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Stakeholder Relationships: Key to a Sustainable Enterprise

Posted: 04/13/2012 11:05 am

Most companies envy the passionate loyalty that Apple customers have for their products, the dedication that Southwest Airlines employees demonstrate without understanding that effectively managing their stakeholder relationships is the key to earning these benefits. Employee engagement and customer loyalty are intangible (non-physical) assets that contribute more to the value of a company than the physical 'things' it owns.

According to research by Robert A. G. Monks and Alexandra Reed Lajoux, authors of Corporate Valuation for Portfolio Investment: Analyzing Assets, Earnings, Cash Flow, Stock Price, Governance, and Special Situations fully 80 percent of the market value of Standards and Poors 500 companies comes from intangible assets. In 2005 Apple's market value was $58 billion. The total tangible assets on its balance sheet -- 19.8 percent of that! 80.2 percent of the company's value was contained in its relationships with its stakeholders.

Each relationship is an intangible asset of the business. As any accountant will tell you, assets can either appreciate or depreciate or hold their value.

By effectively managing relationships with increasing the opportunities and lowering the risk for each relationship, a company can enhance the quality of its intangible assets and therefore increase the overall valuation of the business.

So then the question becomes; how to effectively manage your relationships with customers, employees, owners/investors, suppliers, competitors, communities and government agencies and regulators?

For each group the principles of integrity, authenticity and engagement (engaging in open dialogue rather than treating them as audiences who receive information) apply.

Customers: Want, demand and deserve a superior customer experience, however they (the customers) define it. Southwest Airlines has raised this to a new standard, offering a clear demonstration that low-cost and first-class-service are not at the opposite ends of the continuum.

Employees: I absolutely cringe when I hear people say that employees want to 'feel' valued. The fact is that employees need to 'know' that they are valued. The best way to demonstrate (rather than say) that the work they are doing is appreciated by their colleagues and important to customers is by showing them how their role fits into the larger picture. For example, the partnership between building materials company Lafarge and Habitat for Humanity International reconnected employees to the tremendous value that the products they helped create bring to thousands of people. In addition, a consistent theme running through Working Mother's annual list of Best Places to Work is that top employers treat their employees as their most valued assets by investing in their growth, engagement and satisfaction.

Owners/Investors: A return on investment is critically important to owners and investors but at the same time there are people who will buy a stock (think Disney or Apple) because they appreciate what the company stands for as well. And there are people who will refuse to own (and work for) companies or industries that they find unpalatable, regardless of return (such as tobacco or firearms).

Suppliers: A company's suppliers are critical to their success. The quality of the products that go into what you manufacture has a direct impact on the quality of the products that go to market bearing your brand. Making the right choice can enhance a company's reputation and increase the value of its brand. Making the wrong choice can have a devastating impact. Therefore, companies must be sure to seek partners who share their commitments for reducing their environmental footprint, preserving and protecting human rights and a host of other issues.

Competitors: An often overlooked stakeholder for any company is its competitor, because often the actions of one player can influence the image of an entire industry (or business in general). The oil spill associated with BP in the Gulf of Mexico resulted in a moratorium on all drilling, by all companies and damaged the image of safety and environmental responsibility of the entire industry. While that may have not been a shock to those who already questioned the authenticity of the sustainability claims of the oil and gas industry (see Owners/Investors section above) the scandals at Enron, Worldcom and Arthur Anderson sent shock waves through business and industry that are still being felt.

Communities: Anyone who has tried and failed to get a business permit knows the power of local communities. They need to buy you before you get a chance to sell them anything. Despite the promise of jobs, products and contributing to the tax base, local people have protested and ultimately prevented major corporations from coming into their community. Managing your relationship with the community on the other hand, so that they see you as a benefit to the community, can result in public hearings where people speak on your behalf and expedited permits.

And finally, government regulators and legislators: Think about your last auto inspection -- if there's black smoke pouring out of your tailpipe, chances are it is going to take longer (and cost more money) than if the computer chip download shows emissions within acceptable parameters. In the same way, environmental inspectors very quickly know if they have entered a cleaner operation. Likewise, safety inspectors from the Occupational Health and Safety Administration (OSHA) can recognize a safe and clean operation and engage in a thorough inspection that takes less time and is less disruptive.

Perhaps this is the reason why it is time we stop referring to sustainability as the 'soft' side of the business and recognize that building good 'CSR' practices is not merely a 'nice' thing to do, it is the key to creating sustainable corporations.

 
 
 

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