This is the second in a series of excerpts from Engaging Outraged Stakeholders: A How-To Guide for Uniting the Left, Right, Capitalists and Activists (Affinity Press, 2013), the new book from Future 500, co-written by CEO Bill Shireman, COO Erik Wohlgemuth and VP of Stakeholder Engagement Danna Pfahl. Last week, we posted the first part of Chapter Two: The Power of Engagement and learned two of six reasons to engage your activist stakeholders. Here, we continue with reason number three ....
Integrate regulatory, legal, CSR, environmental & PR goals. Another Future 500 company is FMC Corporation, a century-old chemical company. When FMC decided to enter a new segment of the energy-services sector, it faced formidable competitors. Toxic waste management companies dominated the market for transporting contaminated soil and wastewater from the generation of natural gas through hydraulic fracturing, known popularly (or unpopularly) as “fracking.” FMC believed it had a better approach: an on-site or in situ process that eliminated toxic substances in the ground, rather than simply shipping soil and water to a less sensitive location. FMC’s process costs a bit more, so they face market resistance now. But as public concerns about fracking mount, FMC could be a major beneficiary as new operating standards and regulations are adopted.
Before the 1980s and 1990s, most companies left regulatory issues to their lobbyists and lawyers. Their job was often to insulate the company’s executives from these matters, so they could focus on driving production and profit. The lobbyists often did this either by fighting the regulations or shaping them to the company’s advantage. The lawyers often did it by helping keep the company in compliance or defending it against lawsuits and enforcement actions.
But regulations don’t happen outside the marketplace anymore. They reflect changes inside the marketplace that aren’t being dealt with, at least to the satisfaction of certain stakeholders. In other words, they reflect a perceived need — a business opportunity waiting to be met.
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In the past generation, smart companies have begun to integrate stakeholder concerns into their operations. Rather than considering them an added cost separate from the company, they consider how to better design their products and processes, so that they intrinsically support important social, cultural or environmental objectives. This way, regulations either become unnecessary or advantageous. If one company is able to seamlessly deliver a social good while another spends millions to barely comply with rules, they first company does well by doing good.
Today, well-run companies still lobby and litigate. But more and more, they anticipate regulatory demands, and develop products and processes that either make regulations unnecessary or capture the market once they come into effect.
Fourth**, better issue radar.** Increasingly, companies engage with stakeholders via the Internet. In 2011, after word got out that Bank of America was quietly adding a $5 a month charge to allow customers to use their ATM machines, a newly minted college graduate named Molly Katchpole launched an online protest movement, using the website Change.org. Over 200,000 consumers signed her petition. Normally, when a market leader such as B of A announces a new fee, competing banks jump aboard and do the same. But this time, the reverse happened. B of A’s competitors declared they would not follow suit. In the face of both stakeholder and competitor pressure, B of A dropped its plans for the fee. Free-market advocates will cheer this news: Today, the economy changes far too quickly for lawmakers and regulators to keep up. Often, an issue will arise, activists will object and a company will change, even before a politician can figure out how to harness the issue and position himself as its leader.
Fifth**, less collateral damage from activist campaigns.** When Rainforest Action Network (RAN) wanted to stop deforestation in Indonesia, the NGO didn’t just focus on the timber company it blamed, Asia Pulp and Paper (APP). It targeted its customers, planning a multi-year campaign to pressure big brand leaders to eliminate APP from their supply chain. RAN planned to pressure companies such as Disney for two or three years, until they told their suppliers to phase out suspect paper sources. But even after RAN launched a campaign targeting the company’s most valuable icons, Disney executives didn’t panic or delay. They reached out and engaged RAN, to better understand the issue. Within weeks, the two organizations outlined an approach that would help Disney clean up its supply chain, protect its brands and help save forests. Disney wasn’t the only company to change. Other major companies and thousands of suppliers and licensees dropped APP. Within months, in an historic shift, APP decided to change, too.
Sixth**, an (occasional) halo effect.** Walmart has long been criticized over issues of pay and benefits to its employees. But in one activist arena, it has earned a halo: Most environment groups consider Walmart a hero, for championing sustainable environmental and human-rights practices across its global supply chain. Since the company adopted its sustainability commitments, few green groups have successfully attacked the company.
But no company is perfect, so if someone offers you a halo for your efforts, run. That halo can also be a noose, and as soon as overly-optimistic hopes are replaced by real-world challenges, groups may begin to tighten it. As Walmart seeks to fully deploy on its commitments, it will find itself once again criticized, perhaps even more aggressively, because its achievements can’t possibly be as great as its most impassioned stakeholders hope. With all its market power, Walmart will find that it can’t do it all through its supply chain. It will need to engage humbly with others, especially on public policy, to advance toward its goals.