Why is local business not ready for dialogue with their external stakeholders

It’s time to shape stakeholder engagement system instead of voicing concerns only as actual conflicts emerge

Фото: ©Depositphotos/weerapat

Demolition of “Zheltoksan 115”, which arguably represented a finer example of Soviet architecture in the historic part of Almaty. Ski Resort construction at Kok-Zhailyau National Park. The very same national park that was meant to remain pristine as it ensures that much-needed fresh air flows through Almaty’s strictly perpendicular streets. These and some lesser known conflicts between local business and the community seem to get significantly more media coverage these days. Reviewing few of them, one can notice a clear and problematic pattern associated with how such conflicts tend to get resolved. As business makes questionable decisions, local public launches campaigns to attract government and media attention. If campaigners succeed at generating media buzz that is sufficient to make it impossible for businesses to ignore the issue, companies are forced to create formal conditions for stakeholder dialogue.

Yet, can creation of formal conditions for stakeholder dialogue ensure emergence of well-oiled stakeholder engagement process? To begin answering this question, one needs to keep in mind that according to Sange Research Centre (2013) only 6% of companies in Kazakhstan organise public hearings and / or create Stakeholder Councils. At the same time, those few stakeholder engagement initiatives that we do get to hear about, tend to deliver some doubtful results. In some instances, public hearings don’t get held until after the final decision has already been made. In other instances, vehicles that are meant to take activists to the place of “public” hearings are pre-filled with people, whose silence is allegedly guaranteed. Similarly, individuals whom none of the campaigners have ever seen before are put forward as representatives of their interests during the negotiations. As social media and traditional media get flooded with all sorts seemingly absurd stories, the results of such stakeholder engagement can easily be illustrated by fresh construction site at Zheltoksan 115.

Some may reckon that local business is simply not ready for honest and transparent dialogue with their external stakeholders. Others may blame it on lack of clear legal frameworks for protection of certain public interests. Whether we talk about big companies or regular members of the public, the shift in stakeholder engagement thinking is long overdue. Kazakhstan is not the only country, where businesses might feel reluctant to engage with the community. There is no harm in owning that. In fact, it is a problem that can occur anywhere in the world, not just in transitional economies or emerging markets. Even Britain, that pioneers global Corporate Ethics agenda, struggles to contain some of its misbehaving companies. As popular British retailer “Primark” sells outerwear for the price of an upmarket t-shirt, “responsible consumers” remain puzzled as to what is the social price of such bargains. It might be impossible to win every single battle. We need to embrace it as a part of the process. However, it is not impossible to win the war. One just needs to think strategically.

Nike was infamously criticized for health and safety conditions at its offshore production sites. That being the 1990s, the company’s first instinct was to claim that it could not be held responsible for what the members of its supply chain were doing. The public pressure hasn’t lessened and the rest is a very inspiring story. If you feel like it, you can easily access over 150 independent reports that are regularly written by the experts, who are inspecting Nike’s offshore production facilities. As Nike adopted a more responsible approach towards what happens in its own supply chain, it simultaneously raised the bar for all of its competitors. No respectable sportswear brand would dare to ignore health and safety violations of their suppliers these days.

At a first glance, one may argue that Kazakh businesses are going through something similar to the infamous events of the 1990s. The emergence of civil society was highly anticipated in Kazakhstan.  It has finally started to gain its own distinct voice. As internet penetration is comparatively high, locals get glued to social media. 10 out of 17 million people are active on the internet (Internet Live Stats 2014). With functional literacy rate at nearly 100%, these 10 million users are not just posting pictures. What was once discussed in the Soviet kitchens with a couple of close friends, is now posted online for the thousands of strangers to see.

However, civil society that is emerging in Kazakhstan in the 21 century have an advantage over those activists that started changing the world by forcing “Nike” to alter its philosophy. International experience has indicated something that wasn’t very obvious back in the 1990s. Even if some companies are not participating in the “Race to the Top”, they surely participate in the “Race from the Bottom”. No company wants to be the worst. Being the worst contradicts the very premise of capitalism. Stakeholders can expect results more far-reaching results when they seek to facilitate “Race from the Bottom”. ”. Stakeholders must seek to influence entire industries instead of cherry-picking a few selected companies. In order for that to happen, stakeholders must have a very clear vision as to what should become a new norm.

