King IV is right on the button! In a time of global political and economic volatility and governments scrambling to balance the socio-economic imbalances of the country. Stakeholder negligence by an organisation may result in the impairment of its licence to operate [LTO]. Once an organisation is labelled with a MustFall hashtag, it loses value and its Licence to Operate.
The peculiarity about LTO is that it is very difficult to accumulate, but very easy to lose. And once lost, it is a slow and expensive process to regain the position of trust. Any organisation has “Value”. This value is usually expressed in economic terms, but there is also a social and environmental context to this appreciation of “Value”. The organisation’s “Value” is contingent on its Licence to Operate.
The LTO is dependent on the view that important stakeholders have of the organisation because they are affected by that organisation’s activities, products or services and associated performance.
Consequently, LTO obliges an organisation to involve stakeholders in identifying, understanding and responding to social, economic and environmental sustainability issues and concerns. These range from Rhodes Must Fall to outsourcing to labour brokers, to public confidence in products and services. These organisations have to report, explain and be answerable to stakeholders for decisions, actions and performance. It includes the way in which an organisation governs itself, sets strategy and manages performance. It lies at the heart of the “Licence to Operate”.
The recently launched King IV report devotes and entire chapter to stakeholder engagement. Chapter Five of King IV spells out the governance requirements for the governing body when dealing with stakeholder engagement. If we take King IV seriously [as we should!] , this means that the governing bodies of accountable organisations will:
- provide strategic direction for the organisation’s relationships with its stakeholders;
- approve policy articulating the organisation’s strategic direction with regard to stakeholders. Furthermore this policy should provide for the adoption of appropriate standards and frameworks to give effect to this policy.
- In addition, the governing body should oversee the activities of effective stakeholder engagement to contribute to value creation and the achievement of strategic objectives.
The AA1000 Stakeholder Engagement Standard is the only globally recognised standard for conducting stakeholder engagement. It is used with great success around the world.
Engaging with the individuals, groups of individuals or organisations that are affected by or can affect an organisation’s activities, and responding to their concerns makes organisations perform better. It increases their knowledge and contributes to their license to operate. Now, more than ever, we need quality stakeholder engagement because, undertaken sensitively, it can:
- Lead to more equitable and sustainable social development by giving those who have a right to be heard the opportunity to be considered in decision-making processes;
- Enable better management of risk and reputation;
- Allow for the pooling of resources to solve problems and reach objectives that cannot be reached by single organisations;
- Enable understanding of the complex operating environments, including transformation, market development and cultural dynamics;
- Enable learning from stakeholders, resulting in product and process improvements;
- Inform, educate and influence stakeholders to improve their decisions and actions that will have an impact on the organisation and on society; and
- Contribute to the development of trust-based and transparent stakeholder relationships
A consistent Stakeholder Engagement approach conforming to the AA1000 Stakeholder Engagement Standard can protect and enhance the organisation’s value for all stakeholders, and sustain the organisation’s social, political, commercial and environmental Licences to Operate. A sound stakeholder engagement plan neatly forms part of integrated reporting requirements.
Typical dimensions of Stakeholder Engagement extend to:
Community Relations: This component is highly significant in context of the Licence to Operate. It is probably the most significant aspect of Stakeholder Engagement in South Africa. The specific set of engagement activities that are required to meet the performance requirement relating to Community Relations. This has powerful and positive implications for reputation enhancement and brand building.
Government Relations: The specific set of engagement activities that are required to meet the performance requirement relating to Government Relations. It is probably the second most significant aspect of Stakeholder Engagement in South Africa.
Supply Chain: The specific set of engagement activities required to meet the performance requirement relating to Supply Chain. This has implications for Quality of Product [Service] and Continuity of Supply [Financial Sustainability].
Customers: The specific set of engagement activities that are required to meet the performance requirement relating to Customers. Requirement such as Licence to Operate, Reputation, and Product Trust are key requirements here.
Now , more than ever, South African organisations, in both the public and private sector need to protect their licence to operate. They should take King IV to heart and pay special attention to setting up the disciplines and processes for sustainable effective stakeholder engagement.