Successful organisations invest in their reputations and relationships with external stakeholders with the aim of reducing an incidence of crisis, the severity of the crisis, and the speed of recovery from those crises. By applying sophisticated management tools, multinational firms can create value for shareholders and society. Below, Witold J. Henisz discusses twelve traps successful organisations must avoid if they would like to invest appropriately in “Corporate Diplomacy”.
When a crisis hits, a manager’s focus typically turns to damage control and reputation repair. A few far-sighted organisations, however, are able to seize this opportunity to actually improve their long-term standing in the eyes of their external stakeholders. These successful organisations are able to address not only the concerns and allegations thrust upon them, but also to highlight the positives that stakeholders remember long beyond the crisis. Even fewer organisations pro-actively invest in their reputations and relationships with external stakeholders with the aim of reducing the incidence of crisis, the severity of the crisis that still occurs, and the speed of recovery from those crises. I call such efforts to win the hearts and minds of external stakeholders on an ongoing basis “Corporate Diplomacy.”
The place where business, politics and society collide need not be a source of nasty surprises or unexpected expenses. Instead, by applying sophisticated management tools, multinational firms can create value for shareholders and society. But, typically, they don’t. I’d like to sketch out twelve traps to avoid if you would like to invest appropriately in “Corporate Diplomacy”.
We Don’t Do That. We’re Not Political. We Focus On Our Business
The first trap is complacency. It is more common than you might think. Top managers typically prize innovation or engineering or marketing above all else and sideline efforts at diplomacy, either because it is seen as a distraction or a waste of money. As a result, engagement professionals are afforded little voice, or authority. Their team is severely understaffed and under-resourced.
Learning the Wrong Lessons From Failure (or Success)
A second common trap is to respond to a failure of corporate diplomacy by dismissing modelling political and social systems as pointless. This tendency to conclude, from a single failure, that investments in new capacities, personnel and analysis are without merit, requires deeper inspection. A company would not terminate its R&D program because one investment failed. Similarly, it would not fire its sales staff just because a major client walked away.
Early success, likewise, can breed bad attitudes. It can create a sense that enough has been done or even that the technology, engineering and marketing will work irrespective of the efforts to influence the external environment.
Reliance on Local Power Brokers/Cheerleaders or Consultants
An all-too-common shortcut is to sidestep corporate diplomacy by hiring or allying with a well-connected insider. This strategy avoids the need to undertake costly due diligence but is dangerous in terms of its long-term outcome. An insider may suggest a strategy couched in his or her deep knowledge of a place and its players. The trouble is that the strategy will not be substantiated with data or analysis that can be examined. Even when the recommendation comes with evidence, there are reasons to be suspicious. How does the wise man, or woman, benefit? Who else might he or she be serving?
Greasing the Squeaky (Even Violent) Wheel
It is natural to pay attention to the loudest voice, the most persistent and outspoken critic; particularly if that person appears powerful. But consider how other stakeholders might respond to this focus. If they see that whiners and bullies are rewarded with prioritisation of their complaints, they may mimic that behaviour, thus potentially escalating complaints and grievances, perhaps even to the point of violence.
Internal Divisions on Prioritisation
Ultimately, corporate diplomacy, like any strategic endeavour, delivers recommendations on what to do and not do. Some stakeholders and issues are favoured, and others are passed over. Assumptions must be made, and some of these may be wrong. Internal stakeholders will disagree with decisions, and they may also have their own biases, favouring a particular project regardless of its likelihood of success. They may be influenced by personal relationships, internal political rivalries or the quest for status or power. Sometimes, corporate diplomats must spend as much time convincing colleagues as they do interacting with outsiders.
Arbitrary Budgeting Rules
Another challenge involves resource allocation. Budgets are tight, and companies want to see returns on their investments. In many firms, people follow rules of thumb for budgeting, especially in dealing with activities that do not provide an obvious financial return. They will often allot a fixed percentage of revenue (often 1%). But this approach is shortsighted. Firstly, it bears no correlation with the potential returns from corporate diplomacy investments, and secondly, it perpetuates the perception that these activities generate no returns. Perhaps more problematically, a strict adherence to this rule would preclude any anticipatory investment in stakeholder capital. Until a project begins operation, there is no revenue stream from which to allocate funds.
Perfect Is the Enemy of the Good
Some specialists with expertise in data systems over-engineer corporate diplomacy by trying to build perfect data and reporting systems, capturing every possible piece of information about every stakeholder interaction. While a laudable goal in the abstract, such an effort can undermine progress in corporate diplomacy.
