'Stakeholder-Driven' Strategic Planning for Today's Stakeholder Revolt
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Everybody has a [strategic] plan until they get punched in the mouth. Michael Tyson
Make a new plan, Stan; you don’t need to be coy, Roy. Why a new plan? Because the “stakeholder revolt” has changed the game. You can strongly agree or disagree with the Business Roundtable's stance on “stakeholder capitalism” that places greater emphasis on serving other stakeholders – not just shareholders. Regardless, leaders today face a new reality – and for some, a punch in the mouth: growing stakeholder demands and activism require leaders to rethink strategic priorities and how to engage their key stakeholders.
Welcome to the Peer-to-Peer Leadership Revolution where diverse stakeholders – employees, customers, shareholder/donors, communities, regulators – increasingly bypass formalized leaders and leadership structure to demand a “voice” in decisions and the right to “participate.” This stakeholder revolt makes charting a strategic direction more chaotic, difficult – and necessary.
The risk and cost of demanding or even disruptive stakeholders continue to spike. In recent months, I’ve worked with approximately 75 CEOs and board members on strategy. Increasingly this is what they report: Demanding stakeholders, raise a controversial issue (or issues), often narrow in scope and usually with political overtones, that puts them in conflict with other stakeholders. Little wonder CEOs and boards acknowledge the added stress and fatigue of leading these days and it is unlikely to get better. A recent global survey found that 95% of respondents foresee rising employee activism.
What are the typical conflicts? Abuse of power, fairness of compensation, generational differences, ethnic/gender/racial/sexual-orientation inequality and political polarization. Ironically, last month Gallup reported that 90 percent of Americans are satisfied or very satisfied with their personal lives – the highest in their 42 years of asking the question. Yet, a majority also think the country is headed in the wrong direction and corporate leaders are not adjusting fast enough to stakeholder expectations. Their trust in government has plummeted from 77% in 1964 to 17% in 2019.
Our revolt brings new terms: Brexit – Britain leaving the European Union, Megxit – Meghan and Harry leaving the Palace, Calexit – various California petitions/efforts to leave the union. A recent headline, “Succession Fever Spikes in Five States,” describes rumblings about portions of states such as Oregon, Virginia and New York breaking away.
Few organizations have fully accounted for this new stakeholder reality in how they think about and execute their strategic planning efforts. Companies and nonprofits, often organized and focused on “what they do,” are being pressured to add more focus on “whom they serve” – their internal and external stakeholders. Whether you are the CEO of a mega-corporation or a small nonprofit, the head of strategic planning, or chief human resources officer, or a worker-bee on a team, you have the daunting challenge and defining opportunity of dealing more effectively with diverse stakeholders, building unity without forcing uniformity and growing stakeholder commitment. It does not mean treating all stakeholders the same nor giving them all the same weight at all times. Rather it means optimizing those relationships for best outcomes – including best long-term outcomes for shareholders.
Let’s start by looking at how our stakeholders have changed.
Diverse Stakeholders, Changing Expectations
Beneath the tumult of ousted CEOs (turnover up 25% last year) at places like McDonald’s, CBS, Boeing, and Planned Parenthood along with employee disruptions at places like Google, lies a new reality: Stakeholders and stakeholder expectations have changed – and in the process they have given themselves a promotion!
First, the demographics of stakeholders has and is shifting rapidly or as Bob Dylan would say, “the stakeholders they are a-changing.” For the first time women are now the majority in the U.S. workforce and continue to drive about 70-80 percent of consumer purchasing. The U.S. Bureau of Labor Statistics estimates people of color will become a majority of the American working class in 2032. According to a Washington Post analysis, for the first time most new hires of prime working age (25 to 54) are people of color. Millennials now make-up 50% of today’s workforce and as the head of a nonprofit in a recent strategic planning session expressed: “Both as volunteers and donors, they are different and what they demand is different.” These numbers, as well as movements like #MeToo, Black Lives Matter, Conscious Capitalism and Socially Responsible Investing reflect a growing diversity, new clout and changing expectations.
The 2020 Edelman Trust Barometer released last month found that respondents believe customers and employees are five times more important to long-term success than shareholders. Their report also found that 56% globally and 47% in the U.S. say that capitalism has done more harm than good. The “capital” in capitalism is increasingly distrusted and under attack.
Edelman calls it the “distrust paradox.” Income inequality is the single largest factor behind this distrust, yet world-wide the percentage of the population in “extreme poverty” has dropped from 42% in 1981 to 10% today, literally moving a billion people from the edge of disaster. In the U.S. we are enjoying the lowest unemployment in years, and wages at the bottom of the labor scale have moved up disproportionately.
