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I'm Steve Cobrin professor of
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multinational management the Wharton
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School I'm here with v henish who is the
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elite touch professor of management at
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Wharton and author of corporate
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diplomacy building reputations and
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relationships with internal stakeholders
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hello V hi Steve uh tell us what is
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corporate diplomacy corporate diplomacy
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is the senior level capability to build
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and maintain relationships with external
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stakeholders deliver on the greatest
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needs or the greatest obje Ives of those
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stakeholders in a way that delivers
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shareholder value great why is it
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important it's important because firms
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are increasingly looking for growth
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opportunities and revenue opportunities
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abroad in Emerging Markets Frontier
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markets foreign markets and in these
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foreign markets they're necessarily
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interacting with more stakeholders
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stakeholders who vary in their economic
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philosophies in their ideologies who
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have different histories different
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language backgrounds different cultural
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backgrounds and so the the ability to
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deliver on the growth opportunity ities
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in these Emerging Markets requires
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successful interactions with more and
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more diverse stakeholders well if
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there's more and more diverse
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stakeholders how do you tell which are
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the most important which you really
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should be focusing on and deal with you
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know there's both a short and and a more
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uh subtle longer answer to that the
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short answer is the stakeholders who can
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do you the most Financial harm are the
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most important but that that can give
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rise to some uh shortcuts which are
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really damaging if we only pay attention
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to the squeaky wheel if we only pay
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attention to the stakeholder who
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threatens violence we're really creating
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perverse incentives so I think a fuller
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answer is we want to focus on the
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stakeholders with whom a productive
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relationship a relationship in which
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we're helping that stakeholder obtain
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his or her objectives is delivering on
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shareholder value so we both need to
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know how much they can hurt us how much
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they can help us and whether we can
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build and maintain a longlasting
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relationship with them well how do you
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figure that out how do you determine
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whether it can help you or hurt you
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you've just listed a whole list of
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stakeholders so it really takes a
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financial analysis you have to
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understand how they impact the bottom
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line in what way do they impact Reven
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VES or costs uh really doing the
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financial analysis and that's where this
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approach uh differentiates itself a lot
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from the corporate sustainability
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movement or corporate social
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responsibility movement it's not about
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just the moral case we're really working
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through step by step and trying to
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understand where it appears on the p&l
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statement what are the costs that could
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be avoided through a better relationship
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what are the revenue gains that could be
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obtained and how can the actions we
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undertake with stakeholders helping them
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achieve those objectives really show up
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on the balance sheet and then figuring
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out what the return is on them sure and
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you must have to engage stakeholders you
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certainly do you have to build that
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relationship with them and so it's not
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just about talking to them it's not just
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about a communication strategy it's
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really rolling up your sleeves working
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with them to attain their goals so you
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know a kind of a a simple story of this
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is you know if one of the biggest needs
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is uh housing for example you know one
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approach might be bring in some prefab
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housing from Florida um have some
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contractors put it up and and then wow
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you've created their homes but no you
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really haven't somebody else has you
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know if you can get your country manager
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if you can get your CFO to be out there
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laying mortar uh putting up cinder
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blocks helping someone build their home
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using local technology with local
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contractors creating local jobs and
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working side by side the resident then
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you've really started building a
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relationship with them and so you want
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to be in the trenches with them you want
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to be part of the action and you want to
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be working with them in the attainment
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of their goals so you're arguing then if
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that corporate diplomacy is really a
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Mainline management function is that
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correct absolutely it's not something
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that should be said segmented into well
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we have a government Affairs team we
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have a community uh Affairs team we have
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a sustainability team we're really
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thinking from a strategic perspective
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about how to integrate those and who's
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more responsible for integration than
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Senior Management whether it be the
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country manager the general manager or
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the seite if we're in a multinational
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corporation and that brings up an
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interesting point how do you integrate
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corporate diplomacy into the mainstream
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of the corporation into management great
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question I think it's it's another way
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in which this approach differentiates
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itself from the CSR movement we're not
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deciding what better what's right we're
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not just focused on what stakeholders
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care about we're speaking the language
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of Finance we're speaking npv Roi we're
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turning everything into the same
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decision calculus that Senior Management
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already uses so we're not going to
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present a parallel analysis or a
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parallel set of objectives we're not
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going to do triple bottom line we're
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going to turn everything into uh or link
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everything to the kpis that the managers
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are currently tracking whatever is on
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that dashboard that they look at in the
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morning whatever the indicators are that
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they're tracking on a daily basis we're
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going to figure out how external
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stakeholders link into that and how we
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can monitor that how we can improve upon
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those existing kpis if we're thinking
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about a big investment decision how do
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we decide whether we're going to go
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ahead with aund million or a billion
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dollar investment we're going to work
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through that same project valuation cash
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flow model the one that's already on the
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books the one that they already use in
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the investment committee meetings we're
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not going to create a green light red
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light smiley face frowny face that goes
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on top of the ROI we're going to use
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that same calculation and we're going to
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augment it by bringing in the way
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stakeholders can affect it great you
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note in the book that perceptions matter
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more than facts yes it's interesting
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statement what do you mean by that V too
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often I think when we're confronted with
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an allegation of a a human rights abuse
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an environmental spill a unfair
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treatment of workers we respond with the
