Community outrage. Religious backlash. Facilitation payments. Forced labor. Illegal overtime. In today’s global economy, these are just a few of the “softer” risks companies must learn to manage as they seek to expand.
or years, executives have been appointed to positions of corporate leadership thanks to their ability to make crucial financial, commercial, technical and marketing decisions. These strengths undoubtedly remain important to daily operations, but for companies seeking sustainable growth they are no longer enough.
As global expectations continue to evolve, companies are dealing with rapidly changing demands from a wide range of critical stakeholders, both at home and abroad. Where does that leave executives when they're facing unpredictable challenges that occur outside of their traditional leadership purview? How do they deal with company allegations of forced labor, for example, poor community relations and other serious issues related to governance?
Often, executives assume they can easily mitigate these “softer” risks and instead focus their energies on the business essentials where they have control. Unfortunately, this is an untenable position that can imperil efforts to expand into new territories.
Here are five common mistakes executives make when planning for and executing sustainable growth — and how to avoid them.
Mistake: The Softer Risks Will Take Care of Themselves
In business planning, companies are often preparing for massive investment and change. This often causes leadership to overlook, or ignore, the softer risks, and they find themselves blindly stepping into controversy.
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Avoid it: First, set up a risk identification, mitigation and stakeholder mapping process and embed it in the project. Include a sustainability and reputation unit within the business development team as opportunities are being evaluated.
Mistake: The Less People Know, the Better
Leadership teams remain risk averse and reactive, often leaving identified risks unmanaged until they start to impact the business. By then, it’s too late, and executives have missed their chance to do three things:
• Build broad understanding among key stakeholders of the risk.
• Establish an acceptable and inclusive solution.
• Embed mitigation into operations/marketing plans for long-term successful operations.
Avoid it: Engage with key stakeholders early in the process and keep engagement proportionate to risk. If a company builds a new plant, for instance, limiting engagement to fence-line communities (adjacent neighborhoods that are directly impacted by the new operations) is appropriate. However, if an impacted community is internationally recognized for being marginalized, it would be wise to expand the number of stakeholders to reach out to.
Mistake: I’m Up to Date on Policies, Processes and Standards
Softer risks often present challenges that companies are not prepared to handle and for which they don’t have a defined or considered approach. Critical stakeholders may want the company to either define their position on an issue or expect international guidelines to prevail. These can be ill-defined and contested among activist groups, and they can remain constantly in flux.
Thus, it’s important to understand the external and industry trends and be prepared. A recent study of the top 250 companies in Singapore, Thailand, Malaysia, Indonesia and the Philippines concluded that companies were “marginally responsive” to the global business and human rights push, creating a situation where they are becoming “under or unprepared and noncompliant without realizing it.”
Avoid It: Develop standards and processes to mitigate risks. The process of developing these standards is often the most beneficial part of the process. Partnering with external experts in the academia or not-for-profit areas gives access to expert advice, broadens the understanding of a company’s responsible approach and helps create potential advocates.
Mistake: I Have a CSR Program, so What’s the Problem
Corporate social responsibility (CSR) is often regarded dubiously. Still, it has enormous currency around the world, particularly in the Asia-Pacific region. There, CSR is seen as companies’ giving back to society and is often linked to philanthropy, which dominates Asian companies’ agendas. However, it does not directly relate to mitigating social or environmental impacts.
Avoid it: Sustainability means running a company where policies and business decisions are governed by a published approach that supports sustainable operations. Investors have adopted environmental, social and governance (ESG) policies and increasingly expect companies to show how their operations are driving sustainable outcomes. Handouts to charity are welcome, but they’re not enough anymore.
Mistake: My Partners Will Have My Back
Whether it’s home or abroad, partners can get it wrong in their own markets. They may also have different values, standards and business goals that influence their responses, which can create, rather than manage, risk.
Often foreign companies will rely on their local partners to lead because they know the social and business cultures. This is a good starting point if there is alignment, but often partnerships present differences and points of contention. Eventually, companies will need to establish their own profiles in the country/market to represent themselves as their next project may be standalone or with a different partner.
Avoid it: Local companies may not be prepared for the level of international scrutiny that can descend on them when they partner with a major international company. This often radically skews the risk profile and puts the local entity under pressure where they expected none. Thus, it is important to understand the scale of the risk. This means involving experts with international experience that may override country advice.
A NEW PARADIGM
Project timetables traditionally have been driven by negotiation timing, contracting, and procurement and financing. This model is outdated. Stakeholder engagement can no longer be a second thought when in reality, it’s one of the most time-consuming activities with the least-predictable outcomes.
Companies should consider bringing experts into the leadership team who can manage external, social and environmental risks. Only with a proactive approach originating from leadership can companies better mitigate the potential softer risks. Plus, involving key stakeholders bolsters these engagement programs while building collaborative alliances within the business.
If the world is changing, then leaders need to adapt. This starts by their communicating and aligning all key stakeholders. Only then will businesses be able to plot a path forward, mitigate the softer issues and, ultimately, grow sustainably.