The rollout of such a system can take years and require a big investment in information technology. In the meantime, engagement teams providing the data will still have to do their jobs, flying blind while the perfect machine is being built. Worse still, corporate diplomacy will end up looking like a vacuum that sucks in funds but provides little measurable benefit in return. Needless to say, such a perception can generate backlash, especially if a new management team arrives.
Excessive Good Intentions
Diplomats can also fall prey to excessive responsiveness. A common complaint among sceptics is that corporate diplomacy is just bribery in disguise—but with the same risks. That is; instead of putting cash in envelopes, you build schools, community centres, parks and clinics. In the end, however, the recipients are never satisfied and keep asking for more. The budget increases, but the social license does not. And if the budget does not increase, the social license withers.
The corporate diplomat is a member of an organisation that has a goal. He or she seeks to engage with external stakeholders in support of that goal. The goal is not, however, to make everyone happy or be everyone’s friend. A company is neither a government nor an NGO. Corporate diplomacy is a mix of tough analysis and gentler interpersonal elements in pursuit of a hard-edged objective. It involves difficult choices. Diplomats can and should be trusted – but are rarely loved.
Arrogance and a Desire for Control Undermine Trust
Arrogance afflicts people in nearly every profession, and corporate diplomats are not immune. Specialists can come to believe that their plan is right – stakeholder feedback be damned – and that their job is implementation, not accommodation or modification. Today, this attitude takes the form of the belief that the professionals know better than the locals regarding what a community needs and what will serve its long-term interests. Ceding control or trusting external stakeholders seems a risk.
No doubt, transferring control and decision rights to organisations with less capacity entails risk. But the single greatest contribution that the corporate diplomat can make is to enable stakeholders to overcome challenges themselves.
Propaganda, Greenwash and Manipulation
A related problem, also bred out of arrogance, is the desire to spin or sell a project, rather than building trust and relationships. For spinners, stakeholders are stooges to be bamboozled with ads and photo ops. Their goal is to identify key influencers and use them to sell a project to other stakeholders. The problem here is that spinners do not believe in true engagement. In an age of YouTube, Facebook and smartphones, it is dangerous to assume that you can selectively present your accomplishments and hide your failings.
Islands of Excellence Surrounded by a Sea Full of Sharks
Interdepartmental rivalries and jealousies afflict every company. Corporate diplomats are especially vulnerable because some colleagues may regard their activities as costly window-dressing. Diplomats can end up ostracised. At the project site, they may eat at different tables from colleagues, and they will rarely socialise with colleagues outside of work. In situations like this, any failing by corporate diplomats, or a budget crunch, becomes an opportunity to undermine the program.
Moralism and Normative Goals that Antagonise Others and Isolate Specialists
Personalities and internal politics matter, too. You have to choose the right evangelist for corporate diplomacy. A diplomat’s focus should not be on lambasting insiders for past failings but on future improvement. Certain violations will demand action, but others can be managed over time or deferred. Specialists should use the same personal approach with the finance, accounting, security and operations teams that they do with community leaders. They should invest time in understanding colleagues and learning the issues that matter most to them.
Dancing Free of the Traps
The path from the status quo to the forefront of corporate diplomacy is littered with these traps and potentially more. The goal of my book, Corporate Diplomacy: Building Reputations and Relationships with External Stakeholders is to teach the reader the critical steps learned by firms on the front lines that, when integrated holistically, can help you dance free and push forward the frontier of the art and science of corporate diplomacy. In so doing, you are simultaneously enhancing the status of public relations and pursuing the enlightened self-interest of your client or employer.
Witold J. Henisz is the Deloitte & Touche Professor of Management in Honor of Russell E. Palmer, former Managing Director at The Wharton School of The University of Pennsylvania. His research examines the impact of political hazards on international investment strategy including efforts by multinational corporations to engage in corporate diplomacy to win the hearts and minds of external stakeholders. He is the author of the book Corporate Diplomacy: Building Reputations and Relationships with External Stakeholders. He is currently a principal in the political risk management consultancy PRIMA LLC. whose clients include Anglo Gold Ashanti, Rio Tinto, Shell Corporation, Maritime Financial Group, The World Bank, The Inter-American Development Bank, The Conference Board, Eurasia Group, and Philippine Long Distance Telephone Company (PLDT).