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facts we respond with no here are are
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policies no here's what the scientists
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tell us here's what really happened but
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nobody makes a political or social
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judgment about whether you're behaving a
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appropriately or how they feel about you
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based on the facts they do it based on
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emotion based on gut uh based you know
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if you think about how you go into The
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Ballot Box when we go in and we decide
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who we're going to vote for we're not
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pulling the lever based on a net
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presentent value calculation of our
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future lifetime earnings under a
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Republican or Democrat or socialist or
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conservative we're doing something more
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subtle uh we're thinking about who we
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trust who we have more confidence in and
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I'm arguing that stakeholders are doing
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the same thing and so if we're going to
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shape the way they feel about us we
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can't just stop at are you better off or
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are you worse off uh what are the facts
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about what really happened we have to
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assess how they trust us whether they
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trust us and we have to try to build
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that trust does that relate to a social
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license to operate is that exactly
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social license to operate is a broader
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construct than just are you better off
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or worse off is looking at a more
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holistic perspective of how we perceive
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a company uh the social license to
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operate is the the general is the
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perception by a stakeholder that you're
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behaving in an appropriate manner uh
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that you're acting in a way they
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perceive as fair or just and what you're
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trying to do is build up not just
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whether they perceive you're helping
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them or hurting them financially or
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materially but are you behaving
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appropriately do you deserve their trust
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and that takes more than just thinking
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about the facts it takes more than just
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thinking about the financial benefits it
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requires thinking about the relationship
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how do you know when you have it and who
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gives it to you well each stakeholder
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gives it to you so the stake social
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licensed operate is granted by each
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stakeholder at a moment in time and it
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can be with drawn by any stakeholder in
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a moment in time so this really focuses
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the attention on an ongoing process it's
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not just the design and the
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implementation of the entry strategy
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it's everything you do every day who you
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hire who you partner who you contract
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with where you build how you build all
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those things on a day in day out basis
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affect each stakeholder's degree of
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social license or the degree to which
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they Grant you the social license you
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have to monitor that in real time you
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have to watch it in real time you have
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to adapt to change in real time uh and
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so so it's something that's an ongoing
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management function not just something
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at the time of Entry not just something
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at the time of Crisis something that
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Senior Management should be focused on
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on an ongoing basis corporate diplomacy
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sounds very complex uh lots of
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stakeholders to manage lots of issues
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perhaps different in every country in
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which you operate absolutely are there
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tools that can help you sort all of this
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out well there are tools and and the
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book covers quite a few of them uh
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stakeholder mapping tools so how do you
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V visualize the stakeholder landscape
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you know if you think about what oil gas
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and mining companies do in terms of do
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IG on geology how much do they do in
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terms of due diligence on the political
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space so there there a number of tools
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regarding how we take all the complex
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information on who the stakeholders are
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what they want how they're connected and
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create visuals that can actually guide
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strategy uh we also talk about scenario
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analysis for financial valuation so how
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do we actually calculate the npv or the
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ROI of stakeholder engagement and then
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we talk through tools about how we build
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up trust and Frameworks that help think
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about trust and and Trust building tools
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that relate to Communications uh and
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tools that relate to creating an
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organizational culture an organizational
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mindset that support stakeholder
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engagement as well as uh learning tools
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that create a more uh supportive
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learning environment or adaptive
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environment so there's six tool sets of
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tools or Frameworks uh which together
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build up this framework of corporate
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diplomacy and you go into these six set
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of sets of tools in detail in your book
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corporate diplomacy I do we provide
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examples of each um both uh tools
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examples of the use of the tools firms
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that have used them the other thing I
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try to draw is parallels from different
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sectors I draw lessons from the front
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lines of corporate diplomacy uh the
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front lines of the mining and oil and
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gas companies that I've referred to also
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providers of infrastructure services
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like Wireless Communications
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Transportation infrastructure uh also
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sustainable tourism uh another industry
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that's ironically on the front lines uh
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in very touchy environmental spaces or
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political spaces but also the military
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counterinsurgency campaigns lessons from
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the development agencies so a diverse
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set of sectors who have struggled with
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corporate diplomacy challenges and I
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look at how common uh use of these tools
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uh is across these six sectors and then
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say well this is these are tools that
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managers can use who are going into
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these sectors for the first time it
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sounds comprehensive uh let me ask you
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what are the critical takeaways that you
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would suggest to managers who are either
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corporate diplomats or should be
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corporate diplomats well one of the
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lessons I draw from looking at the front
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lines and looking at the experience of
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best practices is many of the firms I
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survey in the book have written off aund
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million or a billion dollars of losses
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because they've mismanaged their
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relationships with external stakeholders
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and as a result they've reflected
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they've built new tools new capacities
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they've tried to become better corporate
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diplomats so they've learned from their
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mistakes I guess one of the takeaways
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from the book is that it's possible to
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learn from someone else's mistakes you
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don't have to wait until you write off
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a100 million or a billion dollars to
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invest in this capacity you can learn
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from the firms that were there first
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that were on the front lines that lost
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and learned so why not learn from
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someone else's mistakes learn from best
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practice and that's what I try to pull
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together in the book great and again the
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book is Corporate diplomacy yes
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corporate diplomacy building reputations
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and relationships with external
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stakeholders thank you V thanks Steve
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[Music]
