Systems Thinking, Stakeholder Engagement, and More Inclusive, Transparent Reporting

Close up pen and graph in office after meeting.Meeting business.

You might think that success at stakeholder engagement could not become more important, but it is going to.  The recent increase in ESG themes in the national equities markets demonstrates that this is an increasingly important consideration for all organizations.

Today, major corporations report on their social responsibilities and progress made on them. But they do not have to report on the “health” of their key relationships with stakeholder groups. But going forward, it will be an expectation that they do.

Investors and other observers want to understand the full breadth of “capital” that can affect how well a business will succeed. One of the key corporate attributes is social capital. There are many examples of social capital that we can easily observe such as the willingness of a local community to accept the presence or expansion of an industrial production operation. If the company has engaged with the community and demonstrated sensitivity to its environmental or health impact, it may earn positive social capital. If it has ignored the community and it has a cloud of black smoke above its plant, it will have likely earned low or no social capital. Similarly, if the company differs on its stance on important social issues in popular debate from the general view held by the local community, it may build a reputation disconnect with potential customers and earn little or negative social capital. Social capital can affect the company’s license to operate, and can drive revenue and risk.

In the past, companies produced just an annual financial report and filed a 10K with the SEC. Then as environmental concerns arose, they supplemented that financial report with an environmental report. That was about 30 years ago!

More recently the annual report became a financial and sustainability report, but as corporate social responsibility became a recognized function, it expanded to topics like diversity and inclusion.

What we are observing is the expansion of scope of recognized stakeholders and their interests. Taking all of these into account requires a broader aperture to look at it all and what are the key skills and capabilities to manage this scope.

Analyst working with Business Analytics and Data Management System on computer to make report with KPI and metrics connected to database. Corporate strategy for finance, operations, sales, marketing

Systems thinking takes a holistic approach to understanding how interrelated parts work together. A financial report deals only with accounting for monetary funds. But there are many types of capital in addition to financial capital: human, manufactured, intellectual, social and relationship, and natural (the environment).

The new thinking is that all of these types of capital are interrelated, so you have to view them in a converged way, and report on them as such in a single inter-connected report.  This requires your organization to operate its data capture processes and report content under consolidated leadership and orchestration. Influence functions will have to work together with data driven units in a more connected fashion.

The Value Reporting Foundation is a group that is at the forefront of this movement for corporations. They say to “focus on optimizing value creation for itself and others through a multi-capital approach.”

The Foundation pushes a concept called Integrated Reporting and has developed an international framework for it. Incorporating the notion of Integrated Thinking, the Foundation has issued guiding principles and defined elements for reporting.

On the topic of Stakeholder Relationships, the framework states that “An integrated report should provide insight into the nature and quality of its organization’s relationships with its key stakeholders, including how and to what extent the organization understands, takes into account, and responds to legitimate needs and interests.”

On the topic of risk and opportunities, the framework states that “An integrated report should answer the question: What are the specific risks and opportunities that affect the organization’s ability to create value over the short, medium, and long term, and how the organization is dealing with them?” This includes both internal and external risks and opportunities. Here is where influence functions are pulled into the game.

As integrated thinking (which is essentially systems thinking) takes hold among large international corporations, the expectation will spread that all types of companies adopt a more holistic, contextually aware, and value-for-all approach to their reporting to stakeholders.

This means that influence functions must:

  • Interact with stakeholders more deliberately, seeking the “zone of constructive engagement” including accommodating or collaborating with stakeholders, or advancing with innovation
  • Focus more broadly than just their functional slice of the company
  • Collaborate cross-functionally - be able to play well in teams
  • Influence the conversation - contribute to a broader output that they can no longer fully control
  • Integrate organizationally - work more at the interfaces where they connect to other functions
  • Promote efficiency and effectiveness - sort out intra-company conflicts, processes, and nuances
  • Provide insights - demonstrate the health of their stakeholder relationships
  • Lead the influence revolution by using more influence, negotiation and relationship skills

This reporting to and about stakeholders is still evolving. Maybe the International Integrated Reporting Framework is too conceptual. Maybe it will have challenges in getting continued traction.

That does not really matter, since the momentum of increasing expectations for corporate transparency, sensitivity, and authenticity has been building for decades. Influence functions will need to respond and adapt.

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9-17-21 blog road ahead

As a management consultant looking for clues on how well managed a function, I would often as “What do you want to be doing differently a year from now?” This separates the thoughtful leaders from the reactive tacticians. Organizations that had a focus on continuous improvement had a good answer. That is why Functional Innovation and Transformation is another of the Pillars of Radical Influence. Showing that you have thought about your next innovation demonstrates a deeper level of commitment and translates to a higher probability of being successful.

Here are six suggestions for a good first interaction with the new leader:

  1. Prepare in advance (which means now, since you cannot predict this kind of event)
  2. Offer background pre-read material, or just a conversation. Give them the choice, to best fit their learning style.
  3. Ask about the new leader’s priorities and probe so you understand why they are what they are, especially if there is a shift from the recent past. The company may be headed in a new direction.
  4. Adjust as you listen. New information or events could render some or all of last year’s plan obsolete.
  5. Focus on value, then tie value to the work that is required to achieve it, then on how the work requires resources. Eventually, it will get down to your unit’s budget. Make early conversations primarily about value derived from risks and opportunities, not the budget.
  6. Follow up and demonstrate responsiveness.

In general, the Six Pillars of Radical Influence can guide you when holding a meaningful discussion with a new leader who ultimately controls your fate in the organization. Check our news feed to sort articles by Pillar to get a better sense of each. Or the blog (https://radicalinfluencenetwork.com/six-pillar-capabilities-to-reach-radical-performance-in-the-influence-functions/ ) that describes all six pillars.

With a little management structure and forethought, you can avoid being caught flat-footed and use any early interactions with new leaders to enhance alignment, clarify value creation, as well as justify your budget.

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