In spite of this progress, the distrust by those not in leadership has grown and become more demanding. Trust in the organizations and institutions that got us here is falling. Why? Concentration of wealth among the rich is glaring: eight men own half the world’s wealth; the average large-company CEO now makes 287 times the average frontline worker compared to 58 times in 1989. A similar disparity is expanding between Beyoncé or LeBron James and an usher at one of their concerts or games.
Likewise, Edelman reports that trust in non-profits dropped 9% in 2018, while among the “most informed” (likely more of the donor class) it dropped 18%. This last year charitable giving increased 1.5% but the number of donors dropped by 4.5%. This is part of a troubling trend: between 2000 and 2016 the percent of households who donate to charity dropped from 66% to 53% -- a decline of 20 million households. The net: Sources of nonprofit wealth are more concentrated, less trusting, with fewer committed stakeholders.
Second, what this new crop of stakeholders expects from leadership is shifting. Edelman reports that a stunning 92% of employee stakeholders now expect their CEOs to speak-up on one or more issues ranging from income inequality and diversity, to training for jobs of the future. Seventy-three percent expect prospective employers to offer the opportunity to shape the future of society in a positive way.
Customers stakeholders are no different. Nearly two thirds buy based on their beliefs – something Nike, Chick-fil-A and Planned Parenthood understand. In fact, today’s cancel culture has taken whom you endorse and whom you shun to a whole new level of divisiveness – something the United Methodist Church, other church leaders and The Boy Scouts face today.
What about investor stakeholders? Ideological belief has taken on a much more pronounced importance for investors. Socially Responsible Investing (SRI) now claims a growth rate of 40% year-over-year with more than $12 trillion invested, or 25 percent of total assets. Bank of America found controversies related to environment, social and governance issues (accounting scandals, data breaches, sexual harassment cases) shaved $534 billion off share prices of the companies involved relative to the S&P 500 over the following 12 months.
BlackRock ($7 trillion assets under management, top 5 investor in nearly every S&P 500 company) CEO Larry Fink’s much followed 2020 letter to CEOs reflects a sea change of shifting shareholder demands and accountability that have profound implications both for what the strategic direction is and how it is developed:
Over time, companies and countries that do not respond to stakeholders and address sustainability risks will encounter growing skepticism from the markets, and in turn, a higher cost of capital. Companies and countries that champion transparency and demonstrate their responsiveness to stakeholders, by contrast, will attract investment more effectively, including higher-quality, more patient capital.
We believe that when a company is not effectively addressing a material issue, its directors should be held accountable. Last year BlackRock voted against or withheld votes from 4,800 directors at 2,700 different companies. Where we feel companies and boards are not producing effective sustainability disclosures or implementing frameworks for managing these issues, we will hold board members accountable.
Access to capital is a huge carrot, and voting against directors is a big stick. These new stakeholder demands – customers, employees, investors, and others – are a game-changer.
Relational Leadership for Stakeholder-Based Strategic Planning
Hal Gregersen, writing in the Harvard Business Review, says the greatest responsibility of a CEO – and I would add any leader or board – is to recognize when a major change in direction is required. I believe today’s growing stakeholder demands represent such a major change. I have coined the term Relational Leadership to describe leadership focused on building more productive stakeholder relationships. A key challenge and opportunity of Relational Leadership is to address this new era of stakeholder demands by making their strategic planning effort more stakeholder-driven. Let me suggest three keys.
1. Make growing diverse stakeholder relationships a strategic planning priority – both vertically and horizontally.
The best time to build a fire station is before your house catches on fire. The best time to engage today’s diverse, demanding stakeholders is in the planning process, not after they call 911. Their involvement in the planning process can help build much-needed insight, empathy, and cohesion with other stakeholder segments, especially horizontally across organization units, since some of their priorities often conflict.
Most organizations talk up the importance of their stakeholder relationships but many lack a stakeholder-based strategic planning effort to back-it-up. Many organizations are designed for vertical management within silos. As they grow larger the distance from the top down to frontline stakeholders where products are made, customers buy and service is delivered – becomes greater and the disconnects more likely. Threats and opportunities that exist horizontally across silos often hide in the cracks of organization structure and vertical management mechanisms like goals, tracking and feedback/recognition. Key stakeholder groups like customers and employees often become trapped in the cracks.
Historically strategic planning has often been seen as a map. The primary function of the plan was to accurately point the way, based on leadership’s insights, analysis and priorities – top-down, siloed, with little room for negotiation. This is demonstrably insufficient for today’s new stakeholder world. In recent years new developments like agile software development, customer-driven organizations, activist shareholders, competition for talent have led many organizations to adopt a planning process that produces a better map and more engaged, committed travelers for the journey. The trends and analyses seen from the top of the organization are combined with the view of the terrain and topography at the bottom closest to the customers and the worker.
