of a company’s “license to operate,” to greater proximity and loyalty. This will especially affect companies that are just emerging or growing. But it will also threaten traditional companies that faced challenges even before the pandemic and are forfeiting their relationships with stakeholders due to poor leadership and communication.
If these companies shape the profile of the entire economy, there could be the growing risk that good and bad corporate governance, exploitative and fair, health-damaging and health-promoting business models, are lumped together with economic activity and populistically demonized through general liability. This undermines the legitimacy of entrepreneurial action per se, with serious consequences for the innovative power of business and its ability to master global challenges, to participate in solutions, and to advance them.
We don’t know whether companies that are still living in yesterday’s world will learn and whether those that are currently successfully practicing stakeholder management and crisis communication will put all of this back on standby when the acute crisis mode becomes obsolete again at some point. But we do know what opportunities there are – not only for companies to be successful, but also for urgently needed solutions to society’s most pressing future issues. If only one guiding principle for crisis communications sticks in the memory, it should be “speed before completeness.” It’s about acting now in an orchestrated way and communicating with one another in the best sense to stay in the driver’s seat. As with acute crisis communication, it’s not a matter of quietly gathering facts until there are no questions left unanswered in an initial statement. Let’s take advantage of the experience of the past two and a half years and act and communicate with our stakeholders, listen to them, engage them, and involve them in the solutions because the situation demands it!