Four Key Elements of Successful Stakeholder Communication

George Bernard Shaw joked that “the biggest problem in communications is the illusion that it has taken place”.

This is often the case when it comes to interactions between companies and stakeholders. Organizations need to improve communication with key actors to foster trust, strengthen cooperation and mitigate potential risks and conflicts. But what form does this communication take? And should it differ according to the profile of the stakeholders?

In a recent study published in the Business Ethics Review, Witold Henisz, Sinziana Dorobantu* and I shed light on the four factors that matter in stakeholder relationships: timeliness, valence, richness and timeliness. We observe how the speed of a company’s response (opportunity), the tone of that response (valence), the depth of engagement (richness), and the degree of responsiveness to specific issues raised by the stakeholder (timeliness) influence stakeholder reactions.

Our findings demonstrate support for greater timeliness, openness of tone, depth of response, and relevance in business responses. However, the relative importance of these elements depends on the type of stakeholder as well as their status.

Identify and understand stakeholders

Stakeholder cooperation is particularly critical in extractive industries like gold mining. Disputes with stakeholders over environmental issues and social factors, including labor practices, human rights and broader community impacts, can lead to costly delays, regulatory proceedings and legal judgments.

By focusing our research on the gold industry, we were able to narrow down our sample to 19 TSX-listed companies that own and operate three or fewer gold mines in emerging markets that have reached the feasibility study stage.

By reviewing media reports, we collected data on interactions between gold mining companies operating 26 mines in 20 countries and 199 stakeholders with a political, social or economic interest in mining.

First, we analyzed press articles, extracted from the Factiva database, referring to the company and the mine between 1993 and 2010. Democratic Republic of Congo (DRC), the Romanian Orthodox Church or actress Vanessa Redgrave.

Second, we coded sentences to extract source-verb-target triplets that specify who (source) did or said what (verb) to whom (target). We matched all verbs on a 20-point conflict-cooperation scale ranging from -9 (extremely confrontational action or statement) to 0 (neutral statement of fact) to +10 (extremely cooperative action or statement). A a cooperative action like “providing financial support” or “creating a partnership” was coded +7, while a confrontational action such as “protesting” or “razing property” was coded -7.

We identified 6,068 instances of media-reported interactions that include three sequential elements: a stakeholder’s initial engagement with the company (expressing an opinion or taking an action), the company’s response, and the subsequent reaction from the stakeholder.

We examined the impact of the timing, valence, richness and timeliness of a company’s response to a stakeholder’s initial statement or action, and noted changes in the subsequent reaction from the stakeholder.

Measuring conflict and cooperation

To assess the importance of opportunitywe determined whether the company responded a day, a week, or a month after the initial stakeholder engagement.

We measured the valence of the company’s response as the difference between the stakeholder’s initial statement or action and the company’s response. In other words, whether the company responded with more cooperation or conflict.

Then, we calculated the difference in degree of wealth (i.e. verbal communication versus action) between initial stakeholder engagement and business response. We’ve designed a five-point scale to determine a company’s level of commitment to event resources and time.

Finally, we used the Python EMPATH tool to analyze the disparity in the distribution of topics in the company’s response versus stakeholder engagement. This allowed us to measure the newsor lack thereof, of the response.

Our results demonstrate that timely, positive, rich, and topical responses are associated with positive reactions from stakeholders overall. For example, when the DRC government announced its intention to nationalize all gold mining assets in 1998, Banro American Resources responded within a day. The company sought an explanation, threatened to sue and condemned the government’s action in a rich and topical response that, while divisive, did not escalate tensions or take concrete action. The government responded the following day, clarifying the terms of the company’s long-term mining concession and emphasizing its close relationship with company executives. He also admitted an error in his previous announcement.

Years later, the government announced that a public company would receive permits not operated by Banro. In this case, the company did not respond for more than a month and announced that it was protesting the redistribution of licenses and suing the government. This constituted an escalation of tensions as well as concrete action. The government’s reaction the following day was decidedly more confrontational towards Banro.

Different stakeholders value different responses

In a post hoc analysis, we replicated our results for different stakeholder subsamples. This included government actors (e.g. relevant ministries and agencies such as the Ministry of Mines), economic actors (e.g. other commercial and economic actors such as other mining companies) and societal actors civil society (for example, protesters, communities and non-governmental organizations). organizations such as Greenpeace), as well as high and low status stakeholders. In doing so, we were able to examine how stakeholders differ in their sensitivity to different elements of company responses.

Our results indicate that government actors to prioritize richer engagement and timeliness compared to timeliness and valence. Economic actors, on the other hand, are less concerned with wealth and timeliness, and more sensitive to timeliness. For civil society actors, timeliness and valence are most important, while wealth is penalized. Lower status actors in all sectors deprioritize timeliness and richness, while top performers demand performance in all four elements.

Ultimately, managers must choose what to prioritize when dealing with stakeholders. For example, responding quickly could come at the expense of a rich or topical response.

We argue that the trade-offs managers make across these elements should vary by stakeholder characteristics in order to unlock deeper communication and trust.

Effective engagement influences stakeholder impressions, and how a company responds to one stakeholder affects another’s opinion. This can have repercussions on the entire network of stakeholders which could have negative consequences or benefits for the company.

*Witold Henisz is Deloitte & Touche Professor of Management at the Wharton School of the University of Pennsylvania.

Sinziana Dorobantu is a Associate Professor of Management and Organizations at New York University Stern School of Business.

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