The litmus test for organizations facing ambitious strategic plans: Are your stakeholder relationships big enough to get the job done?
2. Develop individualized stakeholder segment plans.
How do we build stronger stakeholder relationships? We engage key stakeholder groups or segments in the planning process. This is not a new idea and most strategic plans give varying degrees of attention to stakeholders. Yet, too often, strategic planning is primarily driven by “What does the top of the organization need”? Stakeholder-based strategic planning also asks, “What do stakeholder groups throughout need from the plan?” What will build commitment by addressing their challenges, obstacles and opportunities. As Michael Porter has famously said, “A level commitment to a B plan beats B level commitment to an A plan.”
Stakeholder-based strategic planning can be done in many ways, but I find these three components especially important. First, identify at each level and within each unit your main (minimum of 3—5) stakeholder groups – internally like employees and externally like customers. For each group, identify key segments. Examples: dual-income working families might be a key customer segment; new hires under 30 a key employee segment for HR, or users of our financial reports for an internal financial analysis group.
Second, ask members of each stakeholder group what they most need from a strategic plan. Understanding the different buying-in motives or even conflicting needs is valuable in designing, conducting and implementing your plan.
Third, for each segment within each stakeholder group develop a Stakeholder Plan that includes goals, strategies and metrics to track. Incorporate the plan into a Stakeholder Scorecard that is managed as attentively as the financials – not as a replacement for financial results but as a central driver of them. Most organizations already track many of these metrics such as employee engagement/turnover, customer satisfaction/net promoter scores, shareholder churn, regulatory incidents/exceptions, but they are often buried in silos and are not managed strategically.
Stakeholder-based plans are promises stakeholders make to each other and the organization.
3. Select and deploy diverse executive team capabilities in strategic planning.
Stakeholder-based strategic planning requires a diverse set of executive skills and capabilities that no single member has. And no single component of the plan is sufficient to make it whole and effective. Strategic plans rely on different terminology, come in many sizes and shapes and include many forms of analysis like SWOT (strength, weaknesses, opportunity, threats). The key is to maximize the synergy – the relationships – among and between the key players and the key components of the plan. Regardless of the planning model for your organization, here are four common components and the diverse capabilities they require:
i. Vision/values: the dream, the hoped-for end-state. It is aspirational, purposeful, innovative – right-brain. It is the prevailing “why.” Friedrich Nietzsche has said, “He who has a why to live can bear almost any how. Vision reflects the love story that is a part of the founding and hopefully sustaining of any organization. As Jack Lawson, President, Catholic Extension, laments, often in talking about organizations: “They forgot the love story.”
Vision requires thought leaders to dream, seeing with their eyes closed.
ii. Mission: the next mountain – what must be done in the next 12 to 36 months to advance the vision. It is linear, planful, analysis-based – left-brain. Leadership is about intentionally moving from one place to another and the mission is to help us be clear-eyed about the next leg of the journey.
Mission requires seeing reality clearly with eyes wide-open.
iii. Plans/goals: chunks down the mission into specific efforts, resources and accountabilities. You cannot manage what you cannot measure. Plans/goals work most effectively with input and commitment from those charged with attaining the goals.
Discipline in setting goals, building commitment, and tracking results is hands-on.
iv. Execution: focused energy that enables committed, competent stakeholders to carry out the work. President Eisenhower’s wisdom – “Plans are nothing but planning is everything” – reflects just how important the planning process is to build alignment and commitment.
Energy to sustain committed stakeholders comes from the heart.
Strategic planning calls for diverse parts: eyes (open and closed), hands and heart. The source of stakeholder conflict and disagreement that accompany strategic planning – our unique styles, wiring, experiences – is crucial to bring wholeness to developing and executing different elements of a strategic plan. As General Patton famously said, “If everybody is thinking the same thing, somebody is not thinking.”
One of the challenges of stakeholder-based strategic planning is how to provide more voices and participation without slowing or impairing decision-making. Amazon CEO Jeff Bezos recommends lively and even heated debate on contentious, strategic issues. If you cannot reach agreement, the leader or someone declares: “I disagree and I commit.” It is a form of empowerment for when it is time to make a decision and move forward. In my company we said, “If it works, we’ll call it success and if it doesn’t, we’ll call it learning – both are valuable.” Beyond a point, delaying a decision deprives the organization of both.
Stakeholder-driven strategic planning’s time has come – hop on the bus, Gus.