Why stakeholder relationships will determine success in the new era of business competitiveness
March 15, 2022
[3]-MINUTE READ
What’s the worst experience you’ve ever had as a customer?
For me, it was buying window shutters. I think the numbers speak for themselves: four incomplete deliveries, 27 calls or emails to customer service, three letters to the CEO, five months late.
Suffice it to say, my experience was not even in the same ballpark promised by the company on its website (“easy, satisfying, excellent”).
Now, mistakes happen. When I finally spoke with someone on the leadership team, he expressed shock and contrition; he said it was below the company’s “standards”.
However, I spoke with a lot of his employees. And I looked up the company on Trustpilot, a consumer review site popular in Europe. The executive’s conciliatory words were divorced from reality.
Sustainability: a second-tier priority
One crumb of comfort I can offer is that such misalignment is not uncommon. Our latest research on how to shape sustainable organizations—Perception is reality—finds wide “consensus gaps” between leadership teams and stakeholders. For example, 69% of executives we surveyed say they track and monitor progress against measurable goals—but just 34% of employees say such goals are realistic.
These gaps seem incongruous in 2022.
Companies are only too eager to promote their sustainability and equity credentials, to talk about how they value employees, delight customers and support suppliers.
So why do many stakeholders remain unimpressed?
The answer lies in the relative balance of priorities. Because, for all the rhetoric, sustainability remains a second-tier priority in organizations today. When forced into a playoff against other items in the executive inbox—such as product development and financial performance—sustainability “wins” just 15% of the time.
Almost three-in-five executives (58%) believe operating more sustainably means missing out on growth. This borders on the myopic.
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A new source of competitive advantage
Adopting sustainable practices can raise costs—for instance, paying a fair wage, processing sewage or providing disability workplace accommodations. But it can also lower them—lowering employee attrition, improving resource efficiency or reducing ligation.
And the pursuit of positive environmental and social impact is a top-tier priority for most stakeholders, such as the 76% of consumers who say companies should have a “clear social purpose” or the 87% of employees who want to work for a company that “acts responsibly.”
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When forced into a playoff against other items in the executive inbox—such as product development and financial performance—sustainability “wins” just 15% of the time.
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As such demands become more entrenched, sustainability will increasingly drive business competitiveness—as both a creator and protector of enterprise value. Already, we find companies with lower leadership-employee consensus gaps on sustainability performance outgrowing their competitors by 13%.
As Larry Fink, Chair & CEO of Blackrock noted recently: “Stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not “woke.” It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper.”
Consensus gaps carry an opportunity cost
Think back to my travails with the shutter company. The clear lack of focus on customer experience, employee accountability and supplier engagement not only lost them my custom. It cost them in compensation and additional manufacturing and delivery charges; an executive had to deal with the escalation; the customer service agents did not enjoy my (generally polite) persistence; it might have lost them a few potential customers who read my review.
Clearly, one such incident is far from catastrophic for the company. But repeated many times over—in a world of increasing transparency, growing activism and declining loyalty—it probably would be.
The organizational response must be to build deeper stakeholder relationships. Yes, this will take time and resources. But the reciprocal benefits—combined with the risks of inaction— mean companies don’t really have a choice.