Yet, what is happening in Kazakhstan right now? Local community stakeholders have very little idea as to what they expect from companies beyond sound financial health. Several local studies on stakeholder expectations indicate that Kazakh citizens tend to define responsibility in some very narrow terms. They expect companies to pay taxes, acquire business licences and comply with the law. Although such things as “social responsibility towards employees” and charitable activities get mentioned, these do not seem to be particularly high on the agenda. Locals do not seem to pay any attention to some of the more sophisticated aspects of CSR until actual conflicts emerge. Local community does not seem to hold business responsible for its actions until it’s almost too late. As one might predict, it frequently turns out to be too little, too late.

According to the Reputation Capital Group (2013) only 10.7% of Kazakhstanis think that “responsibility” affects corporate reputation. The experiments conducted for my own study entitled “CSR Reporting, Corporate Accountability to Community Stakeholders and its Role in Shaping CSR Incentive System in Kazakhstan” indicate that local businesses might realise that average local consumers fail to perceive “corporate responsibility” as particularly important. The highest level of non-financial reporting availability is consistently recorded among the companies with the highest levels of market capitalisation. The lowest level of non-financial reporting availability is recorded among those companies that own Top Kazakhstani brands. Oddly enough, almost all those brands are consumer-oriented. Moreover, the levels of availability of non-financial reports are consistently higher at the national Stock Exchange (KASE) directory than on corporate webpages. In other words, Kazakhstani businesses are more motivated to disclose its non-financials to their investors. They are insufficiently incentivised to disclose their non-financials to their potential customers.

More companies would behave responsibly if they felt that community holds them accountable for its non-financial conduct. Many solutions to that problem have nothing to do with community stakeholders. Yet, community stakeholders are important part of this jigsaw. They need to define “the new normal” for Kazakh businesses. It’s about time Kazakhstanis realise that no one else but society gives business its “license to operate”.

This “license to operate” cannot magically appear as conflicts of interest reach the boiling point. It cannot just as magically disappear when those conflicts get resolved. It either exist or not. As Charles Frankel rightly noticed back in 1955 ^responsibility is the product of definite social arrangements”.

In his turn, environmental ethicist Garrett Hardin further noticed that responsibility should not be confused with propaganda. The messages that ask people to stop eating at local restaurants that cut trees around them are very popular on social media. It is understandable that Kazakhstanis want to condemn businesses that cut trees just to create new parking spaces. Nevertheless, I can’t definitively say that I’ve come across any message that would ask people to support certain business because it plants trees or does something inspiring? 

The potential of McKinsey’s “word-of-mouth” index” to push CSR agenda forward is not to be underestimated. Even if it was originally created with marketing purposes in mind. Local audiences tend to be more exposed to marketing than CSR. So let me take this liberty and talk marketing for a second.

Let’s assume you’ve got yourself your very first iPhone (or Apple got another loyal customer, depending on how you choose to look at it). Why did you purchase an iPhone? Chances are, you wanted a smartphone that had certain features you thought you needed (e.g. you wanted a good camera phone). Once you’ve decided what it was that you wanted from your smartphone, you might have asked around. Maybe you’ve even spend some time reading online reviews. You might have heard that Sony Ericsson was a bad choice. You might have decided against it. It helped you to eliminate one brand from the pool of options. This brand no longer exists, so one could even argue that your choice against it might have contributed to the demise of Sony Ericsson. Then someone who was particularly excited about his new iPhone might have shoved it in your face. That’s how you’ve discovered that it had all the features you thought you wanted. This recommendation has not simply helped you to eliminate some brand from the pool of possible choices. It has helped you to make the actual choice. You and millions of other people have not just chosen an iPhone back then, you’ve also shown other producers what you wanted from your smartphone.

Just about any phone has a touchscreen these days. It has become a new industry standard. Many of those touchscreen phones are up to five times cheaper than your iPhone. This shift to a “new normal” has become possible particularly because you’ve decided to switch to an iPhone back in the day. Not because you felt like it’s time to abandon your old Nokia. When you buy innovative product, you also support proliferation of that innovation in a roundabout way.

The overall impact of iPhone touchscreen technology on smartphone innovation is comparable to the overall impact that Nike controversy had on social innovation in sportswear industry. Something that started with a single company can change the entire industry. However, to enable those changes stakeholders needed to define what they wanted (not just what they didn’t want). It wouldn’t be that much of a stretch to assume that Kazakh consumers, along with consumers from New York or London, played a role in affecting technological change in smartphone industry by choosing Apple. Sadly, Kazakhstani consumers still have a long way to go before they are able to affect social innovation in companies in the same way as some British or Danish consumers do. For the time being, external stakeholders in Kazakhstan remind of Woody Allen’s Cristina, who only knows what she doesn’t want. This significantly slows down the pace with which Kazakhstan’s businesses adopt social innovation.

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