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Why corporate affairs strategy should lead corporate development?

What is corporate affairs?

The Corporate Affairs remit varies from company to company. In the context of this paper it refers to the team responsible for corporate communications – internal and external, government relations, public affairs, community relations and investor relations. In short, the team responsible for managing the stakeholder landscape of the business.

This paper at a glance

A WIDER CONTEXT, FROM SHAREHOLDERS TO STAKEHOLDERS:

With the democratisation of information fuelled by technological change, businesses are more accountable to their stakeholders than ever before. Enlightened organisations have understood this evolution as an opportunity to reorient away from a short-termist, shareholder-centric focus, to a more sustainable, longer-term, multi-stakeholder approach. Not all companies have been able to take this step.

LEADERSHIP, CULTURE & INTELLIGENCE:

At the heart of adapting to the new environment is embedding the right leadership, culture and intelligence to work with these stakeholders. In this paper, we argue that no other role today is better equipped to lead on delivering these three interconnected components than the Corporate Affairs department.

THE CONNECTING LEADER:

In this period of change and challenge, Corporate Affairs leaders will increasingly be called upon to bring the “outside perspective” to corporate strategy development and to navigate the complex and competing priorities of different stakeholders. This is an enormous opportunity for Corporate Affairs to step up to the challenges presented by this new environment and to take their place at the helm of the organisation.

A wider context, from shareholders to stakeholders

There is no denying that the business context has changed remarkably over the last fifteen years. While the short-termism aimed at satisfying shareholders still prevails in many companies, there is an increasingly large number of companies that take a stakeholder-focused approach towards business and profits, considering actions in the long-term.

During this period, change has been fuelled by dramatic socio-economic events and the emergence of the technology that has given a voice to stakeholders, enabling them to exercise close scrutiny of a company’s actions. In this new context, the old rules of controlling and “spinning the message” unilaterally no longer apply.

The new ownership of the message makes it impossible for companies to control the flow of information that forms the perceptions of stakeholders such as customers, regulators, investors, employees, media, communities and many other groups that have direct influence on the performance of the business.

At the core of this change is a shift in the balance of power away from traditional actors and institutions towards the individual. The impact of the Internet and its subsequent evolution to social media has democratised the publishing process by creating millions of public voices.

This level of readily-available information could be naturally seen as a threat to businesses, but instead it should be considered an opportunity. The way that companies use technology and information determines how they engage with their stakeholders. This valuable asset (technology and information) must be used by companies as an agent of connection and resonance with its stakeholders.

As Luis M. B. Cabral from New York University states: “Companies that integrate external engagement into their core strategy and operations are likely to acquire a strong reputation, and are likely to survive long into the future”. 1

The above can only be achieved when the company embeds the right leadership, culture and intelligence to work with its stakeholders, rather than ignoring these groups or even worse, antagonising them.

These three interconnected components (leadership, culture and intelligence) are required to create the type of business able to engage with its stakeholders successfully and achieve long-term and sustainable value. Due to its pivotal position as an interface between the external context and the internal operations, Corporate Affairs is uniquely placed to lead on each of these three components.

Corporate Affairs – take your place

To take this place, leaders in this function must have a deep understanding of business strategy and objectives. As Johnson and Johnson CCO Maggie FitzPatrick puts it: “What are the factors driving business outcomes today? To be effective in this job, to gain the company trust and standing you need, you must know the answer to that question”. 2

As shown in a recent McKinsey survey3, external affairs ranks in the top three priorities for more than half of CEOs surveyed, and boards also are paying more attention than they have in past years.

McKinsey survey3

However, the survey also shows that very few companies have taken an active approach to engaging with stakeholders and that many struggle to achieve success in their external affairs efforts.

The current business context requires the Corporate Affairs leaders to take their place and join the rest of the Leadership team to share the valuable and critical stakeholder intelligence that they possess.

This leader is being asked to exhibit a combination of skills to gain the respect of the other functional leaders, which include4:

Business understanding and financial literacy – this is key to generating trust among business partners and to demonstrate that Corporate Affairs’ contribution is beyond its departmental remit, spanning the whole business.

Courage and independence – bringing the outside perspective in and looking at issues through the lens of stakeholders requires the courage to state potentially challenging views.

Judgment – the ability to balance the commercial needs of the business with the reputational risks and implications of taking certain decisions.

Leadership – the skills to build a high-performance, fit-for-purpose team that delivers value equivalent to that of other executive peers.

Measurement – the ability to provide rigorous analysis and metrics on stakeholder risks & opportunities supported by data/analytics that are used at board level, moving away from the traditional “institutionalised instinct”.

In order to tick all these boxes, the Corporate Affairs leader needs robust and dependable intelligence that enhances their understanding of the issues affecting the business, which also provides them with the independent evidence needed to confidently share their judgments at board level.

Ultimately, the biggest contribution of the Corporate Affairs leader is in ensuring that whether setting corporate strategy, making investment decisions, designing products or planning projects, every process must include consideration of the impact on stakeholders and the consequences for the business.

More than the value statement

Alongside leadership, the right culture is fundamental to creating a valuable stock of goodwill, always supported by company processes, strong ethical values and behaviours. To achieve a culture that rewards long term and sustainable value creation it is absolutely paramount to obtain the support of one of the most influential stakeholder groups, employees.

