Until recently, measuring the economic benefits of stakeholder engagement has been an ambiguous notion. There are, of course, inherent social values in engaging stakeholders in a meaningful way, including goodwill towards your project. Government is also increasingly requiring that resource extraction project proponents take the lead on engaging stakeholders, often earlier in their regulatory process than ever before.
But it’s always been difficult to measure the effectiveness of that engagement on a company’s bottom line. That is, until now.
Researchers at the Wharton School of Business released a study detailing how stakeholder cooperation increases profitability. The study implies a successful stakeholder engagement process whereby buy-in from different sectors is achieved. (Stakeholders refer to economic partners, government, regulators, community officials and members of the public.)
Professor Witold Henisz and his team found that stakeholder engagement can make a huge difference to the net value of companies. He and his team studied 26 gold mining companies trading on the Toronto Stock Exchange from 1993 to 2008. During this time, they coded some 50,000 stakeholder engagement events, drawn from media reports. What they found was an unequivocal argument in favour of engaging stakeholders as a way to improve a company’s chances of finishing a project on budget and on time, thereby eliminating delays and expenses that can damage overall profitability.
By studying the volatile gold mining sector, which involves often-controversial projects in a variety of countries, Prof. Henisz argued that the findings easily apply to other sectors.
In terms of simple numbers, the team found that when stakeholder cooperation was incorporated, a company’s net present value could be improved by between 40 and 60 percent. According to Prof. Henisz, that means local support for a gold mine has as much effect on the mine’s value as the mineral deposit, the cost of extraction, and the world price of gold.
This represents a shift in thinking for companies engaged in seeking stakeholder cooperation.
Engagement—and cooperation—is as important as other tangible assets and market conditions in terms of a company’s success.
Of course, stakeholder engagement does not guarantee cooperation.
Henisz has a set of best practices that he recommends for achieving cooperation:
- Change the mindset in your company so that employees believe in the importance of stakeholder input.
- Identify your stakeholders, their positions, and their connections to other groups.
- Link your stakeholder data to your company’s operating performance, integrating it into risk management systems.
- Engage with stakeholders in a meaningful and fair way, responding to concerns and forming connections.
- Share information about the project in a credible and transparent way.
In a previous post we examined how achieving buy-in from stakeholders also improves relationships and communication, changes perceptions, and generates new ideas to inform the project.
When stakeholders and project proponents find common ground and achieve individual goals by communicating in an effective way, projects are more likely to proceed smoothly. A successful and effective stakeholder engagement process is therefore essential to financial success.