The Unintended Consequences of Overlooking Stakeholders

trust, restoring trust, social license, Freedom to Operate, Size Matters, pink slime | September 11, 2018

You can’t always choose your stakeholders, sometimes they choose you.

Every business, organization, or even an individual operates with some level of social license.  

Society allows them to operate with minimal restrictions such as regulation, legislation or market-based mandates as long as they maintain public trust by doing the right thing 

Social license is granted when they operate in a way that is consistent with the ethics, values and expectations of their stakeholders  when they are perceived as trust-worthy. Stakeholders can be customers, employees, the local community, regulators, legislators, media and others who have an interest in how the entity in question may impact them or their constituents. Today, organizations don’t always get to choose their stakeholders. Stakeholders can choose the organization they want to influence and their influence is increasingly empowered through a variety of digital channels. 

It used to be that organizations could easily identify stakeholders that could impact them. It’s different today because digital influencers can quickly and effectively mobilize others in powerful campaigns. These campaigns often move more swiftly than the regulatory process and have equal or greater impact. 

Beef Products Incorporated (BPI) didn’t select or identify a Houston-based food blogger as a key stakeholder, and yet the blogger’s online petition against lean finely textured beef was the catalyst that nearly drove what became known as “pink slime” from the food system and caused BPI to close plants. This occurred even though the product was safe, had full regulatory approval, enhanced sustainability and had been in the market for years. 

Businesses and organizations must constantly monitor changes in their operating environment and evaluate whether to engage those that may have an impact, whether you choose them or they choose you. Stakeholder evaluation, even if you strongly disagree with their perspective, should include an objective analysis of their ability to directly impact your business, to influence others and to generate customer concerns.  

Social license is replaced by social control either through a single event or through a series of events that diminish or eliminate public trust. Operating with social license is flexible and less costly. Social control increases costs, reduces operational flexibility and results in more complex and burdensome bureaucratic compliance. More importantly, it can limit or destroy freedom to operate. 

Here’s an example: The subprime mortgage debacle that triggered the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 wasn’t just the result of a single financial institution bundling risky mortgages as a new investment tool. It was widespread and caused the market to collapse, generating social outrage that led to legislation to address the violation of public trust. Social license is replaced by social control when a violation of trust mobilizes stakeholders to action.  

Additional social control also can be driven by the market through less formal means. The near elimination of lean finely textured beef from the food system was not the result of new legislation or regulation, but rather non-coordinated market action triggered by an influential blogger and inflammatory media coverage. 

Challenge and opportunity are on the horizon for the food system. While more and better food must be produced while using fewer resources, the food system must meet the demands of a growing global population with more purchasing power and interest in how food is produced. Meeting the challenge will require more innovation. However, the social license to innovate will be granted only if stakeholders believe those in the food system are genuinely committed to doing what’s right and operating in a trust-worthy manner. 

You can learn more on this topic and much more in my book, Size Matters, available at Amazon.com

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