Culture is the compass that points out what to do and how to communicate at any given time. However, a culture that is isolated from the issues affecting stakeholders or their expectations, is a culture that fails to connect to its context.

In a recent article in The Wall Street Journal5 describing what caused a retail-banking debacle, the CEO said that employees failed to honour the bank’s culture. “They did not do the thing we asked, namely to put the customer first”.

In the article, the former CEO of IBM gives his view on culture: “What is critical to understand here is that people do not do what you expect but what you inspect. Culture is not a prime mover.

Rather it is a derivative. It forms as a result of signals employees get from the corporate processes that structure their work priorities”.

Culture results from the cumulative effect of multiple processes: compensation, performance measurement, recognition as well as the value statements crafted by the communications department. In addition, employees can have their perceptions of their corporate culture affected by external coverage. It is therefore important that the corporate affairs leader is aware of both the external discussions and existing internal employee concerns.

To create the culture that builds long-term and sustainable value it is key to understand how each process in the company is communicating what the business considers important to employees. That coupled with creating expectations and communicating goals is the responsibility of corporate leaders and the Corporate Affairs leader is uniquely placed to spearhead this process.

A new kind of intelligence

The third component with which any business must be equipped to derive value in the current business context is intelligence and more specifically stakeholder intelligence.

Thanks to the ubiquitous nature of information today, transparency is no longer optional, companies can embrace the new media landscape or resist change at their peril. However, this should not be seen as a threat, but rather an opportunity.

The media platforms act as amplifiers of good behaviour as well as bad. As Lord Browne says6 “Businesses can turn online transparency to their advantage if they have nothing to hide, if they are willing to have a genuine dialogue, and if they have used the proliferation of data without overstepping privacy boundaries”.

To achieve this, Corporate Affairs must apply the analysis-based management practices they use in other areas of their companies, thus gaining the trust of the rest of the business.

Over the years, at alva we have seen that there are still many companies that lack the understanding and quantitative rigour to obtain timely and meaningful stakeholder intelligence. One of the reasons is that many organisations still focus on volume rather than business outcomes. Another major challenge is the lack of robust analytics and insight since the majority of vendors and agencies focus on outputs-based metrics.

There is a need for a new kind of intelligence to best equip the Corporate Affairs function to lead in the new context. This represents an important evolution from the tools available today from traditional vendors.

The stakeholder intelligence required is one that integrates vast amounts of internal and external sources (traditional, digital, social media, primary research), covers multiple stakeholders (customers, regulators, investors, employees, media, communities and more), allows the surfacing of issues from a particular stakeholder lens as well as providing an integrated and contextualised view across the whole business.

This intelligence facilitates dialogue and brings together other business functions. It allows the Corporate Affairs team to sit at a command centre and oversee teams whose job is to connect with the main stakeholder groups to have greater control and consistency over the company’s identity, values and behaviour.

alva has been developing this intelligence for a number of years in collaboration with our clients. One interesting example is the intelligence that we provide for a global mining company, where analysing data from a number of regions in multiple languages, alva provides intelligence on reputational risks for its relationships with local communities at its operational sites. Using a combination of stakeholder engagement and media metrics across the group, alva provides a single sentiment and perception report that helps inform the business’ understanding of its social license to operate at an asset-by-asset level.

In a global pharmaceutical company alva has audited the various primary research outputs for different stakeholders to understand the key drivers of its reputation with these audiences. This knowledge has been used to create a research framework for each stakeholder (issues, expectations, risks and opportunities) which has been embedded into the company’s daily monitoring and monthly analysis programs. Issues which are known to be impactful for different groups are surfaced quickly to enable the Corporate Affairs team to respond, where appropriate.

The connecting leader

Understanding and being able to demonstrate the value created by the Corporate Affairs function is key in leading the rest of the organization to adapt to the new business context and become stakeholder-focused.

As seen in this paper, for businesses to succeed they must integrate Corporate Affairs with wider business functions to contribute – if not lead – in corporate strategy, and no other role, aside from the CEO has the ability to connect multiple business forces to build long-term and sustainable value.

As Claire Divver, Corporate Affairs Director of BAE Systems states7, “The most important

quality in the job is judgment – the ability to understand different and complex points of view and to provide the ExCo with a coherent expression of what the outside world is expecting of our company. My job is to bring the outside world into the boardroom”.

Most successful companies will be those which understand that business exists to serve society, not the other way round. The Corporate Affairs directors must take their place and lead the business for this very purpose.

You can download a PDF version of Corporate affairs strategy White paper 

Notes

1 The Economics of Trust and Reputation: A Primer, Luis M. B. Cabral, New York University and CEPR, 2005.

2 Corporate Affairs: redefining 21st-century business. Gideon Fidelzeid.

3 How to reinvent the external affairs function, McKinsey & Company. Alberto Marchi, Robin Nuttall and Ellora-Julie Parekh.

4 Staying on the front foot, the contribution of the corporate affairs function to the leadership of an organization. Watson Helsby.

5 The Culture Ate Our Corporate Reputation, The Wall Street Journal, Lou Gertsner.

6 Connect, How companies succeed by engaging radically with society. Lord Browne, Robin Nuttall, Tommy Stadlen.

7 The rise and rise of the corporate affairs director, Management Today, Andrew Saunders.

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